MetroPCS and T-Mobile: Oh My, What an Ugly Baby

Published on May 11, 2012
by John Paczkowski

Consolidation among the smaller U.S. wireless carriers might be inevitable, as larger telecoms look to bolster their spectrum amid insatiable demand for wireless data services, but some mergers just don’t make sense. And according to a number of analysts, a merger of Metro PCS and Deutsche Telekom subsidiary T-Mobile is one of them.

While the rumored marriage of the two carriers would certainly result in a larger subscriber base, a more robust infrastructure and a nice combined swath of spectrum, there are other considerations that make the combination a bit dubious. And though chatter about a potential deal may have cheered some investors, it’s turning the stomachs of others.

To wit, Bernstein Research’s Craig Moffett’s take on a T-Mobile/Metro PCS merger, which begins with an exclamation that pretty much says it all:

“Oh my, what an ugly baby.”

Moffet’s opinion is that combining two wireless weaklings just leaves you with a bigger weakling, particularly if they rely on different network technologies, as T-Mobile and MetroPCS do. T-Mobile’s network is GSM. MetroPCS’s is CDMA. In other words, a combination of the two is not a solution to either company’s problems, at least until they meet on LTE.

“Both [companies] are spectrum constrained — this wouldn’t change that — and they rely on fundamentally different technology platforms, making a combination a logistical nightmare,” Moffet says. “It will be years before either is sufficiently transitioned to LTE to make a combination truly sensible. To be sure, there would potentially be some overlapping retail stores in MetroPCS market, there would naturally be some selling, general and administrative expenses savings, and there are perhaps some savings in LTE network deployment in MetroPCS markets. But none of these benefits would provide truly compelling justification.”

And that really does seem to be the case. Though, to be fair, the combination would give T-Mobile more customers, which it could really use, after having lost more than a half-million contract customers in the first quarter.

Still, it’s far from an ideal tie-up. Said R.W. Baird’s William Power, in a note that echoes Moffet’s: “A T-Mobile/PCS merger smells like a mess to us, and seems to speak to the challenges facing the industry, exacerbated by the government rejection of the T/T-Mobile deal, which might have created spectrum opportunities for the other operators.”

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