Year in review 2012: T-Mobile forges a deal with MetroPCS, plans for the future
The news: T-Mobile USA started 2012 in a weak state, vowing to regain its fighting form following AT&T's (NYSE:T) failed $39 billion acquisition. At the end of the year, T-Mobile can make a reasonable case that thanks to its planned deal to merge with flat-rate player MetroPCS (NYSE:PCS), as well as several other moves, it actually is in fighting shape, ready to take on its larger competitors.
Earlier this year, T-Mobile said it would launch LTE service in 2013 on its 1700 MHz AWS spectrum holdings, which grew larger thanks to an AT&T divestment and a spectrum swap with Verizon Wireless (NYSE:VZ). At the same time, T-Mobile said it would refarm its 1900 MHz PCS spectrum for HSPA+ services, clearing the way for Apple's (NASDAQ:AAPL) iPhone to take advantage of its HSPA network speeds.
The big bombshell though was the October announcement of the MetroPCS deal, in which T-Mobile parent Deutsche Telekom will merge T-Mobile with MetroPCS, and will own 74 percent of the combined company. The T-Mobile deal will allow MetroPCS to expand its brand nationwide using T-Mobile's network, and will give T-Mobile even more AWS spectrum, allowing it to deploy an LTE network with 20 MHz-wide channels.
Finally, toward the end of the year, T-Mobile revealed that next year it will start carrying Apple products. In another transformation, T-Mobile said it will eliminate all device subsidies from its rate plans in 2013, making it the first major U.S. wireless carrier to do so.
Why it was significant: T-Mobile's agreement to merge with MetroPCS was unexpected, especially because Sprint had reportedly been courting MetroPCS earlier in the year and T-Mobile did not seem like it was in deal-making mode. While the deal does not vastly increase T-Mobile's scale, it gives it more spectrum and the flexibility to more credibly compete with Verizon and AT&T in 2013. Like AT&T's deal for T-Mobile, the MetroPCS deal was primarily about spectrum. MetroPCS' spectrum assets are complementary to T-Mobile's: T-Mobile gets more AWS spectrum to build a robust LTE network, meaning that by the end of 2013 there will be four LTE networks in the United States covering at least 200 million POPs. Moreover, T-Mobile CTO Neville Ray has said that the carrier's LTE network, based on Release 10, will be fast enough to put pressure on its larger competitors.
At its heart, the T-Mobile-MetroPCS deal is about industry consolidation. While the transaction won't fundamentally alter the U.S. market--Verizon and AT&T remain far stronger competitors than Sprint and T-Mobile--it does give T-Mobile significant advantages that it would not have had otherwise. The merger makes T-Mobile a credible No.4 player. T-Mobile's merger with MetroPCS, coupled with its plan next year to sell Apple's iPhone and get rid of smartphone subsidies, means the carrier is poised to be not just a challenger, but one that is offering a different kind of wireless experience.
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