T-Mobile and MetroPCS, the nation's fourth- and fifth-largest carriers, respectively, are discussing a merger, Bloomberg reported May 10, citing people familiar with the matter. The deal could entail an outright sale of T-Mobile or a stock swap that would give T-Mobile parent company Deutsche Telekom control over the combined carriers.
The news follows T-Mobile's May 9 announcement of its first-quarter performance, during which it outperformed analyst expectations though still lost more than half a million contract customers. It added 187,000 subscribers during the quarterstill nearly double its performance during 2011's first quarter.
T-Mobile is, notably, the only top-four carrier without an iPhonethe device that Sprint CEO Dan Hesse has called the No. 1 reason that customers "churn," or switch networks. However, T-Mobile it is widely expected to reach an agreement with Apple for the next version of the iPhone, which, again, is widely expected to support Long-Term Evolution (LTE) technology.
Since receiving a chunk of spectrum and approximately $4 billion from AT&Ta consolation prize of sorts, for the larger carrier's failed bid to acquire T-MobileT-Mobile's prospects have brightened considerably. In February, it announced a major "network modernization and 4G evolution effort" with its new spectrum and capital, and on May 7, it announced the signing of multiyear agreements with Ericsson and Nokia Siemens Networks, which will provide necessary equipment for the build-out.
Still, Deutsche Telekom, Bloomberg reports, "wants to bolster [T-Mobile's] ability to gain size and customers," which the deal would accomplish. What it wouldn't do is relieve either side of its need for spectrum.
The report added that while the U.S. Justice Department ultimately sued to stop AT&T's acquisition of T-Mobile, it's far more likely to approve of a merger between these smaller players.
Logistically, a combination of the AT&T and T-Mobile networks would have been a smoother one, as the two are both based on GSM technology. MetroPCS, however, is built on Code Division Multiple Access (CDMA) technology. Combining the two would be a messuntil, potentially, the two could meet up on LTE networks.
Also making the deal somewhat less than idealthough again, also more likely to gain it regulatory approvalis MetroPCS' size. Analyst Alexandre Iatrides, with Oddo & Cie in Paris, told Bloomberg that joining up with a smaller play "isn't really the option they prefer, but they don't really have a choice."
Sprint, he added, could potentially also be a viable partner.
T-Mobile, in its earnings release, said it has made "considerable progress" in its new efforts, called the "Challenger Strategy." This year, it said, it has entered into a spectrum exchange with Leap Wireless, secured the Advanced Wireless Services (AWS) spectrum licenses from AT&T, signed the deals with its LTE partners and unveiled the first phase of a brand relaunch program, which includes inviting people to test-drive T-Mobile's "competitive 4G experience."
It was also the first U.S. carrier to offer a Windows Phone, the Nokia Lumia 710. (The scrappy T-Mobile was, of course, also the first to offer an Android-running smartphone.)
Rene Obermann, CEO of Deutsche Telekom, applauded T-Mobile CEO Philipp Humm and his staff for their performance during the quarter, saying they had "improved efficiency in a still difficult environment" and laid the foundation for successful implementations going forward.