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Originally published January 6, 2014 at 6:41 PM | Page modified January 7, 2014 at 6:26 AM

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T-Mobile’s $2.4B spectrum deal with Verizon raises takeover talk

The deal helps both companies, plus makes Bellevue-based T-Mobile a more attractive takeover target, according to an analyst.


Bloomberg News

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T-Mobile US agreed Monday to buy airwaves from Verizon Wireless for about $2.4 billion in cash as part of a spectrum swap that will give both companies more network capacity in areas where they need it.

T-Mobile, based in Bellevue and the fourth-largest U.S. wireless carrier, will purchase 700-megahertz, A-block spectrum licenses from Verizon, according to a statement.

As part of the exchange, Verizon, the largest U.S. wireless carrier, will get so-called AWS and PCS licenses, which have a combined value of about $950 million.

The deal will provide T-Mobile with a big swath of low-band frequencies — a type of spectrum that Chief Operating Officer Jim Alling has said are the missing piece of its network coverage.

Verizon, meanwhile, can use T-Mobile’s so-called AWS airwaves to relieve congestion in cities where network performance has suffered due to heavy traffic.

The transaction also may make T-Mobile a more attractive takeover target, said Markus Friebel, an analyst at Independent Research. SoftBank has discussed merging T-Mobile with its own U.S. carrier, Sprint, according to people familiar with the matter.

The plan would be to take control of T-Mobile by paying cash for the 67 percent stake owned by Deutsche Telekom, the sources said.

Monday’s deal “will make T-Mobile a more-viable operator, but also a more attractive acquisition target,” Friebel said.

Deutsche Telekom media contacts didn’t return calls seeking comment regarding a potential sale of the carrier’s T-Mobile stake.

The airwave transactions, along with T-Mobile’s existing A- block holdings in Boston, will give T-Mobile low-band spectrum in nine of the top 10 markets across the U.S., according to the statement.

“This is a big transaction for T-Mobile, but there are still additional pieces of low-band spectrum it can buy to complete the portfolio,” said Walt Piecyk, an analyst at BTIG.

To fill in other gaps in its coverage, T-Mobile may look at U.S. Cellular, which also owns A-block spectrum, said Jennifer Fritzsche, an analyst at Wells Fargo, in a research note.

Kelly Harfoot, a spokeswoman for U.S. Cellular, didn’t immediately respond to messages seeking comment.

For Verizon, which has been struggling to relieve wireless network congestion in cities, the deal provides key additional AWS and PCS airwaves.

In the swap, Verizon gains spectrum in Los Angeles, San Francisco, Dallas, Atlanta and Detroit, according to the deal announcement.

“This deal proves to be a big win for Verizon, which was able to unload spectrum it bought in 2008 for a big premium,” Piecyk said.

He said Verizon is making a 38 percent profit on the airwaves it acquired in a government auction.

The transactions with T-Mobile are expected to close later this year.

T-Mobile raised about $4 billion last year to shop for spectrum licenses, aiming to increase the capacity of its network.

Surging demand for smartphones, which can surf the Web and play movies and music, have made airwaves more valuable.

T- Mobile was especially interested in more low-band spectrum because those frequencies can carry signals further through buildings, giving it deeper coverage in cities.

The A-block airwaves have a drawback, though, since they have interference from television broadcasts on Channel 51 in some areas.

Verizon never put the spectrum to use because it built out its network with different frequencies, according to Roger Entner, an analyst with Recon Analytics in Dedham, Massachusetts.



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