updated 10/6/2006 8:14:04 PM ET 2006-10-07T00:14:04

T-Mobile USA was so intent on winning new cellular licenses in the recent federal auction that it began upgrading its New York City wireless network with next-generation equipment even before the bidding began two months ago.

The U.S. subsidiary of Germany's Deutsche Telekom AG said Friday it plans to spend $2.7 billion to install the new gear needed to deliver multimedia services over the additional swaths of the public airwaves it acquired for $4.2 billion as the top bidder in the Federal Communications Commission auction.

Underscoring the urgency of T-Mobile's effort to catch up with rivals' high-speed wireless Internet access and flashy video services, the company said it already has upgraded half its New York City network and expects "most of the work" across its national network to be complete by the end of 2008.

Customers in some markets will be offered new services enabled by the upgrade starting in mid-2007, executives said at a meeting with journalists in New York, a rarity for the company. The company did not detail specific new services, or where they'll be available first, though New York obviously seemed a good bet.

At the same time, executives dismissed the suggestion that the company has been badly hurt by its shortage of spectrum licenses, which limits the number of phone calls and non-voice services that can be delivered over the network at any one time. Robert Dotson, chief executive of T-Mobile USA, stressed that the company's financial performance has been on par with its rivals despite the apparent network handicap.

"I don't think anybody has sucked the life out of GSM more than us," said Dotson, referring to the current generation of wireless technology T-Mobile uses to deliver cell phone calls and non-voice services such as text-messaging and mobile Web information.

Dotson noted that T-Mobile's average revenue per user of $52 per month is a couple of dollars better than market leaders Verizon Wireless and Cingular Wireless, and that the non-voice share of that figure, $5.65, is in line with its rivals even though they already have speedier next-generation networks and services.

"I wouldn't go so far as to say we haven't suffered at all," Dotson said in an interview, asserting that T-Mobile was seen as more innovative than its rivals until they started rolling out third-generation, or "3G," technologies. "If Verizon's coming out with video clips and streaming this and that, does that harm your image in the market? Sure it does. ... But if you look at the financials, you can't see the difference between 2G and 3G."

T-Mobile's U.S. network is to be upgraded with the same "UMTS" technology for broadband wireless data used by Cingular and most foreign cell carriers, including T-Mobile's networks in five other countries. Executives declined to say which communications equipment makers are supplying the gear for the network upgrade.

In detailing its plans for the new spectrum, the company issued a more bullish forecast for subscriber growth, saying it expects to grow from the current 23.3 million customers to between 35 million and 40 million by 2015, up from prior forecasts of 30 million.

Besides launching new phones to take advantage of the new network, the company plans to introduce laptop modem cards that connect to both the new cellular data network and the Wi-Fi hotspots at Starbucks stores and other locations where T-Mobile provides that service. Lacking the capacity for speedier online wireless connections until now, T-Mobile has invested heavily in Wi-Fi service as an alternative lure for laptop users.

The combined costs for the new airwave licenses and the network upgrade will be at the lower end of analyst expectations voiced before the spectrum auction, and do not lead to any change in the Deutsche Telekom's announced revenue and profit guidance for 2006 and 2007, the company said.

The cost of the U.S. upgrade is expected to be offset in part by reduced investment in T-Mobile's existing network as the deployment of the new systems progresses.

T-Mobile was the top spender in an FCC auction of new licenses to use the public airwaves for wireless services, accounting for nearly a third of the $13.9 billion raised when the bidding closed last month. The company said Friday the new licenses from the auction doubled its average capacity in the top-100 U.S. markets.

Other big bidders included Verizon Wireless, a joint venture between Verizon Communications Inc. and Vodafone Group PLC, and a partnership between Sprint Nextel Corp. and major cable TV companies including Comcast Corp.

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