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T-Mobile-MetroPCS merger is seen as beneficial for consumers

Combining T-Mobile and MetroPCS would give consumers a viable alternative to wireless heavyweights Verizon and AT&T, executives of the companies say.

October 04, 2012|By Andrea Chang, Los Angeles Times
  • A merger of T-Mobile and MetroPCS would create a company with about 42.5 million subscribers and $24.8 billion in annual revenue. Above, a MetroPCS store in New York.
A merger of T-Mobile and MetroPCS would create a company with about 42.5… (Justin Lane, EPA )

A merger between T-Mobile and MetroPCS would create a beefed-up, low-cost carrier that could give consumers another viable choice in a market dominated by Verizon and AT&T.

If approved by federal regulators, the deal, announced Wednesday, would bring together two weaker players under the T-Mobile name. T-Mobile USA Inc. is the nation's fourth-largest wireless carrier with 33.2 million mobile customers, while MetroPCS Communications Inc., with 9.3 million subscribers, is the fifth-largest.

Although telecom mergers are often seen by consumers as creating monopolies that limit choice and raise prices, executives from both companies said the new wireless carrier would stick to offering lower cost services compared with its larger rivals. A merged company would still be in the No. 4 position behind Verizon Wireless, AT&T Inc. and Sprint Nextel Corp.

In a conference call Wednesday, Rene Obermann, chief executive of T-Mobile's parent, Deutsche Telekom, said the merger "means we are here to compete, we are here to unlock value and we are here to win. This deal has the potential to be a game changer."

Combining T-Mobile's and MetroPCS' customer and revenue scale could lead to a more powerful unit that has a vast presence nationwide, said Jefferson Wang, a partner in IBB Consulting's wireless division. He noted the two carriers focused on different regions, with Dallas-based MetroPCS geared more toward consumers in big cities such as Los Angeles, San Francisco and New York.

It could also hold more leverage with device makers such as Apple Inc., which sells its popular iPhone through Verizon, AT&T and Sprint but not at T-Mobile or MetroPCS. T-Mobile has lost customers in part because it does not sell the iPhone.

Rep. Anna G. Eshoo (D-Menlo Park), ranking member of the Subcommittee on Communications and Technology, said the deal had "the right ingredients to provide consumers with a viable alternative" for wireless service.

"At a time when two companies continue to dominate the wireless marketplace, the need for a strong national competitor has never been greater," Eshoo said in a statement. "I hope the FCC and the Department of Justice will conduct a thorough but swift review of the transaction's merits."

Several analysts said the merger would probably result in a more segmented wireless industry, with Verizon and AT&T competing for postpaid consumers, and T-Mobile focusing on price-sensitive pay-as-you-go customers.

In the meantime, No. 3 Sprint appears to be caught in the middle without a strong niche, analysts said. The carrier may try to broker its own consolidation deal, although possibilities "appear to be significantly narrowed in the near term," said Stifel, Nicolaus & Co. analyst Christopher C. King.

"Sprint could certainly turn its eye towards smaller players (such as Leap), however, we believe such a deal would have limited long-term impacts on Sprint's position in the U.S. wireless marketplace, leaving the company without an obvious game-changing dance partner at this stage," King said in a note to investors.

Craig Moffett, a telecommunications analyst at Sanford C. Bernstein & Co. said there's also a chance Sprint would want to get involved in the T-Mobile-MetroPCS deal.

"We have declined to put an estimate on the probability of Sprint launching a counteroffer, but we certainly wouldn't rule it out," he said. "Sprint would appear to be badly marginalized if T-Mobile concludes its MetroPCS acquisition, and a merger with T-Mobile would be even harder to sell in Washington."

Analysts were initially wary of a possible deal because T-Mobile and MetroPCS use different network technologies, which prevents phones from one carrier from working on the other's network.

But the companies are deploying the same 4G technology, which would make the networks compatible. They said Wednesday that they were working on a "clear path" to a common LTE-based network.

"Our enhanced spectrum position will be the foundation for a faster and more reliable network, and will allow us to deploy a deeper and more robust LTE rollout, particularly in major metropolitan areas," said John Legere, chief executive of Bellevue, Wash.-based T-Mobile.

Still, the integration will be a multi-year process, with the transition expected to be completed by 2015.

Under the terms of the agreement, MetroPCS shareholders will receive $1.5 billion in cash and 26% ownership in the merged company. Deutsche Telekom will receive a 74% stake.

Based on a consensus of analyst estimates for 2012, the combined company is expected to have roughly 42.5 million subscribers and $24.8 billion in revenue.

The deal is expected to close in the first half of 2013 and is subject to approvals by MetroPCS shareholders and regulators and other conditions.

Once the merger is completed, the combined company is expected to continue trading on the New York Stock Exchange. Legere will serve as president and CEO.

The company's headquarters will be in Bellevue, Wash., although it will retain a "significant presence" in Dallas.

Last year, AT&T announced it had agreed to buy T-Mobile USA for $39 billion. But the deal was called off after running into opposition from government agencies that said it would create a less competitive wireless industry and potentially lead to higher prices for consumers.

The deal between T-Mobile and MetroPCS is expected to go more smoothly because both are smaller wireless companies.

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