Why T-Mobile Bought Verizon's Spectrum

T-Mobile needed to increase coverage in large markets and rural areas, but the deal will also make the company more valuable to potential buyers.

Jan 8, 2014 at 11:00AM

T-Mobile (NASDAQ:TMUS) just made a deal this week with Verizon Communications (NYSE:VZ) to purchase additional spectrum to boost its wireless reach. The deal will cost T-Mobile about $2.36 billion in cash and $950 million worth of its own spectrum, but will provide two important things for the company: an enhanced network and an even better value for potential buyers. 

T-Mobile is paying for the additional spectrum with capital it raised from both a second public offering and sales of senior notes back in November. The two initiatives helped T-Mobile raise about $4 billion total. Verizon not only gets cash for a spectrum that it may have overpaid for, but it also gets $950 million worth of spectrum from T-Mobile that it needs for its own network coverage.

The infamous uncarrier is purchasing spectrum from the 700 MHz A-Block, which the company says will improve its coverage in 9 of the top 10 cities and 21 of the top 30 U.S. markets. The low-frequency spectrum is good for improving signal strength in buildings and increases its coverage in rural areas.

The deal is expected to close in the middle of this year, and will be an important step not just in shoring up T-Mobile's network, but also as a strategic move in making the company more valuable for a possible merger or acquisition.

Just two weeks ago The Verge reported that SoftBank, which owns 80% of Sprint, was in the final stages of talks with T-Mobile on a possible $19 billion buyout. The only problem with such a deal is that there's a lot of potential for the Federal Trade Commission to strike it down. When AT&T made a bid for T-Mobile back in 2011, the deal wasn't approved because FTC said U.S. consumers were better off with four major carriers, not three. A deal with SoftBank would bring Sprint and T-Mobile under one roof, and could face the same fate as the AT&T deal.

That doesn't mean T-Mobile's latest wireless spectrum purchase was all for nothing though. Obviously its customers will benefit if the deal goes through, and there's also another company potentially waiting to purchase T-Mobile -- DISH Network (NASDAQ:DISH). The satellite service provider unsuccessfully tried to purchase Sprint last year, and has been public about its interest in T-Mobile.

Investors should be pleased with T-Mobile's network expansion in 2013 and with the improvements offered by the new Verizon deal. Though it's likely the deal will go through, keep in mind that nothing will be finalized for several months. In the meantime, investors should be watching for any more potential buyout news. With T-Mobile's CEO John Legere crashing AT&T's party at the Consumer Electronics show earlier this week, the new spectrum deal just announced, and a possible purchase of the company, 2014 is likely to be a very interesting year for T-Mobile investors.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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