T-Mobile, MetroPCS Merger Underway

 
 
By Michelle Maisto  |  Posted 2012-10-02
 
 
 

T-Mobile parent company Deutsche Telekom has flirted before with idea of merging its ailing U.S. brand with smaller carrier MetroPCS, in an effort to help it better compete against market powerhouses Verizon Wireless and AT&T. But now a deal is actually in the works, according to multiple reports.

The Germany-based carrier all but confirmed the deal to Bloomberg.

"The talks are at a stage where significant issues have not yet been finalized, contracts have not yet been signed and the conclusion of the transaction is still not certain," Deutsche Telekom said in a statement, Bloomberg reported Oct. 2.

"The board of management and supervisory board of Deutsche Telekom have, therefore, not yet taken the resolutions necessary for such a transaction."

Bloomberg added that, according to people familiar with the matter, Deutsche Telekom's supervisory board plans to meet Oct. 3 in Bonn, Germany, where the carrier has its headquarters, to approve the deal.

T-Mobile, which promotes itself as an affordable option, and MetroPCS, which does the same through its prepaid offers, run on different network technologies, which would make for a messy merger. However, both currently have rollouts of Long Term Evolution (LTE) networks under way, which will have them eventually speaking the same language.

An LTE network will also, as T-Mobile executives have repeated, enable it to support the Apple iPhone. Its position as the only top-four carrier without the iconic device certainly hasn't helped its fortunes. Sprint CEO Dan Hesse has said that the lack of an iPhone is the No. 1 reason that subscribers leave—Sprint has since begun selling the iPhone—and indeed, during the second quarter, T-Mobile lost more than 200,000 subscribers.

The LTE rollout is part of a "network modernization" strategy that was announced shortly after T-Mobile received a compensation package of nearly $4 billion and a portion of spectrum from AT&T, after federal regulators pushed back against AT&T's efforts to purchase T-Mobile.  

If the deal with AT&T was about a fed-up Deutsche Telekom trying to get out of an incredibly competitive U.S. market, the MetroPCS deal suggests a "striking about-face" and a willingness to commit to growth in the United States, Ken Hyers, a senior analyst with Technology Business Research, told eWEEK.

The challenge for T-Mobile is that "it's difficult to compete against two giant carriers on one end, and a host of medium and small operators as well," said Hyers. "Off the top of my head, I cannot think of any other large country with anything approaching the number of mobile carriers that are in the United States. DT has obviously decided that scale is the only way to compete effectively. I agree."

Hyers added that the combined coverage and greater scale would make the company "a more viable alternative to AT&T, Sprint and Verizon Wireless."

A larger T-Mobile could potentially also hurt Sprint, others point out, which in the past has reportedly also been in talks about a MetroPCS merger. 

On Sept. 22 T-Mobile welcomed a new CEO, industry veteran John Legere, who days later announced a deal in which T-Mobile will lease some of its towers to Crown Castle for $2.4 billion in cash—money that T-Mobile is expected to put toward its LTE build-out. It plans to begin offering LTE services in 2013.

Toward the close of business Oct. 2, there was no news of the dollars that will be exchanged in the deal, though Reuters reported that T-Mobile will hold the majority stake in the combined wireless provider.

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