T-Mobile Swap Gives Verizon Spectrum, $2.4 Billion in Cash

T-Mobile US Inc. (TMUS) agreed 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, the fourth-largest U.S. wireless carrier, will purchase 700-megahertz A-block spectrum licenses from Verizon, according to a statement today. 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 GmbH in Frankfurt. SoftBank Corp. has discussed merging T-Mobile with its own U.S. carrier, Sprint Corp., 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 AG, said the people.

Photographer: Patrick T. Fallon/Bloomberg

The transactions, along with T-Mobile’s existing A-Block holdings in Boston, will give T-Mobile important low-band spectrum in 9 of the top 10 and 21 of the top 30 markets across the United States, according to the statement. Close

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Photographer: Patrick T. Fallon/Bloomberg

The transactions, along with T-Mobile’s existing A-Block holdings in Boston, will give T-Mobile important low-band spectrum in 9 of the top 10 and 21 of the top 30 markets across the United States, according to the statement.

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

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

Low Band

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 LLC in New York.

To fill in other gaps in its coverage, T-Mobile may look at U.S. Cellular Corp., which also owns A-block spectrum, said Jennifer Fritzsche, an analyst at Wells Fargo & Co., 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 presentation slides accompanying the deal announcement.

‘Big Win’

“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 by mid-2014.

Shares of Bellevue, Washington-based T-Mobile rose 3.7 percent to $33.48 at the close in New York. Shares of New York-based Verizon Communications Inc. (VZ), the majority owner of Verizon Wireless, rose less than 1 percent to $48.69.

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.

“Verizon doesn’t own enough geographic coverage to make the A block worthwhile,” he said last month.

To contact the reporters on this story: Cornelius Rahn in Berlin at crahn2@bloomberg.net; Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net; Cecile Daurat at cdaurat@bloomberg.net

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