Faltering T-Mobile, MetroPCS to merge

Posted: October 05, 2012

NEW YORK - T-Mobile and MetroPCS have agreed to combine their struggling cellphone businesses in a deal aimed at letting them compete better with their three larger rivals.

The combined company will use the T-Mobile brand and have about 42.5 million subscribers. Although T-Mobile will stay No. 4 among U.S. wireless companies, it will get access to more space on the airwaves, a critical factor as cellphone carriers try to expand their capacity for wireless broadband.

That could ultimately mean more choices and better services for customers, though Forrester Research analyst Charles Golvin doesn't believe the deal will make a "revolutionary difference" for U.S. cellphone customers. That said, MetroPCS customers will probably have to buy new phones at some point over the next three years as they are moved over to T-Mobile's network.

Both companies have faltered in the highly competitive U.S. cellphone market led by Verizon Wireless and AT&T Inc. T-Mobile has 33.2 million subscribers, well behind No. 3 Sprint Nextel Corp.'s 56 million. MetroPCS is even further back, ranking fifth with 9.3 million.

Last year, T-Mobile USA's German parent, Deutsche Telekom AG, tried to sell the U.S. cellphone business to AT&T for $39 billion. Getting more access to airwaves was the main reason AT&T wanted T-Mobile.

But regulators rejected that proposed purchase, worried that competition would suffer if the second-largest cellphone company were to gobble up the fourth.

Under the new deal, Deutsche Telekom will hold a 74 percent stake in the combined company, while MetroPCS Communications Inc. shareholders will own the remainder. MetroPCS investors will also receive a $1.5 billion payment.

The deal still has to be approved by shareholders of both companies and will require government approval. But the regulatory concerns this time appear to be much milder than they had been with AT&T. T-Mobile and MetroPCS are relatively small, and T-Mobile has been losing subscribers for the last two years.

"We are committed to creating a sustainable and financially viable national challenger" in the United States, said Deutsche Telekom CEO Rene Obermann, "and we believe this combination helps us deliver on that commitment."

Deutsche Telekom said the combined T-Mobile-MetroPCS would have revenue of about $24.8 billion, based on analysts' estimates.

The acquisition, scheduled to close in the first half of the new year, will likely affect MetroPCS subscribers the most. By the end of 2015, MetroPCS's wireless network is expected to be shut down, and customers will be moved over to the new company.

This means they will have to update their mobile devices at some point. But analyst Golvin believes that is probably good in the long run, as customers will get more choices in picking out phones.

As for cellphone bills? MetroPCS customers, who now get low-cost, contract-free plans, might be pressured to sign up for two-year service agreements, which are more lucrative for cellphone companies. But T-Mobile also offers contract-free plans, Golvin said, so MetroPCS customers wanting to stick with such plans should have more options.

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