T-Mobile moves to boost prepaid services

By Roger Yu, @RogerJYu, USA TODAY

T-Mobile USA’s merger with MetroPCS Communications is a move by the nation’s fourth-largest wireless carrier to cement its place in an increasingly competitive market and focus more on attracting price-sensitive customers, analysts say.

After years of struggling, T-Mobile is teaming with a company known for its prepaid, no-contract accounts, which are cheaper than those at Verizon Wireless, AT&T and Sprint.

The transaction will help the new combined company capitalize “on its leading position as a provider of fast- growing no-contract services,” T-Mobile said in a statement.

The stock and debt-restructuring deal requires MetroPCS to pay $1.5 billion in cash to its shareholders. Deutsche Telekom, which owns T-Mobile, will own 74% of the combined company. The new company will take the T-Mobile name, replace MetroPCS on the New York Stock Exchange, and be led by John Legere, the current CEO of T-Mobile.

The deal, which has to be approved by regulators, is expected to close in the first half of next year. MetroPCS shares fell $1.33 to $12.24 Wednesday.

In need of more wireless airwave space and cash to expand its business, T-Mobile has been looking to partner with another carrier. The MetroPCS deal comes roughly a year after federal regulators, citing antitrust concerns, quashed AT&T’s attempt to buy T-Mobile for $39 billion. The new T-Mobile, which will have more than 40 million subscribers, would still trail the third-largest carrier, Sprint.

“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,” says Rene Obermann, Deutsche Telekom CEO.

Once combined, T-Mobile plans to use the wireless spectrum that it will acquire in the deal to expand its 4G Long-term Evolution (LTE) network and broaden its choice of smartphones. T-Mobile is trailing its rivals in LTE expansion and still doesn’t sell the iPhone, both of which have remained sore points for customers. T-Mobile has lost about 2.8 million customers in the past two years.

In its marketing campaigns, T-Mobile has positioned itself as a cheaper option for customers who cringe at wireless bills that often exceed $100 a month. But in the market for price-sensitive customers, it has faced stiff competition from companies like MetroPCS and Leap, which sell no-contract accounts that are cheaper.

“In recent years, T-Mobile tried to move up-market with new smartphones and 4G marketing, but the perception of its network has been hard to overcome,” Walt Piecyk, an analyst at BTIG, wrote. “MetroPCS had particular success at eating away at both their prepaid and their post-paid customers.”

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Category: Science & Technology