T-Mobile US Likely Viewing Auctions for Post-MetroPCS Spectrum

T-Mobile US emerged from last week’s merger of T-Mobile USA and MetroPCS having achieved its main goal in that deal -- gaining access to additional spectrum to expand its LTE network and other services to make it more competitive against Verizon Wireless, AT&T and Sprint Nextel. The merger, which closed Tuesday, increased T-Mobile’s average spectrum holdings in the top 25 U.S. markets from 63 MHz to 76 MHz (CD May 2 p9). The addition of MetroPCS’s spectrum, along with other recent spectrum deals, means T-Mobile is in a good position to meet its burgeoning spectrum requirements in the near-term. But industry experts told us the carrier is highly likely to be an active participant in upcoming auctions for additional spectrum, if the FCC implements acceptably pro-competitive rules.

Much of the spectrum MetroPCS contributed to T-Mobile was on the AWS band that both T-Mobile and MetroPCS were already using to build their LTE services. Those additional AWS licenses give T-Mobile the ability to deploy 20 x 20 MHz LTE in 90 percent of the top 25 markets, the carrier said. T-Mobile had gained AWS spectrum from AT&T last year as part of the breakup fee resulting from the two carriers’ failed 2011 merger, giving T-Mobile additional spectrum on the band in 128 markets (CD April 26/12 p13). T-Mobile had also acquired net AWS spectrum from Verizon Wireless in 125 markets as part of a spectrum swap that the FCC approved in August (CD Aug 22 p15). The rest of MetroPCS’s spectrum was on the 1900 MHz CDMA band, which T-Mobile said it will repurpose for HSPA-Plus services, with a goal of doing away with use of CDMA technology on the band by 2015.

T-Mobile’s spectrum position is “greatly improved over where it was a couple of years ago,” said economist Coleman Bazelon of the Brattle Group, who has consulted for CEA and CTIA on spectrum issues. Integration of the MetroPCS spectrum, along with the other recent deals, “keeps T-Mobile in pretty good shape in the near term,” he said. Like many other carriers, T-Mobile will likely continue to seek new sources of spectrum, most prominently through upcoming FCC auctions, Bazelon said. The most important of those, from T-Mobile’s perspective, will be the incentive auction of broadcast TV spectrum on the 600 MHz band anticipated to occur in 2014, but the carrier may also be considering other possibilities, including AWS-3 and H Block at 1915-1920 and 1995-2000 MHz, he said.

T-Mobile is interested in additional spectrum opportunities and has been active in FCC proceedings, including the incentive auction and the H Block. T-Mobile representatives told the FCC in mid-April about the carrier’s 35 x 35 MHz proposal for a band plan to follow the incentive auction. T-Mobile said it favors a plan that “maximizes paired spectrum, promotes interoperability, and enhances competition;” it argued its plan created more high-value spectrum for bidding with fewer potential interference hazards (http://bit.ly/11lz3G1). T-Mobile encouraged the FCC in March to proceed with its efforts toward a future H Block auction but argued the agency needs to “develop a more complete record on the interference potential” on the band before it proceeds with creating final rules for a future H Block auction (http://bit.ly/13JQTHc).

T-Mobile sees the incentive auction as a “key milestone in their infrastructure plans,” said Guggenheim Partners analyst Paul Gallant. “I think T-Mobile believes pretty strongly that low-band spectrum is critical to its long-term success. ... I expect T-Mobile to have a good shot at getting some 600 MHz spectrum at the auction.” The carrier has been the pioneer of working out a public-private sharing mechanism to allow the AWS-3 spectrum to go up for auction, and its efforts to craft that sharing mechanism “certainly suggest they'd like to make a run at that spectrum as well,” he said. Gallant said he doesn’t believe T-Mobile is likely to target the H Block when it comes up for auction: “It doesn’t generally fit as well for T-Mobile as it does for Sprint or Dish.”

The carrier has encouraged the FCC to place a cap on spectrum below 1 GHz acquired through auctions, arguing in November that a “bright line” test was necessary in competitive bidding situations, but that the agency should continue to examine secondary market transactions on a case-by-case basis (http://bit.ly/15eNOko). The 600 MHz band licenses being freed up through the incentive auction are the last “prime beach-front spectrum that we know is going to be made available for the foreseeable future,” said Phoenix Center President Lawrence Spiwak. Verizon Wireless and AT&T see the cap T-Mobile and others have proposed as an attempt to exclude the top two U.S. carriers from the auction process, he said. “Does that make sense even in terms of efficiently allocating spectrum?” Spiwak said. “Do you want to have it so you're setting auction rules that would prevent the two largest EMRS providers from getting additional spectrum? I'm not sure that’s an optimal policy result."

T-Mobile may prove to be “a bit of a cipher” in the auctions, said Donald Evans, a telecom attorney at Fletcher, Heald, in an email. T-Mobile USA owner Deutsche Telekom had been “prepared to exit the market entirely, then they got a lot of spectrum and a large treasure chest from AT&T as part of the break up. Since then, they've been acquiring spectrum in addition to the MetroPCS deal, which makes it look like they are in for the long haul. My gut feeling though is that they still want out ultimately.” Deutsche Telekom promised, as part of the MetroPCS merger deal, not to put any part of its 74 percent ownership up for sale for at least 18 months after the deal closed. Deutsche Telekom’s future plans for its stake in T-Mobile US are very much an “X-factor” in the carrier’s spectrum moves, Gallant said. “The parent company will size up how T-Mobile’s turnaround is going and decide how aggressive they want to be at the auctions,” he said. Bazelon said he does not see T-Mobile’s ownership even being a factor since there is not an “obvious candidate” for purchasing the carrier at this point.