T-Mobile USA's parent, Deutsche Telekom AG, and MetroPCS confirmed today that they are in talks to combine operations.
Both companies sent out statements confirming recent speculation that a potential deal was brewing. Here are their respective comments:
Deutsche Telekom is holding talks with the listed company MetroPCS with the aim of operating its subsidiary T-Mobile USA and MetroPCS within one company in which Deutsche Telekom would hold the majority of shares.
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. The Board of Management and Supervisory Board of Deutsche Telekom have therefore not yet taken the resolutions necessary for such a transaction.
MetroPCS today confirmed that it is in discussions with Deutsche Telekom regarding an agreement to combine T-Mobile USA and MetroPCS. There can be no assurances that any transaction will result from these discussions, and the company does not intend to comment further unless and until an agreement is reached.
With the growing dominance in the U.S. of the two largest wireless providers in AT&T and Verizon Wireless, the industry is ripe for consolidation. Where AT&T failed to buy T-Mobile, DT is hoping it will have more success buying MetroPCS and merging the two U.S. operations together.
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T-Mobile, a national player, would benefit from the subscribers and spectrum from regional prepaid wireless provider MetroPCS. T-Mobile's increasing move into the prepaid business means a lot easier transition if the two businesses combined.
Sprint Nextel had reportedly attempted to buy MetroPCS in an attempt to increase its size. The carriers operate in a business where size matters, and the larger the company, the bigger the advantages.
DT and MetroPCS, meanwhile, both warned that the talks were still early and that no contracts have been signed.
Because of size of both carriers -- T-Mobile being the fourth-largest national carrier, and MetroPCS just a regional company -- any potential deal would likely see a smooth regulatory approval process relative to recent deals such as the failed AT&T/T-Mobile merger attempt and Verizon Wireless's purchase of spectrum from the cable providers.
There are other complications, however, to a potential deal. MetroPCS runs off of a network technology called CDMA, which is incompatible with T-Mobile's GSM-based network. MetroPCS has migrated to 4G LTE in some of its markets, but still has a CDMA backbone. T-Mobile, meanwhile, is looking to upgrade to 4G LTE next year, with DT promising to invest $4 billion over the next three years on network upgrades.
T-Mobile recently raised $2.4 billion by leasing the rights to its cellular towers to cell tower operator Crown Castle.