T-Mobile Just Bought a Massive Amount of Spectrum

By Evan Niu, CFA Markets Fool.com

Last week, the FCC announced the results of its incentive auction for low-band 600 MHz spectrum, and T-Mobile (NASDAQ: TMUS) was the biggest winner -- by far. The Un-carrier scooped up an incredible $8 billion worth of spectrum, gobbling up 45% of all low-band spectrum being auctioned off.

Continue Reading Below

Low-band spectrum is incredibly important in terms of network strategy, as it can travel further and penetrate buildings better to provide indoor coverage. That makes it useful for both urban (where building penetration is important) and rural (where signals need to travel long distances) markets. T-Mobile now has 40 MHz worth of spectrum in the 600 MHz band throughout most of the U.S.:

Image source: T-Mobile.

And here's what T-Mobile's LTE coverage should look like by year's end:

Image source: T-Mobile.

That's a lot of spectrum

Continue Reading Below

On average, T-Mobile collected 31 MHz of spectrum nationwide, quadrupling the company's low-band holdings in the process. CEO John Legere says that T-Mobile will use the new holdings to intensify competition withVerizon (NYSE: VZ) and AT&T (NYSE: T)in markets where the two currently enjoy duopoly status. Once T-Mobile's LTE network expands into these markets, many of which are rural areas, it will aggressively undercut in its typical Un-carrier ways.

Interestingly, Verizon voluntarily sat out of the auction altogether, which is a bit confusing since Big Red just re-launched unlimited data plans in February. You'd think that the largest U.S. carrier would want more spectrum to beef up its network even further to cope with an expected increase in traffic, but it seemingly has other plans up its sleeve. Verizon has ample 700 MHz holdings and may be keeping some powder dry for high-band spectrum in the 2 GHz and higher range, according to FierceWireless.

Ma Bell also played it conservatively, spending a relatively modest $910 million in the auction. The FCC had structured the auction to favor smaller companies in the name of competitiveness, but Verizon and AT&T still qualified to participate.

T-Mobile retail store in Times Square. Image source: T-Mobile.

Legere points out that Verizon and AT&T's low-band holdings are already fairly congested because this spectrum has been in use for quite some time. In contrast, T-Mobile will be opening up entirely new bands for its customers, which theeccentricCEO compares to "a new, clear multi-lane freeway where speeding is encouraged."

T-Mobile is already working with network equipment vendors and smartphone manufacturers to ensure 600 MHz compatibility, with compatible phones expected later this year.

The Un-carrier will keep stealing customers

Spectrum is the lifeblood of the wireless industry, and T-Mobile continues to shake up the market with a growing array of competitive initiatives. This is a big win for the Un-carrier, as these spectrum holdings will lay the foundation for continued expansion and competition. T-Mobile looks set to continue its streak of poaching customers from its larger two rivals.

Find out why T-Mobile US is one of the 10 best stocks to buy now
Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. (In fact, the newsletter they run, Motley Fool Stock Advisor, has tripled the market!*)

Tom and David just revealed their ten top stock picks for investors to buy right now. T-Mobile US is on the list -- but there are nine others you may be overlooking.

Click here to get access to the full list!

*Stock Advisor returns as of April 3, 2017

Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.