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T-Mobile Plans Fundraising for Spectrum Acquisition

November 12, 2013 | About:
Neha Marwah

Neha Marwah

1 followers
T-Mobile (TMUS) U.S. is making arrangements to raise money in order to buy spectrum. The fourth largest U.S. telecom provider proposes to sell shares and raise $1.8 billion to acquire airwaves. The mobile carrier said that it plans to sell 66.15 million shares, which is around 9% of the existing outstanding shares of the company. The proceeds shall be used to increase the carrier’s spectrum holding which would be required to expand the network coverage to compete effectively with larger rivals, Verizon (VZ), AT&T (T) and Sprint (S).

The company has 728.7 million shares outstanding, and this includes Deutsche Telekom’s stake as well. Revival after losing subscribers in the last four years is not an easy process for T-Mobile, particularly under the current saturated market conditions. The carrier is working very hard by way of offering attractively priced and simplified plans to delight existing customers and attract other subscribers that are currently on rival networks. This strategy has been quite successful for T-Mobile and it pretty much showed in its quarter results. The carrier made huge subscriber gains.

Surviving Competition

However, the carrier has realized that it is essential to augment the spectrum holding and increase capacity. This is a long-term solution to attract customers and sustain subscriber growth.

Verizon and AT&T have huge network coverage. The Dallas carrier’s network covers 461 markets across the U.S., while Verizon LTE network is spread over 500 markets. By the end of the third quarter, AT&T’s LTE network coverage reached 250 million Americans, and the company aims to increase its coverage to 270 million POPs by year-end. In comparison, Verizon reported in the third quarter that the carrier’s LTE network covers 298 million people.

So T-Mobile has a long way to go as far as the LTE network is concerned. It is therefore imperative for the telecom player to expand its LTE capacity, which in turn needs spectrum addition. Spectrum, which is the lifeblood for a telecom player, is increasingly becoming dearer. T-Mobile will purchase airwaves either from potential companies, or bid for it in the incentive auction planned by the Federal Communications Commission (FCC).

An S&P analyst James Moorman feels that competition is getting really tough, and enhancing spectrum holding is unavoidable for T-Mobile.

A Turnaround

T-Mobile is in the middle of a remarkable transition. The company recently went public after combining with regional pay-as-you-go carrier MetroPCS. Its share price witnessed a more than 60% jump after the company recorded solid subscriber addition of 648,000 customers in the recent quarter. The company has undertaken several marketing campaigns to bolster its cheaper plans. AT&T in particular is feeling the heat as the second largest US carrier is losing its budget-bound customers to T-Mobile's new pricing data plans.

The fundraising would help T-Mobile acquire spectrum and invest in building LTE capacity. It would take time for the smallest national carrier to bring its LTE network coverage up to the level of Verizon’s or AT&T’s. But the good news for T-Mobile is that its larger rivals are already feeling the heat from the revitalization of the carrier which poses tremendous threat to the virtual telecom duopoly. It would be exciting to observe how thing take shape for T-Mobile, particularly as Sprint has also joined forces with Softbank to give stronger competition to Verizon and AT&T. Both the smaller national players are putting in effort to grow stronger to contend with the two behemoths.


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