By Sinead Carew and Neha Alawadhi
Jan 6 (Reuters) - T-Mobile US Inc is buyingwireless airwave licenses from Verizon Wireless to improve itshigh-speed network in a $3.3 billion deal and said it hopes tofollow up with more spectrum purchases.
Shares in T-Mobile, majority owned by Deutsche Telekom, rose 2.5 percent on Monday after the company said itwill pay Verizon Wireless $2.365 billion cash and give it $950million worth of spectrum.
Demand for wireless airwaves has risen sharply as U.S.operators scramble to boost their networks to support increasingconsumer Web surfing and video use on cellphones. While thegovernment is planning airwave auctions, spectrum demand mayalso drive further consolidation involving airwave owners suchas Satellite TV provider Dish Network.
T-Mobile, the No. 4 U.S. mobile provider, has been usingdiscounts to compete with bigger rivals, but it badly needs moreairwaves after falling behind bigger rivals AT&T Inc andVerizon Wireless in developing high-speed data services.
T-Mobile, which may itself be an acquisition target of Dishor Sprint Corp, also said on Monday thatit hopes to buy additional spectrum in government auctions atthe end of 2014 and in 2015.
"It's still a priority to get additional spectrum," ChiefTechnology Officer Neville Ray told analysts on a conferencecall to discuss the deal.
While they said the spectrum was crucial for T-Mobile US,some analysts noted that the price was steep at a 26 percentpremium over what Verizon had paid for it at an auction severalyears ago.
Wells Fargo analyst Jennifer Fritzsche said the deal was"very much not a fire sale" for Verizon. She noted that it wouldbe an important boost to T-Mobile's network, but said the buyermay have to pay another $1 billion to put the spectrum to use.
T-Mobile raised $3.8 billion in stock and bond sales inNovember to fund spectrum purchases. Chief Financial OfficerBraxton Carter said he would look to debt markets rather thanequity markets for any future spectrum funding needs.
The company will be able to use the additional airwaves tohelp it steal customers from rivals such as AT&T, Pacific Crestanalyst Michael Bowen said.
"T-Mobile will now have greater spectrum with which tocompete against all carriers, but we anticipate that AT&T willcontinue to suffer the largest impact," Bowen said.
In a sign of rising competitive tensions between the twocompanies, which use the same network technology, AT&T on Fridayoffered T-Mobile customers a $200 credit to switch to itsservice.
T-Mobile said it could offer services as soon as the fourthquarter using the new spectrum licenses, which cover more than150 million people in nine of the top 10 U.S. markets and 21 ofthe top 30 markets including New York, Atlanta and Los Angeles.
It said the purchase, which requires regulatory approval, isexpected to close around mid-2014.
T-Mobile also said the companies will realign spectrumblocks in markets such as northern California and Atlanta.
Verizon Wireless had said late last year it would againconsider selling unused A Block airwaves in the 700 megahertzfrequency band that T-Mobile has now agreed to buy.
TAP Advisors was the financial adviser for T-Mobile.
T-Mobile rose 89 cents to $33.17 on the New York StockExchange after the news. Verizon shares edged up 3 cents to$48.45. Sprint fell 27 cents, or almost 3 percent, to $9.67,while AT&T was up 12 cents at $34.92.
Reuters reported Nov. 19 that T-Mobile was seeking to buyspectrum from Verizon Wireless, owned by Verizon CommunicationsInc and Vodafone Group Plc.
Vodafone (VOD)