Deutsche Telekom pushes for scale with T-Mobile/MetroPCS merger

Tools

Deutsche Telekom (DT) said it will merge its T-Mobile USA subsidiary with regional U.S. operator MetroPCS to create a mobile operator more able to rival Verizon Wireless and AT&T Mobility.

DT will own 74 per cent of the combined company if the deal is approved by U.S. regulators. MetroPCS shareholders will receive $1.5 billion in cash. The combined company will carry the T-Mobile name and be headed by John Legere, who was named as CEO of T-Mobile USA late last month.

For the German telco, this move could be part of the solution it has been searching for to its long-standing problems with its U.S. subsidiary, having failed to gain regulatory approval to merge T-Mobile USA with AT&T last year.

"The transaction increases our financial flexibility as the combined company will be publicly listed," DT CEO Rene Obermann said, according to Bloomberg. "This is equivalent for T-Mobile US to an accelerated IPO with synergies."

The merger of these two smaller operators might provide the combined entity with the clout to gain access to a better portfolio of handsets, and reduce infrastructure costs. The carriers have said they want to achieve savings of between $6 billion to $7 billion without detailing how this might be achieved.

Commenting on the merger plan, Mike Roberts, principal analyst at Informa Telecoms & Media, said that DT's acquisition of MetroPCS does indicate that the firm is committed to investing to improve its scale and strength in the U.S. market. 

"However, DT will need to do more in future given that even after the acquisition of MetroPCS it will still have less than half the market share of the two dominant players," he said.

Analysts at Bernstein Research said the deal "could be a good one" for DT as MetroPCS' spectrum would complement that of T-Mobile USA, especially in the Northwest of the United States where the latter has weaker coverage, according to the Financial Times.

 Ovum analyst Emeka Obiodu took a less upbeat view. "This is not a significant move for DT," he told FierceWireless:Europe. "They still haven't figured out really what to do with their U.S. business, and all this does is buy them time. I also cannot see how this gains them any real economies in scale."

On the positive side, Obiodu believes the merger will help T-Mobile USA with its LTE coverage, given the head start MetroPCS already has in some U.S. markets, without a huge capital expenditure outlay. T-Mobile USA has already committed $4 billion to modernise its network and deploy LTE. Obiodu added that he didn't expect this merger to have any impact on DT's activities in Europe.

For more:
- see this Bloomberg article
- see this Financial Times article (sub. req.)

Special Report: T-Mobile USA and MetroPCS merge: Complete coverage

Related Articles:
Regulators likely to smile on merger of T-Mobile and MetroPCS
Deutsche Telekom's T-Mobile USA to merge with MetroPCS
Deutsche Telekom confirms T-Mobile/MetroPCS negotiations
Deutsche Telekom posts better Q2, but remains downbeat on Europe