T-Mobile/MetroPCS merger wins approval
Some shareholders still oppose deal, but FCC joins DoJ in ruling it will be in the public benefit
Published: 13 March, 2013
Despite shareholder complaints and hostile filings from rivals, T-Mobile USA's merger with MetroPCS has cleared its main regulatory hurdles, winning approval from the FCC and the antitrust agency of the Department of Justice.
The telecoms regulator announced its decision on Tuesday, following in the footsteps of the DoJ. FCC chairman Julius Genachowski said in a statement that the combining of the US's fourth and fifth cellcos would benefit consumers by strengthening their ability to roll out new high speed services rapidly. Bolstering these two players is also seen as a way to enhance competition to Verizon and AT&T. The latter's own bid for T-Mobile collapsed amid regulatory disapproval in 2011, and in recent months TMo has become increasingly aggressive against its former acquirer as it prepares to launch its own LTE offerings.
Merger with MetroPCS will bring it existing 4G services, but also the complexities of aligning its GSM and HSPA networks and spectrum with the flat rate carrier's CDMA systems. TMo is already going through a complex spectrum refarming effort, moving 3G into the PCS band to live alongside GSM, and thus freeing up the AWS frequencies for LTE. MetroPCS will bring its new parent additional AWS capacity as well as an intensified focus on the prepaid market, a direction in which TMo has been shifting over the past couple of years as the big two carriers tighten their hold on the postpaid, premium segments.
The deal will leave TMo's parent, Deutsche Telekom, with 74% of the combined entity after paying MetroPCS shareholders $1.5bn in cash. However, the latter's biggest investor, Paulson & Co, has opposed the terms of the merger and threatened legal action. The MetroPCS shareholder vote is set for April 12. Trade union CWA (Communications Workers of America) has also opposed the deal because of fears of job losses.
The FCC ruling said that, although the merger plan "raises horizontal competition issues because it would result in the combination of overlapping mobile wireless coverage and services in various markets, as well as the transfer of customers of two current competitors", those concerns are outweighed by the benefits, which include expanded LTE deployments, "the expansion of the MetroPCS brand into new geographical markets, the development of a more robust, national network, improved quality of service and the strengthening of the fourth largest nationwide service providers' ability to compete in the mobile broadband services market".
When the merger goes ahead, the new operator will hold up to 110MHz of spectrum covering 141m POPs, or 46% of the mainland US population, in 248 markets. Most of the spectrum will be in the PCS and AWS bands, plus one lower 700MHz licence. Most importantly, it will be ableto deploy 2 x 20MHz LTE channels - the amount needed for true broadband - in 90% of the top 25 markets. The firm will have a total of 42m customers but will not overtake Sprint to be the number three cellco.
The FCC added: "Both T-Mobile USA and MetroPCS have a history of being disruptive influences or 'mavericks', and moreover, Newco would have an economic incentive to continue to play this role. As the smallest of the nationwide service providers, it would benefit less from coordination than its significant rivals and it can expand output relatively inexpensively."