T-Mobile's 10th anniversary gift to itself: buying a smaller rival to grow its U.S. market share. America’s fourth-largest wireless carrier is about to get bigger as T-Mobile parent company Deutsche Telekom and MetroPCS have approved a merger between the two American wireless carriers.
T-Mobile US CEO John Legere, who was only named to that post on Sept. 19, took to YouTube today to pitch the ‘game-changing’ deal that aims to create "a bigger, better and bolder wireless provider" and the "value leader in the marketplace."
Legere elaborated in a blog post, "This isn't a deal to survive – it's to thrive. This is a terrific opportunity for two companies with a shared commitment to innovation and customer service to come together to improve the way you communicate. We're here to compete. We're here to unlock value."
The newly-merged company will be called T-Mobile and run by Legere. It's also coming at a crucial time, with T-Mobile promoting its unlimited nationwide 4G data plan (above) and launching its own LTE network in 2013, as promoted in its "See It Again" campaign in May.
Deutsche Telekom will hold 74% and MetroPCS 26% of the newly combined company, which aims to have a dominant position with consumers who can’t afford monthly contracts, particularly in urban areas, and create an operator with more than 40 million subscribers.
“The deal with MetroPCS is viewed as an attempt by Deutsche Telekom chief executive officer Rene Obermann to revive fortunes of T-Mobile, after the German company entered the U.S.," comments International Business Times.
The merger follows an attempt by Deutsche Telekom last year to sell T-Mobile USA to AT&T for $39 billion as the former has been losing customers to competitors in part because it is not authorized to sell the iPhone.
MetroPCS has a spectrum hoard that T-Mobile wants, but analysts caution “the two companies are strikingly incompatible,” notes Forbes. “T-Mobile is GSM-WCDMA – MetroPCS is CDMA2000. T-Mobile focuses on contract customers, MetroPCS on pre-paid customers. T-Mobile branding has tried to highlight a cutting edge, high mobile data speed aura – MetroPCS is after the cost-conscious budget crowd.”
The costly and difficult acquisition of Nextel by Sprint in 2007 is a cautionary tale but, “could be pure gold for Sprint, whose own merger mess with Nextel helped Verizon to soar ahead in subscriber growth. Having T-Mobile entangled in a similar morass would be a sweet chance for Sprint to redeem itself. Particularly as the Nextel portion of the company will finally shut down in 2013,” continues Forbes.
The proposed merger is expected to pass federal regulators and open the new company to dominate a segment of customers the biggest carriers have ignored but in a statement, MetroPCS said, “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.”
The combined companies would have 12.9% of the total U.S. wireless market and close to 30% of the pre-paid market in an industry bracing for consolidation. “We are committed to creating a sustainable and financially viable national challenger in the U.S.,” said Oberman, “and we believe this combination helps us deliver on that commitment.”
Of course, current and prospective customers will be wondering what the merger means for them, with MetroPCS posting an FAQ on its website today. Consumer Reports’ Paul Reynolds believes that a T-Mobile/MetroPCS deal is more good news than bad news for consumers, and could actually improve the level of competition between major carriers. "The merger with MetroPCS should give an expanded T-Mobile a better shot at remaining competitive with other telecom titans in coverage and more," he explains.
That's the good news. The bad news? "Despite its decent prepaid score, T-Mobile rated lower than most others for reader satisfaction in its key segment, namely contract service," writes Consumer Reports. "And MetroPCS was among the lower-scoring prepaid carriers." Whether combining the brands will improve that score remains to be seen.
Hear more of Legere's vision for T-Mobile below: