T-Mobile US CFO Peter Osvaldik

T-Mobile US coughed up $3.5 billion to permanently boost its low-band spectrum holdings that have become core to its 5G network coverage and marketing efforts.

In a filing with the Securities and Exchange Commission (SEC), the carrier said it entered into agreements with spectrum license holders Channel 51 License Co and LB License Co to acquire the airwaves. Channel 51 is getting $1.9 billion and LB License is receiving $1.6 billion.

Both entities are controlled by Columbia Capital, which acquired many of those licenses from AT&T after that carrier pivoted toward its 700 MHz FirstNet spectrum holdings.

The 600 MHz licenses are between 10 megahertz and 30 megahertz each, and in total cover more than 108 million people. They are spread across several states and include large markets like San Francisco, Chicago, Los Angeles, Boston, Philadelphia, Seattle, Dallas, Phoenix, Houston, Salt Lake City, and New Orleans.

T-Mobile US CFO Peter Osvaldik explained during an Oppenheimer technology conference earlier today that the carrier is already using the licenses through a lease agreement with both entities. The carrier entered into those three-year agreements in early 2020, and they are set to expire early next year.

“This was a spectrum portfolio that we had been leasing at a very small rate of dollars, and the lease was coming up, and so it had presented an opportunity for us to purchase the spectrum,” Osvaldik said, acknowledging that, “yes, that’s a big check to write.”

Observers noted that T-Mobile US paid around twice as much on average in this deal compared with what that spectrum initially cost during the Federal Communications Commission (FCC) auction in 2017.

“If you look at historically and maybe what the 600 auction … back in the day brought, certainly this is a little bit of a premium to that, as you'd expect,” Osvaldik said. “Spectrum values have gone up, usage has just gone up, our ability to utilize it in a different way in a 5G world is definitely there. I'm sure we would have bought a lot more of it had we had the opportunity and the means back during the 600 auction, but we're very excited now to be able to add to our strategic holdings with this.”

Osvaldik added that the deals are set to close by the end of next year.

The deal announcement also came just days after T-Mobile US gloated about gaining an investment grade rating from S&P Global Ratings, which followed similar boosts from Moody’s and Fitch. The ratings upgrades allow T-Mobile US to more easily tap into debt markets.

Gaining long-term access to the licenses also removes a potential hurdle to T-Mobile US’ vocal 5G network coverage dominance. The carrier has dedicated its 600 MHz spectrum holdings to its 5G network, which has allowed it to provide extensive coverage compared to rivals that are relying on higher-band spectrum to support their 5G services.

T-Mobile US during its most recent earnings call said it covered 320 million people with its low-band 5G network. Verizon is more cryptic with its coverage plans, stating that its 5G network is available in more than 2,700 markets, while AT&T claims its 5G network is available in more than 14,000 “cities and towns.”

“We've been using the 600 in all of our 5G technologies,” Osvaldik said. “This allows us now to continue it and continue providing that leadership experience to our customers and our future customers.”