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  (Source: T-Mobile USA)
Merger will create a strong fourth player in the U.S. market

When AT&T’s (T$39B acquisition of Deutsche Telekom AG (ETR:DTE) subsidiary T-Mobile USA was shot down by U.S. regulators on antitrust grounds, many feared regulators may have wasted their effort as T-Mobile USA was on the verge of financial failure.  Indeed, recent layoffs and customer defections seemed to confirm the worst.

I. Merger Strengthens T-Mobile USA

But in a surprising, MetroPCS Communications Inc. (PCS) and T-Mobile USA announced today that they would be merging into a single value carrier.  The deal is slightly complicated financially, but the big picture is that T-Mobile USA will remain independent, although MetroPCS and T-Mobile may be able to enjoy some joint marketing pitches.

The move can be viewed as a partial acquisition of MetroPCS by Deutsche Telecom, which will then be merged it into its struggling U.S. unit T-Mobile.

The financial side of the deal involves MetroPCS splitting its stock (doubling the number of shares), then paying $1.5B USD in direct cash to Deutsche Telecom shareholders, and handing over 74 percent of its stock to Deutsche Telecom shareholders.  The combined company (T-Mobile USA + MetroPCS) will have $15B USD in combined unsecured debt notes, and Deutsche Telecom will "provide a $5.5 billion backstop commitment for certain MetroPCS third-party financing transactions."

The deal creates a new carrier with a projected 42.5m subscribers, $24.8B in revenue, $6.3B of adjusted EBITDA (non-GAAP earnings), $4.2B in capital expenditures, and $2.1B of free cash flow (defined as EBITDA less capital expenditures) in 2012.

II. A Different Deal

It is a substantially different route compared to the AT&T deal, which involved a $39B USD cash/stock payment to Deutsche Telecom.  That deal would have merged T-Mobile's roughly 30 million customers with AT&T's roughly 100 million customers to produce a mega carrier with 130+ million customers.

MetroPCS was long eyeing a tie-up with T-Mobile USA, and had looked to potentially purchase certain assets/subscriber contracts from the carrier had the AT&T deal been approved.

The new merger makes T-Mobile USA bear a closer resemblance to Sprint Nextel Corp. (S) which has roughly 52 million subscribers (as of Q2) and also has contract-free offerings under the Boost Mobile and Virgin Mobile brands.

The merger also puts pressure on AT&T and Verizon Wireless (a joint venture between Verizon Communications Inc. (VZ) and Vodafone Group Plc. (LON:VOD)).  It also brings the promise of revived financials to T-Mobile USA.  Versus T-Mobile who has long bled money, MetroPCS has a culture of success, posting an impressive $148M USD profit last quarter.

T-Mobile has been stepping up its HSPA+ efforts, but this "3.5G" tech has struggled to compete against the bleeding edge at AT&T and Verizon Wireless -- both of whom have deployed "4G" LTE.  That said, it offers some of the best value plans in the industry.

Some details of the deal -- for example how the executive leadership will shake down -- remain unknown, and of course the purchase has to pass regulatory scrutiny.  T-Mobile USA recently named John Legere, a three-decade telecom industry veteran, as its new CEO, replacing CEO-of-two-years Phillip Humm who left to become CEO of Verizon Wireless parent Vodafone Europe.

Assuming it gets approved, though, the net result of this merger is simple -- more competition in the mobile market.

Source: BusinessWire

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RE: stop ading tihs PLEASE
By JasonMick on 10/3/2012 12:44:18 PM , Rating: 2
"Verizon Wireless (a joint venture between Verizon Communications Inc. (VZ) and Vodafone Group Plc. (LON:VOD))"

Do we even CARE WHO makes up Verizon.
Just say Verizon - period!
I disagree. To anyone who wants to better understand the telecommunications market either out of mere interest or as an investor should find that information useful.

If ownership was not important, there would be no purpose to this story in the first place.

(By your perspective -- "What does it matter who owns MetroPCS, T-Mobile USA, or if they merge as long as their brand names sell products!")

Sorry, but no. :)

RE: stop ading tihs PLEASE
By Huacanacha on 10/3/2012 2:13:00 PM , Rating: 1
This article relates to the structure of the telecommunications industry so the ownership makeup of Verizon is clearly relevant here, just as it is in similar stories.

On the other hand, you do the same thing in purely technical articles where the 1/2 paragraph "Verizon Wireless (a joint venture between Verizon Communications Inc. (VZ) and Vodafone Group Plc. (LON:VOD))" just bloats the text and unnecessarily gets in the way of relevant content. It makes me cringe every time I see it!

RE: stop ading tihs PLEASE
By Dr of crap on 10/3/2012 2:59:26 PM , Rating: 1
Thank you.
That's what I'm trying to get across to him, but it was lost in translation!

I'd rate you up, but I already posted so +3!

RE: stop ading tihs PLEASE
By Huacanacha on 10/3/2012 4:06:18 PM , Rating: 3
And yet for trying to give a balanced perspective on this I am downrated into oblivion. Go figure.

RE: stop ading tihs PLEASE
By Dr of crap on 10/3/2012 2:57:24 PM , Rating: 2
Sorry but yes.
When you have to insert Verizon and then you have to tell us that its a compnay owned by so and so it just gets in the way of the story.

Here the story IS the merger of T-Moblie and MetroPCS.

But from here on out when you have to insert T-Moblie, please do not say that it is a company of T-Mobile and MetroPCS and it subsideraries and it's stock holders and ect...
Just print T-Moblie and let it go. Are you just trying to get to a certain number of words in your articles?

RE: stop ading tihs PLEASE
By Ringold on 10/3/2012 5:20:52 PM , Rating: 1
Jason! Ignore 'em. They want journalism for teenagers with ADD, there's other sites. As someone with a tech fetish and an investors interests, I appreciate it.

Plus, you're FAR from the only one that does it, I wasn't an English or journalism major but it seems like a standard convention of some sort to, the first time a company is mentioned, to disclose those things briefly. To exclude it would feel more... blog-like? Informal?

RE: stop ading tihs PLEASE
By Dr of crap on 10/4/2012 8:12:24 AM , Rating: 2
Didn't know this was an investors place. How about showing the DOW and some other info as well!

Yes, we can be techie and not need to know the owners of each comany we read about. That would make each story twice as long as needed.
Why don't other companies info get disclosed?
It seems it's only a few that happens to, and the Verizon one is ALWAYS annoying!

"If a man really wants to make a million dollars, the best way would be to start his own religion." -- Scientology founder L. Ron. Hubbard

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