T-Mobile acquires wireless spectrum from Verizon

Jan 06, 2014

FORTUNE -- You may not have noticed, but there's an epic wireless war going on in the United States. T-Mobile (tmus), long thought to be uncompetitive in a market dominated by Verizon Wireless (vz) and AT&T (t), is working to close the gap between it and its larger rivals. A dazed Sprint (s) sits somewhere in between.

T-Mobile US announced Monday morning that its subsidiaries will acquire certain 700 MHz A-Block spectrum licenses from Verizon for $2.365 billion in cash, as well as certain AWS and PCS spectrum licenses, which are estimated to be worth $950 million. The spectrum -- which is expected to kick in for the company later this year -- gives T-Mobile more coverage in the geographically expansive U.S., increasing its low-band sweep to 21 of the top 30 U.S. markets, including New York, Los Angeles, Houston, Philadelphia, and Washington, D.C.

Low-band spectrum is of particular importance to T-Mobile, which has enjoyed strong coverage of city centers but weak coverage in less densely populated areas, including at the edges of cities. Low-band spectrum travels greater distances, and penetrates buildings more effectively, than high-band spectrum.

MORE: Battle for control of Sprint turns ugly

The purchase is just the latest in a dramatic turnaround for a company that was once the target of a $39 billion acquisition by AT&T. Since that deal fell through in 2011, T-Mobile has been on a tear. It finally struck a deal with Apple (aapl) to offer its popular iPhone with its services, revamped its no-contract services to allow for $0 upfront payment on devices, merged with No. 5 U.S. carrier MetroPCS in 2013, began trading on the New York Stock Exchange, and -- most critically -- turned around heavy customer losses that have plagued it for much of the last decade.

Many of its new customers defected from AT&T, prompting that company to announce last week a promotion in which customers who defect from T-Mobile receive up to $450 in credit for switching. And just like that, the dynamics of the U.S. wireless industry shifted: What was once a bitter battle between Verizon and AT&T has become a tit-for-tat tiff between two would-be lovers on the rebound. All Verizon and Sprint can do is grab some popcorn.

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