MetroPCS in talks to merge with T-Mobile USA

IDG News Service - Deutsche Telekom is in talks with MetroPCS Wireless on a possible deal to combine T-Mobile USA with that carrier, MetroPCS confirmed in a statement on Tuesday.

MetroPCS said the talks might not result in a deal. The negotiations had been widely reported, following reports over the past two weeks that T-Mobile might tie up with MetroPCS, Sprint Nextel or satellite TV operator Dish Network. Deutsche Telekom, based in Germany, is the parent company of T-Mobile USA.

T-Mobile, the fourth-largest U.S. mobile operator, continues to lag behind its larger rivals in both subscriber numbers and deployment of a fast, next-generation LTE network. A deal to merge T-Mobile with AT&T last year was canceled after the regulators rejected the plan as anti-competitive. A breakup deal gave T-Mobile US$3 billion cash and spectrum licenses in 128 markets, but the carrier is still in catch-up mode. It plans to light up its first LTE markets next year. In the quarter ended June 30, T-Mobile reported a decline of 205,000 subscribers to 33.1 million.

MetroPCS sells flat-rate monthly plans and has 9.3 million subscribers, including about 700,000 customers on its LTE network. MetroPCS' 3G network uses CDMA, a different technology from T-Mobile's GSM-based system.

Unlike the AT&T proposal, a merger with MetroPCS would strengthen two players that have both struggled against the dominant carriers, analysts said.

"If anything, it's improving the competitive landscape," said Phil Marshall of Tolaga Research.

If regulators saw it that way, approval might be a snap. Still, in the wake of the FCC's rejection of the T-Mobile-AT&T deal, it would be hard to predict the regulators' response, said Recon Analytics analyst Roger Entner.

"We really have no idea where they will draw the line" on consolidation among carriers, Entner said.

Consumers wouldn't see much effect from a merger for some time because of the technical work required. Both companies have emphasized low prices and they probably would continue with that pitch, according to the analysts. The combined company presumably would shift MetroPCS' CDMA subscribers toward LTE and T-Mobile's 3G network, but that could take years. Just merging the organizations internally would probably take a year from the close of the deal, Entner said.

The big payoff for T-Mobile would be additional spectrum from MetroPCS in the AWS and PCS bands, both of which T-Mobile has some of today, as well as in the prized 700MHz band, which lets carriers place their base stations farther apart.

It would probably be easier for T-Mobile and MetroPCS to bring together their disparate bands and technologies than it was for Sprint and Nextel when they merged in 2005, Entner said. MetroPCS customers are largely consumers with no term contracts, whereas Nextel's installed base was in businesses that relied on the company's push-to-talk technology, he said. Sprint is still winding down Nextel's unique iDEN network today.

Whether this merger takes place or not, analysts expect continued consolidation, with scores of small operators gradually being snapped up by bigger ones. If the MetroPCS integration went well, T-Mobile might keep on the warpath itself, possibly buying Leap Wireless in a few years, Marshall said.

"I think they're going to try to roll these guys up to gain scale," Marshall said.

Stephen Lawson covers mobile, storage and networking technologies for The IDG News Service. Follow Stephen on Twitter at @sdlawsonmedia. Stephen's e-mail address is stephen_lawson@idg.com