T-Mobile USA to merge its cellphone business with MetroPCS Communications

NEW YORK, N.Y. – T-Mobile and MetroPCS have agreed to combine their struggling cellphone businesses in a deal aimed at letting them compete better with their three larger rivals.

The combined company will use the T-Mobile brand and have 42.5 million subscribers.

Although T-Mobile will stay No. 4 among U.S. wireless companies, it will get access to more space on the airwaves, a critical factor as cellphone carriers try to expand their capacity for wireless broadband.

T-Mobile USA’s German parent, Deutsche Telekom AG, will hold a 74 per cent stake, while MetroPCS Communications Inc.’ shareholders will own the remainder. MetroPCS shareholders will also receive a payment of about $1.5 billion.

Both companies have faltered in the highly competitive U.S. cellphone market led by Verizon Wireless and AT&T Inc. T-Mobile had 33.2 million subscribers, well behind No. 3 Sprint Nextel Corp’s 56 million. MetroPCS was even further back, ranking fifth with 9.3 million.

Getting more access to airwaves was the main reason for AT&T tried to buy T-Mobile for $39 billion last year. But that deal was shot down by regulators, which said competition would suffer if the second-largest cellphone company were to gobble up the fourth.

Deutsche Telekom said the combined T-Mobile-MetroPCS would have revenue of about $24.8 billion based on analysts’ estimates. The deal is also expected to lead to around $6 billion to $7 billion in combined savings.

The deal still has to be agreed by shareholders of both companies and will require government approval. But the regulatory concerns this time appear set to be much milder than the proposed deal involving AT&T. Both companies are relatively small, and T-Mobile USA has been losing subscribers for the last two years.

“We are committed to creating a sustainable and financially viable national challenger in the U.S., and we believe this combination helps us deliver on that commitment,” Deutsche Telekom CEO Rene Obermann said in a statement.

U.S. Rep. Anna G. Eshoo, the ranking Democrat on the House subcommittee on communications and technology, said there’s a big need for a “strong national competitor” in the wireless marketplace when two companies — Verizon Wireless and AT&T — dominate the space.

“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,” she said. “I hope the FCC and the Department of Justice will conduct a thorough, but swift review of the transaction’s merits.”

Even if not stalled by regulatory hurdles, a linkup would be nonetheless be complicated by the fact that MetroPCS and T-Mobile use different network technologies. That means MetroPCS phones would not work on T-Mobile USA’s network, and vice versa. However, both companies are deploying the same fourth-generation, or 4G, technology, so they’re on a path to harmonizing their networks.

Obermann said the new company will have the “resources to expand its geographic coverage, broaden choice among all types of customers and continue to innovate, especially around the next-generation LTE network.”

Neither T-Mobile nor MetroPCS carry Apple Inc.’s iPhone, and it’s unclear whether the combined company will. AT&T, Verizon and Sprint all do.

Germany’s stock market was closed Wednesday because of a national holiday. But the prospect of seeing Deutsche Telekom finding a solution for its struggling U.S. business sent the stock higher Tuesday after both companies had confirmed their talks.

Shares of Dallas-based MetroPCS fell $1.07, or 7.9 per cent, to $12.50 in midday trading Wednesday. It had shot up 17.8 per cent on Tuesday to close at $13.57.

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Baetz reported from Berlin. Ortutay is an AP Technology Writer.