T-Mobile gets 7-year roaming deal, AWS spectrum as part of AT&T/T-Mobile breakup fee

T-Mobile USA will get a seven-year roaming deal with AT&T (NYSE:T), which will expand T-Mobile's coverage by around 20 percent, as part of the $6 billion breakup fee associated with the collapse of AT&T's (NYSE:T) proposed $39 billion acquisition of T-Mobile.

Although T-Mobile will benefit from the breakup fee, parent company Deutsche Telekom emphasized that the long-term challenges facing the carrier--most notably the need for more spectrum and a path to LTE--have not been resolved.

The breakup fee includes $3 billion in cash, which Deutsche Telekom said it expects to be paid by year-end. Additionally, the roaming agreements and spectrum T-Mobile will get are worth $3 billion. AT&T will give T-Mobile a seven-year UMTS roaming agreement that will allow T-Mobile to expand its coverage to 280 million POPs from 230 million today. T-Mobile will also get AWS spectrum from AT&T in 128 market areas, including in 12 of the top 20 markets in the United States: Atlanta, Boston, Baltimore, Dallas, Denver Houston, Los Angeles, Phoenix, San Diego, San Francisco, Seattle and Washington, D.C.

"With the spectrum we're getting, we have a better chance of expanding the network in many markets," Deutsche Telekom CEO Rene Obermann said during a conference call with reporters. "That is not a final solution. In the long term, we need more spectrum and network capacity. We are working on that."

Obermann remained mostly mum on what Deutsche Telekom's "Plan B" is for T-Mobile, but noted that the carrier will need more spectrum, especially if it wants to launch LTE. (Currently, T-Mobile offers an HSPA+42 network covering 180 million POPs).

"In the longer term we have disadvantages with regards to scale and mobile frequencies," he said. "That's why in the coming months we'll look closely into how we will be able to offer LTE despite the scarcity of spectrum."

To generate cash, Deutsche Telekom CFO Timotheus Hoettges said the company might consider selling its U.S. tower network. RBC Capital Markets analyst Jonathan Atkin told Bloomberg that sale might fetch as much as $3 billion.

One possibility floated by analysts is that T-Mobile could try and buy or wholesale spectrum from Clearwire (NASDAQ:CLWR), which has vast spectrum holdings but is bound in a tight relationship with Sprint Nextel (NYSE:S). Another possibility is Dish Network, which is seeking to acquire 40 MHz of S-band satellite spectrum to build a hybrid LTE-Advanced network and has indicated it might partner with T-Mobile.

Like AT&T, T-Mobile's options are now constrained. "We think they will go back to the old fashioned sort of plan--run the business," Sanford C. Bernstein analyst Robin Bienenstock wrote in a note, according to Bloomberg. "T-Mobile USA will compete for prepaid customers and hope that Sprint or someone else comes under enough strain they free up more spectrum."

For more:
- see this release
- see this NYT article
- see this Bloomberg article
- see WSJ article (sub. req.)
- see this FT article
- see this CNET article

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