Sprint (NYSE:S) and T-Mobile (NYSE:TMUS) are said to be working on making a joint bid for spectrum at the upcoming auction. This would also help the company put forward a stronger combination case to the U.S. regulators. While everything else looks more or less set for the merger of the second and third largest U.S. carriers, the Federal Communications Commission (FCC) and the Department of Justice (DoJ) are skeptical about the effect of the deal.
Preparing for the Incentive Auction
The two companies have joint forces to make a bid at the FCC arranged incentive auction that is scheduled for next year. People close to the matter who requested anonymity said that both the companies have formed separate teams to work on the joint-bidding plan.
The joint venture for auction would strengthen both Sprint’s and T-Mobile’s stand at the spectrum auction. The two together would have greater financial strength to bid for low frequency airwaves. They would have the financial capability to access spectrum in the lower band of 600 MHz, which is highly valuable for any telecom provider. Such frequencies are quite effective in penetrating walls and increasing network coverage over a big area.
It’s actually because Verizon (NYSE:VZ) and AT&T (NYSE:T) possess low frequency airwaves that they are the top wireless majors. And lack of low frequencies has made T-Mobile and Sprint struggle behind the biggies. According to Bloomberg Industries, Sprint and T-Mobile hold only 10% and 4.5% of low frequency spectrum, while Verizon and AT&T possess 34% and 38% of such frequencies – showcasing the wide gap.
If Sprint and T-Mobile bid at the auction individually, they will not be able to contest the mighty AT&T and Verizon. However, the collaboration would definitely improve the situation. But the collaboration means much more than enhancing their bidding power at the auction. Let’s find out what the two actually want to achieve through this move.
The Key Purpose
The primary purpose of making an alliance for bidding is to push the merger proposition to the regulators. The watch dogs fear that a combination of the two would lead to killing competition. However, through this joint task Softbank’s Masayoshi Son wants to portray that the two companies are able to pool in greater financial resources than they could have individually. They would also be able to pay more to the federal regulators for the auction, thus proving the point that the combination would help the carriers make greater and more useful investments that will be beneficial to the society at large.
A MoffettNathanson analyst says that the alliance formed by the two is not directed towards gaining financial muscle for the spectrum auction. It is rather directed towards making the regulators realize the pressing need of getting merged.
Though Sprint hasn’t officially announced its intentions of acquiring T-Mobile, the Kansas carrier plans to take-over the telecom provider in a deal value of around $32 billion. The company is expected to announce the same in August. The FCC and DoJ might take as much as a year to screen the proposal and give the outcome. Now that’s another challenge. If after then, the deal doesn’t go through, it would be an immense loss for both the carriers.
However, even if the merger does not materialize, the duo can go ahead with the plan to jointly bid at the spectrum auction.
It’s true that both Sprint and T-Mobile are way behind the two biggies, and efforts like such collaborations would help them gradually bridge the gap with the giant players. What remains to be seen is whether these strategic moves are able to move the industry regulators.