T-Mobile raising $3 billion for spectrum purchases – analyst

T-Mobile on Wednesday announced plans to offer senior secured notes in a private offering, with proceeds potentially to help finance the purchase of additional spectrum.

T-Mobile was one of the qualified bidders in the most recent FCC mid-band spectrum auction and analysts at New Street Research think the newly announced debt raise is likely for 3.45 GHz winnings.

“T-Mobile USA intends to use the net proceeds from the offering for general corporate purposes, which may include among other things, financing acquisitions of additional spectrum…” said T-Mobile in a press release.  

New Street believes T-Mobile is planning to raise $3 billion in the new transaction. With the issuance, T-Mobile could spend between $6 billion and $7 billion on spectrum, wrote New Street analyst Jonathan Chaplin in a December 1 note to investors. The firm noted the operator had around $4 billion in cash on its balance sheet as of Q3. New Street currently estimates T-Mobile shelled out $6.6 billion to secure 30 MHz of 3.45 GHz spectrum.

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Winners are yet to be announced, but at Auction 110 T-Mobile competed alongside other major carriers of AT&T, Verizon and new wireless entrant Dish.

Chaplin said T-Mobile may have spent $600 million less than New Street's current expectation and if so, they assume it was Dish who spent that much more at auction. Dish had its own secured debt offering last month to the tune of $5.25 billion, in part to finance potential spectrum purchases.

The firm’s recent estimates for Auction 110 peg AT&T as spending $8.8 billion, Dish $5.3 billion, Verizon zero, and all other bidders (except for T-Mobile's spend mentioned above) collectively spending $1.3 billion.

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“We continue to believe 3.45GHz is both strategically important and a good value for Dish – the more they buy, the more valuable the equity is,” wrote Chaplin. “Exactly the same applies to T-Mobile. The more they buy, the more valuable they are.”

Auction 110 offers 100-megahertz of spectrum between 3.45-3.55 GHz – though rules limit any single bidder to winning a maximum of 40-megahertz.  Following 151 rounds of bidding, the clock phase wrapped up on November 16 with $21.88 billion in gross proceeds. It stands as the third highest grossing spectrum auction in FCC history, only after the blockbuster C-band auction (more than $81 billion) earlier this year and the AWS-3 auction (over $44 billion) in 2015.

One large bidder appeared to drop out after round 10, with some expectations that it was Verizon - which already spent more than $45 billion on spectrum at the C-band auction.

New Street noted earlier scenarios it played out of T-Mobile sitting out at the 3.45 GHz auction and Verizon participating, even if unlikely.

“This seems even less likely following T-Mobile’s capital raise,” Chaplin wrote Wednesday.

T-Mobile had a big head start over its two main rivals on mid-band spectrum for 5G thanks to 2.5 GHz from Sprint (which now covers 200 million people). But that lead narrowed after auctions for C-band spectrum, as well as CBRS, and could have been reduced further if both AT&T and Verizon participated aggressively at 3.45 GHz.

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On the mid-band front, AT&T and Verizon are facing delays to their respective C-band rollouts as the Federal Aviation Administration reviews air safety concerns related to potential interference.

Earlier this week AT&T Communications CEO Jeff McElfresh cited high confidence the situation will be resolved, and said concerns over impacts from recent concessions on power limitations were overblown.