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T-Mobile, MetroPCS plan to unite to battle larger rivals

NEW YORK — T-Mobile and MetroPCS have agreed to combine their struggling cellphone businesses in a deal aimed at letting them compete better with their three larger rivals.

The combined company will use the T-Mobile brand and have about 42.5 million subscribers. Although T-Mobile will stay No. 4 among U.S. wireless companies, it will get access to more space on the airwaves, a critical factor as cellphone carriers try to expand their capacity for wireless broadband.

That could ultimately mean more choices and better service for customers, though Forrester Research analyst Charles Golvin doesn't believe the deal will make a "revolutionary difference" for U.S. customers. That said, MetroPCS customers will probably have to buy new phones at some point over the next three years as they are moved over to T-Mobile's network.

Both companies have faltered in the highly competitive U.S. cellphone market led by Verizon Wireless and AT&T Inc. T-Mobile has 33.2 million subscribers, well behind No. 3 Sprint Nextel's 56 million.

Under the new deal, Deutsche Telekom will hold a 74 percent stake in the combined company, while MetroPCS Communications' shareholders will own the remainder. MetroPCS shareholders will also receive a payment of about $1.5 billion.

"We are committed to creating a sustainable and financially viable national challenger in the U.S., and we believe this combination helps us deliver on that commitment," Deutsche Telekom chief executive Rene Obermann said in a statement.

Deutsche Telekom said the combined T-Mobile-MetroPCS will have revenue of about $24.8 billion, based on analysts' estimates. The deal is also expected to lead to about $6 billion to $7 billion in combined savings.

The acquisition, scheduled to close in the first half of 2013, will probably affect MetroPCS subscribers the most. By the end of 2015, the MetroPCS wireless network is expected to be shut down, and customers will be moved over to the new company.

That means they will have to update their mobile devices at some point. But Golvin believes that is probably good in the long run, as customers will get more choices in picking out phones.

Even if not stalled by regulatory hurdles, a linkup will nonetheless be complicated by the fact that MetroPCS and T-Mobile use different network technologies. That means MetroPCS phones would not work on T-Mobile USA's network, and vice versa. However, both companies are deploying the same fourth-generation, or 4G, technology, so they're on a path to harmonizing their networks.

Obermann said the new company will have the "resources to expand its geographic coverage, broaden choice among all types of customers and continue to innovate, especially around the next-generation LTE network."

As for phone bills, MetroPCS customers, who now get low-cost, contract-free plans, might be pressured to sign up for two-year agreements, which are more lucrative for cellphone companies. But T-Mobile also offers contract-free plans, so MetroPCS customers who want to stick with such plans should have more options, Golvin said.

Deal details

• The combined T-Mobile and MetroPCS, which will retain the T-Mobile name, will have 42.5 million subscribers, trailing Verizon Wireless, AT&T and Sprint Nextel.

• Deutsche Telekom,

T-Mobile's parent company, will hold a 74 percent stake in the combined company, while MetroPCS Communications' shareholders will own the remainder.

• MetroPCS shareholders will also receive a payment of about $1.5 billion.

• The new company will have annual revenue of about $24.8 billion, based on analysts' estimates.

T-Mobile, MetroPCS plan to unite to battle larger rivals 10/03/12 [Last modified: Wednesday, October 3, 2012 10:30pm]
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