T-Mobile, MetroPCS Merger Approved by Both Boards

T-Mobile and MetroPCS will merge under the T-Mobile name, Deutsche Telekom said Oct. 3. MetroPCS will receive $1.5 billion cash and a 26 percent share of the company.

Deutsche Telekom's supervisory board and MetroPCS' board of directors have unanimously approved a merger between the small Dallas-based carrier and DT's T-Mobile brand. After rumors swirled for a day, the carriers formally announced Oct. 3 they were going ahead with the merger.

The new company will retain the T-Mobile name and is expected to have approximately 42.5 million subscribers and $24.8 billion in revenue, the companies said in a statement. Deutsche Telekom will hold a 74 percent share of the new company to MetroPCS's 26 percent share, and MetroPCS will receive $1.5 billion in cash.

"The new company will be the value leader in wireless with the scale, spectrum, and financial and other resources to expand its geographic coverage, broaden choice amongst all types of customers and continue to innovate, especially around the next-generation LTE [Long Term Evolution] network," Rene Obermann, CEO of DT said in a statement.

"We are committed to creating a sustainable and financially viable national challenger in the U.S., and we believe this combination helps us deliver on that commitment," Obermann added.

T-Mobile has struggled to compete against Verizon Wireless, AT&T and Sprint, all of which offer the iPhone. During the second quarter of this year, the fourth-place carrier lost more than 200,000 subscribers. In February, it introduced a "network modernization" strategy, which includes the rollout of an LTE network that will go live in 2013 and enable it to support the iPhone.

MetroPCS currently focuses on low-cost prepaid plans and, with modest fanfare, was the first carrier to commercially launch 4G LTE services, completing its LTE rollout in March 2011.

"Overall the merger is about playing to T-Mobile’s strengths, which as of late has been the prepaid segment," Eric Costa, an analyst with Technology Business Research (TBR) told eWEEK.

"We’ll have to wait and see about the impact on the prepaid plans and which ones will be continued vs. eliminated. This will not help T-Mobile in the postpaid market, where it has continued to struggle," Costa added, "but it does align with my prediction that T-Mobile is heading toward becoming more of a prepaid player."

After talks between the carriers broke off in the spring, Deutsche Telekom confirmed Oct. 2 that they were again in discussions, but said "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," it said in a statement.

Bloomberg reported Oct. 2 that Deutsche Telekom's supervisory board planned to meet in in Bonn, Germany, where Deutsche Telekom has its headquarters, to approve the deal.

Deutsche Telekom has, roughly, a footprint in 50 countries and 236,000 employees, and in 2011 saw revenue of nearly $76 billion U.S.

In 2011, Deutsche Telekom spent the better part of the year trying to sell T-Mobile to AT&T, the nation's second-largest carrier after Verizon. Federal regulators ultimately pushed back against the deal, even filing a lawsuit to stop it, believing a merger of the companies would make for less competition in the market and higher prices for competitors.

Given the sizes of T-Mobile and MetroPCS—33 million and 9 million subscribers, respectively, compared to AT&T's 105 million—analysts expect no such push-back this time around.

"It should be no problem with regulators; neither company has significant share [of the market]," Roger Kay, principal analyst with Endpoint Technologies, told eWEEK. "It won't make much difference in the competitive landscape, either, other than to keep T-Mobile in the game for another round."

While AT&T's larger incentive to buy T-Mobile was its spectrum, for T-Mobile, the incentive to merge with MetroPCS is those 9 million subscribers.

The carrier's 3G networks run on different technologies—a detractor often pointed to when the carriers first considered a merger. Until T-Mobile fully makes a transition to LTE, the technology issue makes for a messy pairing.

"The goal would be to switch MetroPCS users onto T-Mobile’s 3G/4G networks as they upgrade their devices over the next few years," said TBR's Costa. "My guess is that they will slowly try to free up the spectrum MetroPCS uses for its CDMA [Code Division Multiple Access] network so it can eventually be repurposed for LTE/HSPA+ [Long Term Evolution/Evolved High Speed Packet Access]. So in that sense, the company will be operating multiple networks at first, similar to Sprint and Nextel’s merger, only on a smaller scale."

Deutsche Telekom, in its statement, said the deal will "significantly accelerate" T-Mobile's earlier stated Challenger strategy, in part by combining T-Mobile and MetroPCS' "complementary spectrum to provide greater network coverage, deeper LTE network deployment and a path to at least 20x20MHz of 4G LTE in many areas."

Current MetroPCS customers, it added, "will be migrated to a common LTE-based network as they upgrade their handsets."

Follow Michelle Maisto on Twitter.