T-Mobile, MetroPCS Deal Is About LTE, Value, Competition

The merger of T-Mobile and MetroPCS is foremost about an LTE network and all it enables, as well as positioning T-Mobile as a "value" carrier that can stand up to AT&T and Verizon.

Deutsche Telekom (DT) and MetroPCS, in the opening paragraph of an Oct. 3 statement announcing a "definitive agreement" to merge the small but notable prepaid carrier with DT's ailing American brand, T-Mobile, made three important assertions.

First, they said, the transaction will create a "clear-cut technology path to one common LTE network."

Long Term Evolution technology is critical to T-Mobile's ability to compete against the nation's top three carriers; is necessary for it to offer an Apple iPhone; and is the only network technology that it has in common with MetroPCS, as the latter's legacy network is based on Code Division Multiple Access (CDMA) technology.

While T-Mobile has said it will begin offering LTE in early 2013, MetroPCS, which in Sept. 2010 jumped ahead of Verizon to offer the first commercial LTE deployment, completed its LTE rollout in March 2011. In August 2012, MetroPCS was the world's first carrier to offer voice-over LTE.

Second, the statement said that the new carrier—which will operate under the T-Mobile name—will promote itself as the nation's "value carrier," suggesting the further inroads it plans to make into the prepaid market, where both carriers have experience. Combined, they'll control 23 percent of the prepaid market from the start.

And third, the deal will provide T-Mobile with what it has needed—scale, spectrum and financial resources—to "aggressively compete with the other national U.S. wireless carriers."

"T-Mobile USA has made it clear the deal is all about LTE, with the combined spectrum assets of the companies providing a path to 2 x 20MHz for LTE in many markets, double T-Mobile's current plans for 2 x 10MHz for LTE," Mike Roberts, a principal analyst with Informa Telecoms & Media, said in an Oct. 3 research note.

T-Mobile CEO John Legere, having an exciting first few days on the job, said the deal will accelerate T-Mobile's 4G strategy.

"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," Legere said in the statement. "We will be a stronger, value-focused competitor, providing customers with offerings such as our Unlimited Nationwide 4G Data and 'bring your own device' plans."

Regarding the non-LTE network incompatibilities, MetroPCS plans to migrate customers to a common LTE network when they upgrade their phones. While this should ease the burden a bit, it will far from eliminate it, says Informa's Roberts.

In addition to now having to migrate two major technology families to LTE, at the same time T-Mobile "will have to refarm (transition) its combined spectrum holdings from CDMA and WCDMA to LTE. This all adds up to a hugely complex and challenging migration that will take significant time and investment," said Roberts, "and which is a major risk for derailing the benefits of the deal, which the companies say includes $6 billion to $7 billion in expected cost savings."

In their joint statement, the companies also said that they plan to offer a wider selection of competitively priced plans, including contract, no-contract, SIM-only, pay-as-you-go and mobile broadband services.

After the closing, the new T-Mobile's headquarters will be in Bellevue, Wash.—where T-Mobile is currently located—but retain a "significant presence" in MetroPCS' hometown of Dallas, Texas.

Legere will be CEO and president of the new company, and the chief financial officer will be J. Braxton Carter, currently CFO of MetroPCS.

"The company will operate T-Mobile and MetroPCS as separate customer units," it added, "led by Jim Alling, currently chief operating officer of T-Mobile, and Thomas Keys, currently president and COO of MetroPCS, respectively."

The carriers expect the transaction to close during the first half of 2013.