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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: Service Options
By IS81 on 10/3/2012 6:48:32 PM , Rating: 2
Whoa! I can see now re-reading that I unintentionally implied that I have all kinds of telco issues all the time, which is not the case. I've just had one or two with each carrier (total of three carriers) over the last 15 years or so, for a grand total of 4 issues. Only two of those issues were of any real significance to me. (T-Mobile and AT&T)

To clarify: I stopped by a T-Mobile store (~6 years ago) to switch to a plan with more minutes. I was at 450, and wanted to go to 1000, as I knew I would be making a lot more calls over the coming months. The guy at the store (he apologized for his mistake) accidentally moved me to 550 instead. So the following month where I used upwards of 950 minutes resulted in a considerable overcharge. As I said, he admitted that this was his mistake and apologized - I had no issue with that guy, he just wasn't "authorized" to fix it. My problem was with the phone service people who refused to help rectify the overcharge created by their own employee. 6 phone calls later(including one where they called me at 5 AM on a Saturday to ask for payment) I got nowhere. Ask for a supervisor or other escalation? "Against policy."

In contrast, I had an issue with AT&T a couple years later involving a computer glitch (Their words, not mine) that resulted in a smaller overcharge. In this case, after the first attempt over the phone (an hour and a half) went somewhat poorly, I stopped by the local AT&T store on the way home from work and had the issue fixed, without any arguments or ranting whatsoever, in under 5 minutes.

Anecdotal? Yes. If they're losing customers at such a high rate, it wouldn't surprise me if this has something to do with it. I'm not asserting that this is absolutely the cause, just saying I wouldn't be surprised.


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