T-Mobile takes on Verizon, AT&T with MetroPCS buy

Sue Marek

Last week a top T-Mobile USA executive admitted the company had "lost its way" after AT&T Mobility announced its planned $39 billion acquisition of T-Mobile. That deal, of course, fell through in December 2011 when AT&T (NYSE:T) revoked its bid after facing intense opposition from regulators at the Department of Justice.

Today T-Mobile is back in fighting shape with the news that parent company Deutsche Telekom has agreed to merge its U.S. operations with flat-rate player MetroPCS (NYSE:PCS). In fact, some analysts are saying that this move makes T-Mobile a viable threat to the big two operators AT&T and Verizon Wireless (NYSE:VZ) because it means that T-Mobile will be able to deploy LTE in 20x20 MHz of spectrum. With that much spectrum, T-Mobile's  LTE deployment will be on par with the bigger operators.

"This makes T-Mobile a much more significant competitor," said Roger Entner, founder of analyst firm Recon Analytics and a frequent contributor to FierceWireless. "[T-Mobile's CTO] Neville Ray's life just got a lot better."

Make no mistake: Even though T-Mobile will be combining its 33.2 million customers with MetroPCS' 9.3 million customers, this deal is all about spectrum. "These were two very spectrum challenged companies," said Mark Lowenstein, founder of M-Ecosystem and a FierceWireless contributor. "They weren't able to compete effectively alone with their current spectrum holdings."

Which carrier will suffer the most from a merger of T-Mobile and MetroPCS?And that additional spectrum will help T-Mobile fulfill its "challenger" strategy. The company has repeatedly said it will be the value-based operator in the market--a strategy that Lowenstein thinks is smart. "There is lots of opportunity for price competition in mobile," he said. "T-Mobile now has the spectrum to do it. Data services in the U.S. are very expensive."

And although this merger will bring together two operators that are currently using different network technologies (T-Mobile is a GSM carrier and MetroPCS is a CDMA and LTE operator) Lowenstein said the difference in air-interface technologies is no longer that big of a challenge. "It is clear that everyone is investing in LTE and there is a commonality of spectrum between the two companies," Lowenstein said, noting both operators have AWS radio waves.

Entner agreed, adding that MetroPCS, which has always been a prepaid carrier, has a fairly high churn rate (in the second quarter its churn was 3.4 percent) and that means that most of its customers have a lifespan of just slightly more than two years. "In two years, all of MetroPCS' CDMA customers will have turned over," Entner said, noting that this is a big difference from when Sprint Nextel (NYSE:S) acquired Nextel Communications. At that time Nextel had a very loyal customer base on its iDEN network. "Those iDEN customers had very low churn. They wanted to stay on that network," Entner said.

T-Mobile's proposed merger with MetroPCS is a smart move for the company. Without this, it was likely to continue to lose customers and perhaps "lose its way" in the fiercely competitive U.S. wireless market. --Sue

P.S. Look for Fierce's coverage of T-Mobile's planned merger with MetroPCS here: T-Mobile USA and MetroPCS merge: Complete coverage