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Tech / Mergers

T-Mobile, MetroPCS to Merge

October 3, 2012

Less than a year after it failed to win regulatory approval of a deal with AT&T, T-Mobile USA announced plans on Wednesday to merge with MetroPCS, saying combining forces will help both firms better compete with larger rivals.

The combined company will retain the T-Mobile name and will have 42.5 million subscribers, most of whom are now with T-Mobile. T-Mobile is owned by Deutsche Telekom.

"The T-Mobile and MetroPCS brands are a great strategic fit--both operationally and culturally," Deutsche Telekom CEO René Obermann said in a statement. "The new company will be the value leader in wireless with the scale, spectrum and financial and other resources to expand its geographic coverage, broaden choice among all types of customers and continue to innovate, especially around the next-generation LTE network."

The deal was announced less than a year after AT&T's bid to buy T-Mobile was derailed in the face of opposition from U.S. regulators. T-Mobile has been struggling to keep up with its bigger rivals given its need for more spectrum and difficulty in retaining customers. T-Mobile is the fourth biggest wireless carrier in the United States. Verizon Wireless is the biggest wireless provider followed by AT&T and Sprint. Based on current subscriber totals, T-Mobile would still remain in fourth place even after the merger with MetroPCS.

"If anyone had a question about whether T-Mobile was here to stay, we're here to stay and here to win," T-Mobile USA CEO John Legere said during a conference call.

Reaction was swift and mixed to the deal. Rep. Anna Eshoo, D-Calif., ranking member of the House Energy and Commerce Communications and Technology Subcommittee, said the merger would help bolster competition in the wireless market and urged swift regulatory approval of the deal.

"At a time when two companies continue to dominate the wireless marketplace, the need for a strong national competitor has never been greater," Eshoo said, referring to the dominance of Verizon and AT&T. "The proposed merger of T-Mobile and MetroPCS has the right ingredients to provide consumers with a viable alternative for wireless voice and data service."

The public interest group Free Press said it hoped the merger would improve T-Mobile's ability to compete with Verizon and AT&T.

"We need stronger competitors to push back against the AT&T-Verizon juggernaut, ones that will force these carriers to compete on price and service quality," Free Press Policy Director Matt Wood said in a statement. "But consolidation at the bottom between a regional prepaid carrier and the last-place national carrier is not going to fix all of the problems in our wireless market. The FCC is going to have to formulate bold public policies to bring consumers the relief they need."

Even before the merger was formally announced, the Communications Workers of America voiced concerns with the deal, saying it could lead to possible job losses.

CWA was a big champion of AT&T's bid to buy T-Mobile. AT&T employs 40,000 wireless employees who are members of the CWA. Most of T-Mobile's U.S. workforce is not unionized with the exception of 16 employees in Connecticut and so CWA viewed the merger with AT&T as a way to add more unionized workers.

CWA said that both T-Mobile and Metro PCS send a lot of work offshore and the union worries that more jobs will be lost by their merger.

Despite such concerns, the investment research firm Stifel Nicolaus said it does not see any major problems in gaining regulatory approval for the deal.

"Such a transaction would be subject to customary regulatory approvals, however, we do not see any initial regulatory roadblocks to the deal," the firm said in a research note late Tuesday.

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