T-Mobile Seen Strengthening M&A Hand With U.S. Airwaves Grab

Updated on
  • The $8 billion spent on spectrum keeps carrier attractive
  • Mobile, cable mergers predicted as network requirements evolve

T-Mobile US Inc.’s success in last week’s U.S. airwaves auction probably bolstered its negotiating power in any takeover talks with wireless or cable companies by making the Deutsche Telekom AG unit a more valuable partner to potential suitors.

The mobile carrier bought 45 percent of the 600 MHz spectrum sold by the U.S. Federal Communications Commission for $8 billion, strengthening its wireless position for the coming years as it competes with AT&T Inc. and Verizon Communications Inc., said Wolfgang Specht, an analyst at Bankhaus Lampe.

“T-Mobile US is now in a good negotiating position” for any possible M&A talks Deutsche Telekom may embark on, Specht said by phone. “The asset has been kept attractive in the spectrum auction.”

Any deal would need the backing of Deutsche Telekom, which owns about 65 percent of the U.S. carrier. T-Mobile US has become the main earnings and growth driver for the German parent in the past years, transforming from a unit Chief Executive Officer Tim Hoettges eyed to sell to his "kingmaker asset.”

Shares of T-Mobile rose 0.5 percent to $65.29 at 9:56 a.m. in New York.

The conditions for M&A in the U.S., where phone carriers are seeking to combine with content players, are looking good: Companies still have access to attractive financing and dealmaking may be aided by looser regulation under President Donald Trump.

T-Mobile US is in the "driver’s seat" for a U.S. consolidation wave that could kick off in the second half after it got the best deal in the spectrum auction, according to Matthijs van Leijenhorst, an analyst at Kepler Cheuvreux.

The carrier could merge with a wireless competitor such as Sprint Corp. to gain scale and unlock synergies, van Leijenhorst said in a note. It’s also “an attractive target for cable operators seeking to enter the wireless market,” he said.

A merger would benefit T-Mobile because the mobile networks of the future will rely to a greater degree on fixed infrastructure resources, said Bankhaus Lampe’s Specht. Ideal partners include cable companies such as Comcast Corp. or Charter Communications Inc., he said.

“When 5G arrives, in two to three years at the latest, you need a fixed-network partner to compete on costs with AT&T and Verizon,” Specht said.

(Updates with T-Mobile US shares in 5th paragraph.)
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