The U.S. wireless industry
Let’s be honest, the U.S. wireless industry is a tough market to break into, even for so-called “established” brands. Dozens of carriers have come and gone over the last decade, all falling to the giant duopoly that is Verizon and AT&T. With over 210 million subscribers between the two, it’s an almost insurmountable number for any single entity to overcome.
Although you could consider T-Mobile part of “the big four” carriers in the U.S., it’s hard to argue that they’re on the same scale as the top two. With just 34 million subscribers, T-Mobile is seen more of a target for buyouts and acquisitions than a viable challenger. In the eyes of most people, T-Mobile isn’t even a viable carrier option.
Whether you want to personally use T-Mobile or not, you should really want T-Mobile to stick around. With Sprint’s buyout by Softbank all but confirmed, T-Mobile is the so-called “last line of defense” before we see competition all but completely disappear from the U.S. wireless industry. Read on to see why MetroPCS is T-Mobile's best chance.
So what does a reverse merger with MetroPCS do for T-Mobile? There are three main positives to the transaction. First, subscribers and income. MetroPCS, although small, is a profitable company with almost 10 million subscribers. There’s no downside to T-Mobile having around 45 million subscribers and a new income stream. Improving and expanding networks is expensive.
Second, it’s spectrum. Much ink (erm, pixels?) has been spilled over the fact that MetroPCS operates on CDMA and T-Mobile operates on GSM. In reality, that doesn’t matter for the success of this merger. From the day that the merger is finalized -- by the end of Q2 2013 -- the new company will begin selling GSM handsets that operate on T-Mobile’s nationwide network from existing MetroPCS stores. At the same time, it will begin sunsetting its CDMA network, which will be completely shut down by 2015.
MetroPCS currently operates an LTE network -- it’s small, but it’s there -- and it operates on the same frequencies that T-Mobile already owns spectrum in (AWS, if you're keeping track). This network can quickly be expanded post-merger and fit directly into T-Mobile’s current network roadmap, which has a nationwide LTE rollout started by the end of 2013 and refarming of HSPA+ service to the 1900MHz band in the same time period.
Lastly, a change of structure. T-Mobile is currently a private company, owned and operated by Deutsche Telekom, headquartered in Germany. MetroPCS is a publicly traded company, based here in the U.S. With the way that this merger is structured, MetroPCS is actually buying T-Mobile (which is why you'll see "reverse merger" used to describe it). It’s a bit hard to understand because T-Mobile is so much larger, but the end result is that the new entity -- which will still be called T-Mobile -- will be a publicly traded company still. Deutsche Telekom will be the majority shareholder of the new company.
It’s pretty well known that Deutsche Telekom has been eyeing an exit from the U.S. market, and it’s hard to blame them considering the way things have been going. After the failed buyout by AT&T, things seem to have changed a bit, but you have to imagine Deutsche Telekom wouldn’t mind dropping a less than profitable sector of their business given the chance. The new T-Mobile -- now being a publicly traded company -- can be easily sold all at once or in part to multiple investors without much hassle. If Deutsche Telekom doesn’t want to take on the responsibility of running T-Mobile, then they don’t have to. The worst thing for a company is owners and leadership that aren’t completely behind it.
The future of T-Mobile
So will T-Mobile merging with MetroPCS solve all of their problems? Certainly not. What it will do is give T-mobile the tools it needs and a little bit of wiggle room to get back into the conversation and actually challenge the larger carriers. The U.S. wireless market without T-Mobile is one of higher prices and inferior service, with only two options for carriers. As I said before, whether you use T-Mobile personally or not, that’s not a market you want to be a consumer in.
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