New York Times – If completed, the merger could bolster the struggling cellphone service provider as it fights to compete against two bigger rivals.
A deal would be the latest chapter in an industry that has rapidly consolidated to a handful of major players. It would come after last year’s aborted attempt byAT&T to buy T-Mobile for $39 billion, an ambitious move thwarted by government antitrust regulators.
Both T-Mobile’s parent, Deutsche Telekom, and MetroPCS confirmed on Tuesday that they were in talks. A deal could be announced as soon as Wednesday, according to people briefed on the matter, who cautioned that final moves could derail an agreement.
Any possible transaction would most likely involve a stock swap, leaving Deutsche Telekom with a significant stake in a newly public T-Mobile.
Shares in MetroPCS climbed nearly 18 percent on Tuesday, to $13.57. That valued the company at $4.93 billion.
In recent years, AT&T and Verizon Wireless have seized increasingly bigger portions of the American cellphone market; together, they claim to have more subscribers than their next six competitors combined. Though a merger would not put the subscriber base of T-Mobile and MetroPCS anywhere near the two largest carriers, it would make the combined company a stronger competitor.
T-Mobile and its larger rival, Sprint Nextel, have both sought customers seeking lower-cost plans. Both have also raced to build their next-generation data networks to better service newer smartphones, like the Samsung Galaxy S III.
But T-Mobile has fallen well behind Sprint in its fight for users. As of midyear, the company claimed about 33.2 million customers, compared with Sprint’s 56 million. It still does not offer the Apple iPhone, which has deprived it of subscribers with higher-price data plans.
T-Mobile also lost 205,000 subscribers in its second quarter of this year, quadruple what it reported a year ago.
Buying MetroPCS, an 18-year-old wireless service provider based in Richardson, Tex., might solve those problems. The company had 9.3 million customers as of June 30, many located in major cities. And it has already begun introducing Long Term Evolution, or LTE, the high-speed network on which smartphones like the iPhone 5 run.
Merging T-Mobile and MetroPCS could prove tricky. While the two could eventually combine their LTE networks, the majority of their phones run on incompatible network standards, reducing any cost savings from a tie-up in the short run. And MetroPCS offers only prepaid plans, a business that T-Mobile has been eager to exploit — but which also carries lower margins.
Yet such headaches may prove worthwhile, because a deal would deprive Sprint of a suitable takeover target to fix its own problems. Sprint had neared its own deal for MetroPCS this year, only to walk away after its board vetoed those plans at the 11th hour. Sprint’s stock fell 5.4 percent on Tuesday as investors worried about what a T-Mobile-MetroPCS combination would mean for its ability to vie for consumers.
Sprint’s chief executive, Daniel Hesse, said at an industry conference last month that he expected his company to participate in what he saw as a continuing wave of consolidation.
“This leaves Sprint awkwardly independent and on the outside looking in,” Craig Moffett, an analyst at Sanford C. Bernstein & Company, said in a phone interview. He added that Sprint may feel compelled to make a higher bid because “the alternative is so unattractive.”
Shares in Leap Wireless International, another prepaid wireless service provider, closed more than 8 percent higher on Tuesday, as investors hoped the company would prove to be another merger target. But analysts said that Leap, with its focus on lesser markets and with major operational problems, may remain independent for a while longer.
“We don’t view Leap to be as attractive as MetroPCS; Leap has a smaller subscriber base, lower margins and burns cash,” Mike McCormack, an analyst at Nomura, wrote in a research note on Tuesday.
Should it reach a deal, Deutsche Telekom could sell down its stake in T-Mobile over time. That would eventually unwind its expensive experiment in the American marketplace, one that began with the German telecom’s purchase of VoiceStream Wireless at the peak of the dot-com era in 2001. Since then, however, troubles at T-Mobile have cost Deutsche Telekom dearly, including an $18 billion write-down a year later.
Executives at the German telecommunications company have openly spoken about possible deals for the American unit, including by staging an initial public offering or combining it with another industry player.
One uncertainty about any deal would be the reaction from antitrust regulators. But a transaction may draw less fiery opposition than the failed combination of AT&T and T-Mobile, given the smaller size of MetroPCS.