T-Mobile Looking at Buy of MetroPCS, Deutsche Telekom Confirms

"The talks are at a stage where significant issues have not yet been finalized, contracts have not yet been signed and the conclusion of the transaction is still not certain,” DT said (http://xrl.us/bnscnx). “The Board of Management and Supervisory Board of Deutsche Telekom have therefore not yet taken the resolutions necessary for such a transaction.” The filing of the statement was made under Section 15 of the German Securities Trading Act. DT said its goal was to operate T-Mobile and MetroPCS within one company in which DT would hold the majority of shares.

One potential hangup is that T-Mobile operates a GSM-based network and MetroPCS is a CDMA carrier, though both are evolving their networks to LTE, which could make integration easier to accomplish, analysts said Tuesday. But MetroPCS also holds spectrum licenses that would be valuable to T-Mobile, which is working to beef up its network, with the addition of AWS-1 licenses it got from AT&T after the deal between the two carriers collapsed last year, analysts said. MetroPCS was the fifth-highest bidder in 2008’s 700 MHz auction, which T-Mobile sat out. Two years earlier, MetroPCS bid nearly $1.4 billion for 8 licenses in the AWS-1 auction, an auction in which T-Mobile was the leading buyer of spectrum.

T-Mobile claimed last year in a filing made as part of the AT&T/T-Mobile deal it doesn’t have the spectrum it needs to offer 4G as a standalone company. “T-Mobile USA has ‘no clear path’ to LTE,” the carrier said at the time (CD April 21/11 p1). T-Mobile has money to spend. Late last week, T-Mobile and Crown Castle signed a deal under which the tower company agreed to pay $2.4 billion for control of T-Mobile’s 7,200 towers for 28 years (CD Oct 1 p16).

"Since I suspect the Obama administration remains concerned about leading mobile-phone carriers Verizon and AT&T gaining increased separation between themselves and the rest of the wireless pack in an evolving 4G LTE market requiring spectrum, capital and scale, it’s hard to see where the FCC and Justice Department would have much trouble rationalizing a T-Mobile/Metro PCS deal,” said Jeff Silva, analyst at Medley Global Advisors. “Government clearance, which would be expected in the first half of 2013 if the transaction is filed with the two agencies in the near future, would be all the more assured in a Republican administration.”

The transaction “could make sense” for T-Mobile since it would give the carrier “additional scale in its targeted prepaid market” and “complementary spectrum in the AWS band,” UBS’s John Hodulik wrote investors. “We believe integration would be straightforward despite technology differences as T-Mo would simply shut down the PCS network over time while spending appropriately to retain the customers and reuse the spectrum.” Stifel Nicolaus’s Chris King wrote to clients that “industry ramifications would vary.” There would likely be “little impact on Verizon Wireless and AT&T Mobility, as they continue to focus and dominate the post-paid market in the U.S., with a stronger low-end, pre-paid operation from a combined TMO/PCS negatively impacting carriers that focus more on pre-paid offerings, such as Sprint Nextel,” he said. “Such a transaction would be subject to customary regulatory approvals, however we do not see any initial regulatory roadblocks to the deal."

MetroPCS shares closed up 18 percent to $13.57 on Tuesday. DT finished the day up 2.7 percent to $12.56 in the U.S.