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January 12, 2021
T-Mobile is tapping the bond markets to raise US$3 billion that will help to fund its upcoming spending on spectrum.
The mobile operator announced the three-part debt issuance, with senior notes maturing between 2026 and 2031, on Monday, sharing that it will use the proceeds for general corporate purposes, “which may include among other things, financing acquisitions of additional spectrum and refinancing existing indebtedness on an ongoing basis.”
It’s no secret that the US’s major telecoms operators are looking at hefty bills for new spectrum in the coming months; the T-Mobile bond issue serves merely to highlight that fact.
Auction 107, through which telcos are bidding for 280 MHz of C-band or more specifically 3.7-3.98 GHz airwaves, has been hitting headlines in the US and further afield since it got underway in early December. As of the close of play on Monday, qualified bidders, had participated in 75 auction rounds and the running total stood at an eye-watering $80.78 billion.
There are 57 qualified bidders including the big three mobile operators: AT&T, Verizon and T-Mobile. And they all clearly want their share of this spectrum. Noone wants to be left behind in the US 5G race.
The auction busted through analyst predictions in the first week or so of bidding, with most having put the final total at $30-something billion, while some went as high as $50 billion. Figures were quickly revised upwards as, by the last day of bidding before the Christmas break, the running total reached $70 billion…and continued to climb when the contest restarted in the new year.
Growth has now slowed. Bidders added just $130 million to the total pot on Monday. In isolation, that’s a massive amount of money, but in the context of an auction that is bringing in north of $80 billion, it’s a drop in the ocean. It’s worth pointing out, as noted by technology and legal specialist and COO of BitPath Sasha Javid late last year, that whatever the final total, there will be a further $13 billion that the winning bidders will have to pay the incumbent satellite companies in mandatory clearing costs.
We are talking huge bills here.
It is just over five years since US operators together spent $45 billion on AWS-3 spectrum via an auction that also saw bidding go much higher than analysts had predicted. AT&T and Verizon were the big spenders there, racking up bills in excess of $18 billion and $10 billion respectively, but T-Mobile also contributed around $1.8 billion to the total. And there have been other auctions in the interim.
While Javid cautions against making direct comparisons with that and other auction processes at this stage due to their differing formats, it’s all part of a bigger picture of spectrum spending for US telcos.
Light Reading’s Mike Dano on Monday quoted New Street Research analysts as saying that the T-Mobile bond issue could indicate that Verizon and AT&T will spend more than initially predicted. Given that the analysts had forecast spend of $35 billion and $18 billion respectively for the pair just last week, we’re talking big numbers here.
“T-Mobile is raising another $2 billion in debt. This brings their auction war chest to $11 billion, which is well below our most recent estimate for their auction spend of $18 billion,” Light Reading cited analyst Jonathan Chaplin as writing in a note to investors. (NB. T-Mobile initially shared details of a $2 billion bond issue, but later published a new announcement with the $3 billion figure.)
“The auction proceeds are more or less locked in at this stage; T-Mobile will know how much they are on the hook for. … If T-Mobile spends less than we expect, Verizon or AT&T will likely account for the shortfall. Neither company has the cash on hand to cover what we expect them to spend in the auction at present; we would expect more debt issuance for the group in coming weeks,” the analyst said.
We’ve said it already, but it’s worth repeating: the telcos really want this spectrum. They just have to ensure that they have enough left in the bank to actually use it when they get it.
Mary has been following developments in the telecoms industry for more than 20 years. She is currently a freelance journalist, having stepped down as editor of Total Telecom in late 2017; her career history also includes three years at CIT Publications (now part of Telegeography) and a stint at Reuters. Mary's key area of focus is on the business of telecoms, looking at operator strategy and financial performance, as well as regulatory developments, spectrum allocation and the like. She holds a Bachelor's degree in modern languages and an MA in Italian language and literature.
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