Potential Sprint, T-Mobile US deal could impact spectrum auctions

As the wireless world anxiously awaits Sprint’s oft-rumored bid to acquire T-Mobile US, analysts remain abuzz on the impact just such an offer could have across the market.
During a meeting with Wells Fargo Securities senior analyst Jennifer Fritzsche, Sprint CEO Dan Hesse reportedly would not comment on the carrier’s plans to participate in the upcoming AWS-3 auction, telling Fritzsche that Sprint was comfortable with its current holdings in the high- and mid-bands, and that it had more interest in low-band spectrum. A bulk of Sprint’s current spectrum holdings are indeed in the upper reaches of the commercial spectrum bands at 1.9 GHz and 2.5 GHz, with the carrier controlling less than 15 megahertz of spectrum in the 800 MHz band.
Fritzsche noted in late April that a conversation with executives at Verizon Wireless showed the carrier had more interest in the AWS-3 band than in lower-band spectrum. Verizon Communications CTO Tony Melone at that time indicated that the carrier was looking to add more capacity than coverage to its spectrum portfolio.
Sprint late last year announced a similar focus on low-band spectrum in sitting out the Federal Communications Commission’s H-Block auction proceedings, which included 10 megahertz of spectrum adjacent to the carrier’s current G-Block spectrum holdings.
Sprint’s new cautious approach to spectrum could be related to the FCC recently coming out with new spectrum screen rules that would include a significant portion of the carrier’s 2.5 GHz spectrum holdings into the government agency’s decision making process in terms of approving mergers and acquisitions.
Sprint upgraded
Meanwhile, Macquarie Capital analyst Kevin Smithen this week upgraded his outlook for Sprint to “outperform,” citing what he thought has been un-called for negative reactions to the rumored terms of Sprint’s offer for T-Mobile US. In comments, Smithen said he thought those terms were a “win” for Sprint shareholders over T-Mobile US shareholders, noting that many expected an even higher break-up fee and per-share price offer.
Rumors have indicated that Sprint is set to offer $40 per share for T-Mobile US, with that coming with an even split of cash and equity, with the reported offer also coming with a $1 billion break-up fee should it not reach completion. T-Mobile US’ stock was trading this morning down less than 1% at around $33.50 per share, while its parent company, Deutsche Telekom, managed to extract a $3 billion break-up fee, a substantial haul of 1.7/2.1 GHz spectrum and a 3G roaming agreement from AT&T’s failed acquisition attempt of T-Mobile US in 2011.
Smithen also seemed to downplay growing concerns regarding the chances of a Sprint/T-Mobile US deal gaining regulatory approval, noting that neither Sprint Chairman Masayoshi Son or “influential” T-Mobile US CEO John Legere have so far come out “in support of the deal merits.” Smithen said he puts the odds of a potential deal gaining government approval at near 70%, citing the current competitive balance and growing interest in mobile data services from Comcast.
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