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T-Mobile-MetroPCS deal creates expanded LTE network, focus on no-contract services

New company would still be 4th largest carrier, but a tougher rival

T-Mobile USA's merger with MetroPCS, announced early Wednesday, promises to create the "leading value" wireless carrier in the U.S., officials from both companies said.

Their claim is based primarily on creating a combined and expanded nationwide LTE wireless network -- using complementary spectrum-- and emphasizing low-cost, no-contract and unlimited data service to customers.

The combined entity would remain the nation's fourth-largest wireless carrier in terms of subscribers behind AT&T, Verizon and Sprint. The deal would pose the greatest threat to third-place Sprint, which has about 56 million customers. T-Mobile would grow from 33 million to 42 million subscribers once the merger is finalized, as expected, in the first half of 2013.

The contiguous LTE network of both companies would grow by 40% nationwide by the end of 2013 compared to what T-Mobile could offer alone.

There will be a focus on major metropolitan areas, such as New York, Los Angeles and Dallas, said John Legere, CEO of T-Mobile, who will become the CEO of the combined company.

Also, the combined resources mean the new network will be 20% denser, due to more coverage that takes advantage of the increased number of towers that use a fatter wireless channel than what T-Mobile's LTE network would have been, he said.

Noting that the merger closes the gap between T-Mobile and Sprint, Legere added in a conference call with reporters: "We're not just here to compete, we're here to win ... This has the potential to be a game-changer."

Later he said that while the combined entity would offer various service plans to customers, including more traditional two-year contract plans, he also committed to being "the leading provider of no-contract services."

No-contract services in the industry are growing at an annual rate that is three times faster than for contract services, he noted.

Leger also reached out to enterprises that wrestle with workers who bring their personal smartphones to use for work. The various service plans from the merged entity will be combined with BYOD (Bring Your Own Device) plans, he said. "We hear [customers] loud and clear," he said.

Some analysts and investors were concerned that by merging with MetroPCS, T-Mobile will incur added costs by having to convert CDMA cell towers used by MetroPCS to GSM service under T-Mobile. Both companies are committed to 4G LTE, a common technology platform, but the conversion of 3G CDMA towers to 3G GSM will be needed when a customer can't find a 4G LTE signal.

Also, LTE is a data-only network, which means GSM will be needed to transmit voice calls for a period of time.

Officials said that the full conversion of MetroPCS customers to GSM will occur by the end of 2015, but will start immediately in 2013 when the merger is finalized. MetroPCS customers get new phones more frequently than many carriers, at a rate of more than 50% to 65% a year, which will speed the conversion, Legere said.

"We expect minimal [MetroPCS] customer losses and will be managing this very carefully," Legere said. "To MetroPCS customers: You will not be abandoned."

After T-Mobile failed in its merger with AT&T last year, the merger announcement with MetroPCS deal sounded like good news to analysts.

T-Mobile has been losing customers, and needs the added spectrum that MetroPCS offers to expand at a lower cost than buying more spectrum independently, analysts said.

"This merger makes the combined company attractive against Sprint," said Jack Gold, an analyst at J. Gold Associates. "T-Mobile needs more customers and is losing them, and is still just about half the size of Sprint. So it has become a question of spending a ton of money to upgrade to LTE, but how do you recoup those costs without subscribers?"

The merger is "obviously bad news for Sprint," and other no-contract services, even those offered by the two largest carriers, AT&T and Verizon, said Julien Blen, an analyst at Infonetics.

In the announced deal, T-Mobile's parent, Deutsche Telekom, essentially retains a 74% share, and will provide $500 million in revolving credit to help the new entity. In the conference call, DT's CEO Rene Obermann said the company remains committed to "creating a sustainable and financially viable national challenger in the U.S." The deal "strengthens our position in the U.S. market."

MetroPCS shareholders will receive $1.5 billion in cash and 26% of the new company.

Legere summarized the merger as accelerating T-Mobile's prominence in U.S. wireless. "This is a deal not about surviving ... This is about thriving," he said.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His e-mail address is [email protected].

Read more about wireless carriers in Computerworld's Wireless Carriers Topic Center.


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