From Deutsche Telekom's perspective, T-Mobile is kind of like that child whose life choices you've always questioned as a stepparent and been tempted to disown a few times, until those life choices started to translate into real success. But you still want to sell it eventually anyway.
Where's my allowance?
In a new SEC filing, T-Mobile says it plans on issuing and selling $2 billion worth of senior notes due in 2021 to parent company Deutsche Telekom. The Un-carrier will use the proceeds to help build its battle chest ahead of an upcoming 600 MHz spectrum auction that starts at the end of the month, where it hopes to strengthen its position in low-band frequencies. A couple of months ago, T-Mobile CFO Braxton Carter said the company was willing to spend upwards of $10 billion on these licenses if need be.
However, the interest rate that T-Mobile is paying is a bit much. The notes have a coupon of 5.3%. That's quite a bit higher than the 2.2% yield-to-maturity that top-rated investment-grade bonds are currently fetching. But T-Mobile doesn't earn investment-grade ratings on its paper. Moody's assigned T-Mobile a Ba3 corporate family rating last October, which is slightly below the investment-grade threshold.
At the risk of torturing the metaphor above even further, that's like if your parents offered you a loan but were asking for interest rates comparable to a scammy store credit card.
Why this upcoming auction is important
Low-band spectrum is incredibly important to wireless carriers due to its unique properties. Low-band frequencies allow for longer transmission ranges, requiring less dense networks and reduced capital requirements for network deployment, while offering superior penetration characteristics for indoor coverage.
T-Mobile has made incredible progress with improving its 4G LTE network over the past year, and it seeks to continue that momentum as the improved network performance is contributing to its impressive customer gains.
One of these days
All the while, Deutsche Telekom still seems to want to sell its majority stake in T-Mobile in the near future. It has long been open to the idea, but earlier this month said it would put the sale process on hold since the current regulatory and political environment wasn't conducive to additional industry consolidation. I wonder where it got that idea.
It's also worth pointing out that telecom companies are not permitted to have merger or partnership discussions while spectrum auctions are taking place, since that could present obvious opportunities to game the system or introduce conflicts of interest.