Sprint Corp, the third-largest US wireless carrier and its takeover target T-Mobile US Inc are jointly planning to bid for approximately $10 billion worth of spectrum in Federal Communications Commission's (FCC's) incentive auction next year.
The mobile carriers will form a joint venture to place their bids in the auction, according the Wall Street Journal.
Sprint, acquired by Japanese giant SoftBank Corp last year and T-Mobile, controlled by Deutsche Telecom, were in merger talks since last year and reports last month indicated that a possible merger announcement could be due within a few months. (See: Sprint close to buying T-Mobile USA for $32 bn)
The $10 billion in funds for the spectrum are part of the $45-billion merger financing package.
The FCC's spectrum auction, which is expected to take place in the middle of next year, will allow TV broadcasters to auction their unused airwaves to wireless carriers.
A a.major chunk of the proceeds would be used to reimburse broadcasters, help build a nationwide public-safety network and lower national deficit.
Wireless carriers are keen to expand their spectrum holding to accommodate increased usage by their consumers, as newer bandwidth-intensive gadgets with streaming videos and music are flooding the market.
The joint venture will only be used if the merger plan is still in play, according to the Journal.
FCC is still working on how its incentive auction will work. Sprint and T-Mobile have been asking FCC to impose restrictions on spectrum purchases by large players AT&T and Verizon, who already control majority of low-frequency spectrum
FCC is considering formulating specific rules for joint bidding and any companies that plan to bid jointly will need to file well before the normal deadline.
The Justice Department had said in May that setting aside some spectrum for smaller players could improve the competitive dynamics of the wireless market and benefit consumers.
The $10 billion envisaged by Sprint and T-Mobile for the auction is higher than AT&T's planned outlay of $9 billion.
The availability of spectrum from broadcasters for the auction is not known and according to some analysts, if 60 megahertz (MHz) is raised in each market, only 20 MHz of that would be reserved for smaller carriers, while AT&T and Verizon would likely get 20 MHz each.
The proposed merger between Sprint and T-Mobile would require the approval of the FCC and the Department of Justice.
It is not clear, how the FCC will divide the spectrum between the companies in case the deal is blocked.
According to some analysts, the merger could yield negative results due to incompatibility of their networks as well as a general overlapping.
However, billionaire hedge-fund manager John Paulson, whose fund is the fourth-largest shareholder in T-Mobile and the third-largest in Sprint, finds the deal ''reasonable'' and is in its favour.