T-Mobile seals the deal with MetroPCS

James Moorman, S&P Capital IQ equity analyst, discusses the merger of MetroPCS and T-Mobile, and takes a look at what's ahead for competitor, Sprint.

By NBC News wire reports

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Struggling cellphone companies T-Mobile USA and MetroPCS Communications are merging. The deal that will create an operator with more than 40 million subscribers.

In a joint statement, the two companies said Wednesday that Deutsche Telekom AG, the owner of T-Mobile USA, will hold 74 percent of the new business, while MetroPCS's shareholders will hold the remainder, as well as receiving a payment of about $1.5 billion.

"The combined company, which will retain the T-Mobile name, will have the expanded scale, spectrum and financial resources to aggressively compete with the other national U.S. wireless carriers," the two said.

Both companies have struggled in the highly-competitive U.S. cellphone market.

The merger is good news for consumers, according to Matt Wood, director of Free Press, a nonpartisan organization.

"Wireless consumers have long suffered in an uncompetitive market. We need stronger competitors to push back against the AT&T-Verizon juggernaut, ones that will force these carriers to compete on price and service quality," Wood said.

"But consolidation at the bottom between a regional prepaid carrier and the last-place national carrier is not going to fix all of the problems in our wireless market. The FCC is going to have to formulate bold public policies to bring consumers the relief they need," Wood added.

And even after the combination with Dallas-based MetroPCS, which has 9.3 million subscribers, T-Mobile USA ? the country's fourth-largest cellphone company with 33.2 million subscribers ? will still trail the market's No. 3, Sprint Nextel Corp.

However, the deal would give T-Mobile USA, which is based in Bellevue, Wash., access to more space on the airwaves, a critical factor as cellphone carriers try to expand their capacity for wireless broadband.

Last year, AT&T struck a deal to buy T-Mobile USA for $39 billion for much the same reason. That was shot down by regulators, who believed competition would suffer if the second-largest cellphone company were to gobble up the fourth-largest.

"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," Deutsche Telekom chief executive officer Rene Obermann said.

Deutsche Telekom said the combined company would have revenues of around $24.8 billion based on analysts' estimates, and cost synergies are expected to be worth $6 to $7 billion.

The deal still has to be agreed by shareholders and will require regulatory approval.

The regulatory concerns this time round appear set to be much milder than the proposed deal involving AT&T. Both companies are relatively small, and T-Mobile USA has been losing subscribers for the last two years.

A linkup would be complicated by the fact that MetroPCS and T-Mobile USA use different network technologies. That means MetroPCS phones would not work on T-Mobile USA's network, and vice versa. However, both companies are deploying the same "fourth-generation" or "4G" technology, so they're on a path to harmonizing their networks.

Deutsche Telekom's CEO Obermann said the new company will have the "resources to expand its geographic coverage, broaden choice among all types of customers and continue to innovate, especially around the next-generation LTE network."

Germany's stock market was closed Wednesday because of a national holiday. But the prospect of seeing Deutsche Telekom finding a solution for its struggling U.S. business sent the stock higher Tuesday after both companies had confirmed their talks.

The Associated Press contributed to this story.

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CNBC's David Faber reports the deal between the two telecom companies is a stock swap.

Source: http://bottomline.nbcnews.com/_news/2012/10/03/14200990-t-mobile-seals-the-deal-with-metropcs?lite

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