Deutsche Telekom is to merge its T-Mobile USA division with MetroPCS Communications, creating a new major player in the United States to challenge the big-three wireless operators.
The new entity, which will retain the T-Mobile name, will count 42.5 million customers with $24.8 billion in revenue, and Deutsche Telekom will hold a 74% stake.
The move will allow Deutsche Telekom, the largest telecommunications company in Europe, to take another crack at the US market following a failed tie-up last year. The Justice Department blocked a merger between T-Mobile USA and AT&T, the largest carrier in the US, saying it was anti-competitive and would have led to higher prices.
The new deal is essentially a reverse takeover, with MetroPCS, the smaller, publicly listed partner, ostensibly buying out T-Mobile before carrying out a 1-2 stock merge in which it will hand over $1.5 billion to shareholders.
By combining with MetroPCS, T-Mobile hopes to be able to up competition with its nearest rival Sprint Nextel, the third-largest US operator with around 56 million customers.
But T-Mobile’s main goal is to disrupt what is essentially a duopoly between AT&T and Verizon Wireless, which, between the two, have almost 200 million subscribers – more than all of their rivals combined.
T-Mobile chief executive John Legere, who will remain as head of the new company, believes that combining the two operators will enable it to provide unlimited data plans and more competitively priced prepaid packages.
“When you look at this as an industry, we are the alternative choice for consumers,” Legere told US media. “This can only be good for the industry to think about the competition and consumer.”
T-Mobile USA was once Deutsche Telekom’s fastest-growing division worldwide, but unable to compete with AT&T, Verizon and Sprint. With many newer, smaller rivals also taking customers away, it has recently lost considerable ground.
Since 2010, the company has lost over 2.7 million subscribers – over 10% of its customer base – due in large part to the fact that it is the only major operator not to carry the Apple iPhone.
If T-Mobile pulls out of the merger it will have to pay MetroPCS $250 million, with the smaller company’s breakup fee fixed at $150 million.
Earlier this year, Sprint backed out of plans for a merger with MetroPCS, with sources citing debt of up to $8 billion as the main deterrent.
Key Statistics - Wireless Telecommunications Industry In the US (source: MarketLine)
- In 2011, the wireless communications market in the United States saw revenue of $187 billion – an annual growth rate of over 5% for the 2007-2011 period.
- Over the same period, market consumption volume increased at an annual rate of close to 7%, topping 331 million subscribers in 2011.
- Market performance is expected to slow, with forecasts of annual growth rate of less than 1% for the 2011-2016 period. This growth is expected to take market value to over $196 billion through 2016.