T-Mobile/MetroPCS Won’t Face Firestorm that Greeted Other Recent Wireless Deals

Under the terms unveiled Wednesday, MetroPCS shareholders will get $1.5 billion in cash and a 26 percent ownership stake in the new company (http://xrl.us/bnshqg). The new company will have some 42.5 million subscribers, which won’t change T-Mobile’s rank as the nation’s fourth-largest carrier behind Verizon Wireless, AT&T and Sprint Nextel.

Only the Communications Workers of America, a strong critic of T-Mobile USA for what CWA sees as its anti-union policies, released a statement slamming the deal. CWA was a strong supporter of AT&T/T-Mobile but a critic of the Verizon/cable transactions. Free Press said the deal raises larger questions that must be asked by regulators.

The combined company is expected to keep the MetroPCS brand alive, as a pre-paid offering in markets nationwide. The headquarters will be at T-Mobile’s base in Bellevue, Wash., while the company will “retain a significant presence in Dallas,” where MetroPCS is based. New T-Mobile CEO John Legere will head the company, while Braxton Carter, currently chief financial officer and vice chairman of MetroPCS, will be the CFO.

"We are extremely pleased to announce this transaction with MetroPCS, which enhances Deutsche Telekom’s position in the expanding U.S. wireless market,” said René Obermann, DT’s CEO. “The T-Mobile and MetroPCS brands are a great strategic fit -- both operationally and culturally. 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."

T-Mobile officials told us the combined company won’t hold spectrum above the levels permitted under the unofficial screen in any markets. Both companies mostly own spectrum in the PCS and AWS bands. Combined, the companies will have an average of 76 MHz of spectrum in the top 25 major markets, with an average of 80 MHz in Los Angeles, 70 MHz in New York and 100 MHz in Dallas-Fort Worth, the three largest markets, according to financial documents.

"I think it puts us in very good stead, better stead than we were before,” Legere said of spectrum, on a call with analysts. “And frankly, I think also an important part that we will be able to show clearly is versus our competitors, we are going to have an equivalent or superior LTE capability in most major markets into 2013 and that hasn’t always been the case."

CWA warned in a statement before the deal was formally announced that it means job loss and a “decline for workers.” But other opponents of AT&T/T-Mobile and Verizon/cable don’t have the same concerns this time around.

"We are not thrilled with the loss of any competitor, and it may be the case that there are problems with this deal that are not readily apparent,” said Public Knowledge staff attorney John Bergmayer. “I would also hope that Metro PCS customers are not left in the cold -- forced to buy new equipment or change their price plans, for instance. However, given the power of AT&T and Verizon, it’s understandable that T-Mobile has to get creative to compete. It’s a tough call, but on balance I think that the industry will be better off with a stronger T-Mobile."

"Wireless consumers have long suffered in an uncompetitive market,” said Free Press Policy Director Matt Wood. “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. 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."

T-Mobile has been willing to work with smaller carriers, said Steve Berry, president of the Competitive Carriers Association, which lists T-Mobile and MetroPCS among its members. “There’s going to be increasing pressure on every [smaller] carrier,” Berry said. “I think it’s probably good for T-Mobile and MetroPCS customers, and hopefully with a continued open attitude from T-Mobile on working with other competitive carriers, there'll be some good synergies that could come from this announcement. I don’t see the same concerns on competitive issues that were present during the last two major acquisitions."

The Rural Telecommunications Group was a leading opponent of both previous deals, but will not oppose this latest deal, the group said in a news release. House Communications Subcommittee Ranking Member Anna Eshoo, D-Calif., said she supports T-Mobile/MetroPCS. The FCC and Justice Department should conduct a “thorough but swift review” of the transaction, she said in a news release: The deal has the “right ingredients to provide consumers with a viable alternative for wireless voice and data service,” she said.

Analysts said the deal likely faces easy approval from federal regulators. Jeff Silva, analyst at Medley Global Advisors, noted that so far organized labor has sounded the only negative note. “It’s hard to see where other wireless carriers would raise serious objections, since -- given their own unique challenges -- [they] may want to be a buyer or seller in the not too distance future,” he said. “One possibility, though, is that some stakeholders will not oppose the deal outright but could seek to use the government’s review of it as a vehicle to advance parochial policy objectives.” The loss of MetroPCS as a competitor likely won’t give regulators too much pause, Silva said. “There would still be four national operators and the smallest among them will enhance its staying power at a time when Verizon and AT&T have achieved strong positions for a 4G LTE market in which only the strong are likely to survive,” he said.

"We would expect the DOJ and FCC to approve the deal, as it does not appear to raise a high level of antitrust/regulatory concerns and could potentially make the combined company a stronger competitor,” Stifel Nicolaus said. “More broadly, while it’s pretty clear the Democratic-run DOJ and FCC are not going to approve an AT&T/T-Mobile merger if they decided to make another run at a deal, there has been some question about whether the government might allow it in a Romney Administration. But by taking over MetroPCS, T-Mobile would make it more difficult for even a Republican DOJ/FCC to approve the deal, in our opinion.”