Feature Article

November 14, 2013

T-Mobile US Tries to Raise $2B: Are Spectrum Purchases in Its Future?

It seems that “spectrum” is a key word as we approach the end of 2013. According to a report from Reuters, T-Mobile announced earlier this week that it would be offering stock. If all goes as planned, this stock offering could bring in close to $2 billion, which would go towards spectrum purchases.

The idea is that T-Mobile would sell 66.15 million common shares. This amounts to something like nine percent of its existing shares outstanding. The money that this sale would bring in could be used to buy airwaves. In turn, this could strengthen its current network capacity for wireless data services.

In a recent interview, Braxton Carter, who is chief financial officer at T-Mobile, said that T-Mobile would be careful to avoid significant share dilution in an equity offering and that it could also opt to take advantage of low interest rates in a debt offering.

The principle share owner is Deutsche Telekom. It owns 74 percent of T-Mobile. In a Twitter message, Deutsche Telekom said that its stake would be cut down to 67 percent after the sale. It was also noted that it would not be selling any of its shares for this transaction.

T-Mobile raised concerns among some investors over dilution of the value of its shares when it said on Nov. 5 it could raise money for spectrum in an equity offer. This could be evident in the fact that after the announcement this week, T-Mobile shares dropped by almost three percent.

This drop has the effect of bringing the $2 billion expected down to $1.96 billion. At Monday night’s closing, T-Mobile shares were priced at $26.97 and include an offer of 6.6 million extra shares for underwriters.

Currently, T-Mobile is rated the fourth mobile service provider in the U.S. The company has to push hard to regain ground after losing subscribers for four years. It started to turn the corner with subscriber growth in the second quarter but it needs more spectrum to keep competing well with the other Tier 1 carriers.

There is going to be a government auction of spectrum licenses owned by broadcasters that will take place sometime next year or possibly later. Jonathan Chaplin, who is an analyst at New Street was surprised by T-Mobile’s offering and why it is not waiting until the auction. The reason may be its competition with the other Tier 1 carriers.

LightSquared Inc. is a wireless telecom is in bankruptcy and its spectrum assets are going to be auctioned off in December. Chaplin said the timing may mean that T-Mobile wants to raise funds ahead of a government spectrum auction, which is expected to go ahead in January. He said, "There is a chance that they may get involved in the LightSquared process, but this seems unlikely."

As customers use more and more bandwidth to satisfy their hunger for data services, the only way for mobile carriers to keep up is to increase their spectrum holdings. This will increase their capacity and hopefully satisfy the customer hunger.

At the beginning of the week, T-Mobile said that it has 728.7 million shares outstanding. This includes Deutsche Telekom’s stake. That leaves about 190 million shares that are held by other shareholders. T-Mobile said that Morgan Stanley, Goldman, Sachs, J.P. Morgan, Credit Suisse and Deutsche Bank are the joint book-running managers for the offering.




Edited by Alisen Downey


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