T-Mobile kicks off 2024 with more spectrum and a stock rally

T-Mobile unwrapped two big presents during the holidays: It scored additional midband spectrum for its 5G network, and it enjoyed more attention from Wall Street investors.

Together, the developments help give the company a better position heading into 2024.

"While not a game changer, we view this ... as a modest win for T-Mobile," wrote the financial analysts at TD Cowen in a recent note to investors.

The TD Cowen analysts were reacting to new legislation that requires the FCC to issue T-Mobile more midband spectrum licenses – covering a total of around 81 million people, mostly in rural areas – by the middle of March 2024.

"Except for just a few channels in key markets, and the state of Maine, T-Mobile now has the contiguous nationwide [spectrum] inventory it needs to light up fully nationwide 5G," Michael Alcamo, president of M.C. Alcamo & Co., a New York investment bank working in spectrum, told Light Reading.

According to T-Mobile's CEO, the operator is ready to put most of those spectrum licenses to work right away.

"We already hung those radios," Mike Sievert said at an investor event in September, according to Seeking Alpha. "And when we get those licenses, we can turn all that spectrum on affecting 50 million people within two days."

Related:Partner Report - 5G in South-Eastern Asia - Essential insights into the future of 5G across the region.

In response to questions from Light Reading, T-Mobile officials didn't provide any precise details on when the operator might light up its new spectrum licenses. Company officials explained that the operator has already deployed midband 5G radios covering around 50 million people, but will have to install more radios to cover the full 81 million people for which it owns spectrum licenses. Ericsson and Nokia are T-Mobile's two big 5G radio vendors.

A legislative win

At issue are the 7,156 licenses T-Mobile won during the FCC's Auction 108 of 2.5GHz spectrum in 2022. T-Mobile spent $304 million to purchase roughly 90% of the 7,872 total licenses that received winning bids in that auction. The auction essentially released most of the 2.5GHz licenses that T-Mobile didn't already own via its purchase of Sprint in 2020.

However, the FCC earlier this year lost its congressional auction authority to administer spectrum licenses amid a battle in Washington, DC, over the future of the 3.1GHz-3.45GHz spectrum band. As a result, FCC Chairwoman Jessica Rosenworcel argued the agency did not have the legal authority to release Auction 108 licenses to auction winners – but other members of the five-person commission disagreed.

T-Mobile, for its part, has been working since the beginning of 2023 to convince regulators to free up its Auction 108 winnings. The company finally managed to conduct an end run around the FCC by taking the issue straight to Congress. It found an ally in Sen. John Kennedy, a Louisiana Senator since 2017.

Kennedy cheered the passage of the 5G Spectrum Authority Licensing Enforcement (SALE) Act, legislation that requires the FCC to issue Auction 108 spectrum licenses by March 18, 2024. "I'm grateful to see my bill signed into law so that more Americans have the tools they need to do their jobs and grow their businesses," Kennedy said in a statement.

T-Mobile will be able to use the additional 2.5GHz spectrum licenses to improve the speed and capacity of its 5G network in rural areas – including in locations where the company is using that network for fixed wireless access (FWA) services.

Removing overhangs

The passage of the SALE Act wasn't the only holiday gift unwrapped by T-Mobile's CEO. On Friday, December 22, T-Mobile's stock officially registered a weighted volume average above $150 per share for 45 days. That triggered the transfer of around 49 million T-Mobile shares – worth around $7.6 billion – to Japan's SoftBank. That transfer stems from the terms of the 2020 merger agreement between T-Mobile and Sprint, which was majority owned by SoftBank.

According to Reuters, the new T-Mobile transaction bumps SoftBank's internal rate of return (IRR) on its Sprint investment to 25.5%. That's clearly a relief to SoftBank's Masayoshi Son, who has struggled with other SoftBank investments including in WeWork. That office-sharing firm recently filed for bankruptcy after a spectacular decline in value.

For T-Mobile, the new SoftBank transaction removes a weight on the company's shares. 

"The potential share issuance had been an overhang on the stock and created an artificial ceiling for a while, and we believe some investors had been automatically and systematically shorting the stock as it had approached the ~$150 trading level at various times," wrote the financial analysts at Raymond James in a recent note to investors. "We feel this artificial ceiling for the stock had frustrated many investors, though it also allowed the company to repurchase stock at lower prices."

The analysts concluded: "The shares should be issued to SoftBank within 10 business days of December 26 and the overhang should be permanently removed."

Indeed, T-Mobile's shares have risen sharply in the days after the company's new transaction with SoftBank. As of Tuesday, January 2, 2024, T-Mobile's stock was up almost 6% from the month prior, with shares trading at around $160 each.