Opinion: The T-Mobile/MetroPCS Merger Is Deutsche Telekom’s Way Out Of The US Market

Let’s not kid ourselves as we look at todays news that the merger is as much about spectrum as it is Deutsche Telekom’s way out of the US marketplace. We’ve long known that DT wanted to exit America, and their first hope was with AT&T, a deal which went up in smoke as regulators found every reason to hate the potential combined company.

The deal between T-Mobile and MetroPCS is actually considered a reverse-merger, in the sense that it is set up for MetroPCS is effectively “take over” the larger T-Mobile USA. This is being done so that Deutsche Telekom can receive 74% of the new T-Mobile and the “new company” can be listed on the stock exchange, as MetroPCS is already a publicly listed company. This maneuver offers Deutsche Telekom a way out of the US market, if they wished to do so by selling off their shares at a later date.

Deutsche Telekom’s wish to leave the US market is, as we mentioned before, no surprise whatsoever. They’ve long hinted at their want to move away from the US completely and emphasized that during the long fight to hand-off their USA brand to AT&T. The US market is tough, as there is no question that while T-Mobile USA is financially healthy in the sense that they aren’t running in the red, they are still a drag on DT’s bottom line. The cost undertaken by DT to support their US operations is weighing on the company and causing them trouble in their other markets that desperately need their attention.

The time it would take and the money it would require for Deutsche Telekom to push T-Mobile into the running with Sprint for a real fight for third place is a strong opportunity cost the company doesn’t seem to want to consider. The money received from the AT&T breakup fee along with the spectrum received seems to be as far as DT is willing to go with pumping resources into their US operations. If anything, the $1.5 billion they are putting into the MetroPCS acquisition seems like pocket change compared to what it would cost to give T-Mobile USA enough leverage to seriously combat Sprint for third place.

There seems to be little question here that this deal is as much about spectrum, the prepaid market as it is a way for Deutsche Telekom to exit the US once and for all. The only question we’re left wondering is how a joint T-Mobile USA, MetroPCS will function once Deutsche Telekom sells its very last share?

 

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  • UMA_Fan

    It was a reverse merger PRIMARILY so T-Mobile could be publicly listed which it is not right now.

    On the call, Rene Obermann CEO of DT said himself the US market is a whole better than the European one right now with all the economic crisis they are having.

    Also, it’s important to remember T-Mobile USA accounts for 25% of DT currently.

    The way it will probably go down is that if the combined company is successful they will buy more shares, if it is a disaster they will liquidate their shares.

    • http://pharaohtechblog.blogspot.com/ Conan Kudo (ニール・ゴンパ)

      It basically gives DT more flexibility in the U.S. market.

  • Singleweird

    will this merger give me any way out of my contract

    • Jay

      I would like to know this also

    • chris125

      No

    • Luigi

      don’t worry ’cause by the time the merger happens you will be out of contract already (only if you don’t renew it along the way)…

      • colombia tulua

        how long it takes? how we as a costumer are out the contract?.

        • eanfoso

          Read the papers that you signed when you got your line

    • IRIE4IPIEIR

      Of course.

    • TMOLOYAL

      WHY??

    • Adrayven

      Not likely unless they change terms in the contract itself such as plan details, warranty times, or if your coverage becomes less in the area you signed up for.

      Case in point, where my parents lived they stopped roaming coverage for t-mobile so they let them out of their contract.. However, with this deal, they are expanding, improving coverage, and if your service/coverage gets better, they are NOT letting you out.. sorry. ;)

  • T-Mo Employee X

    DT will never sell all their shares. They’ll keep at least 30%, so that T-Mobile continues to be a revenue share for them, without the need on the part of DT to put money back into the US market.

    • Anonymous

      Try 51 percent!!! they would over rule any decision on the board

  • Metro-Mobile!

    Metro Piece Of Sh*t!!!

  • Jay

    Can we get an article about what you think of this whole thing?

    • http://tmonews.com David

      Yup, I’ll have something up later!

  • dontbejealous

    My question is, what happens to the customers? All this talk of shares, and blah blah blah, who cares. Us customers of tmobile want to know who does this all affect us.

    • TMOTECH

      It will not affect you in the least bit. This is more about the network and competing in the marketplace.

    • iansltx

      Depends on where you live.

      If you’re in Dallas, NYC, Florida, Las Vegas or LA, you’ll eventually get faster LTE than you would have otherwise. And maybe T-Mobile will do a bit more on the prepaid side (maybe dropping the contract requirement for Value Plans or something). That’s about it.

  • chuckb74

    CEO interview on CNBC basically refutes all of the points in the above article.

    http://video.cnbc.com/gallery/?video=3000120079&play=1

  • Disgruntled

    Good thing Tmo just layed off a TON of U.S. employees… WTF, I transfered to another site when mine closed and have seen more than 75% of our calls handled by service partners in foreign call centers. We will NEVER overtake the next carrier with this volume being handled by under-trained, under-paid agents.

  • gigis83

    Good hope T-Mobile leave last couple years suck. Down to I gave up on upgrades and only voice plan. They finally found the way to push off I said bye

  • chris

    How will this affect current tmo customers in the long run?

    Will there even be a tmobile in a couple of years?

    • Chris

      The name of the new company is T-mobile. So yes, there will be T-mobile.

  • Bud

    Google pls step up and but tmo

  • TMOTECH

    You all need to realize that this merger will put T-Mobile way ahead of the competition spectrum wise. Right now all Sprint has the ability to Launch is 5X5MHZ LTE. Our initial plan is to launch 10X10 and when we migrate Metro PCS customers to our network and refarm their AWS to Our LTE we will be running 20X20 LTE. Sprint will never be able to get there and At&t will have to kill their GSM network all together to go above 10X10 Verizon will be the only other carrier that will be able to compete. Sprint will continue to have a sub-par network with a Weak release 8 LTE infrastructure and At&t will ahve to replace all of their LTE radios to upgrade to release 10.

    We will be a publicly traded company. This will infuse cash into the business and help us to expand the network.

    In the short term, 1 to 2 years, I see us overtaking Sprint. in the long term, within 5 years, I see us catching At&t and being a real competitor in the big boy marketplace. This is a win win for Metro PCS and T-Mobile. Metro will gain nationwide 4G and We gain the ability to launch a more robust, solid, more advanced release 10 LTE network that will eventually allow people to get rid of their home internet service.

    This is A good deal all around.

    • UMA_Fan

      lmao when the merged companies are in place Sprint’s LTE network will be where Metro’s LTE is at now.

    • 21stNow

      I think T-Mobile/newco catching AT&T is a pipe dream, but I could be wrong.

    • eanfoso

      So then all in all, the new company will still be mostly owned by deutsche telecom, or is metro PCS buying T-Mobile I’m not understanding this reverse merge

      • bleeew

        OK, T-MO USA is merging with Metro. So when DT wants to sell of T-Mo, it will be under MetroPCS’s name since its a tradable company. But it won’t be to bad if its in Metro’s name.

        • iansltx

          THe merged company will be renamed from MetroPCS to T-Mobile Inc.

      • Adrayven

        They are assuming DT is going to sell of their majority as soon as it goes public.. it’s a glass is half empty article.

        Yes, TD is keeping T-Mobile.. They wont have to pull out at all, once it’s public, because it wont be on the books as a financial asset that needs money from the DT corp.. They can just sit on the stocks / ownership and make T-moble USA fend for themselves while still in driver seat. It’s a Win/Win really.

        I do not see them pulling out as this article suggests .. no reason to once it’s done.. they will effectively have a financial firewall between the mother company and the US operations once it’s public and just be another stock owner.

        Then they can focus on their other operations while back seat driving, or not, the US operations as they see fit..

    • SouthernBlackNerd

      I can tell you do not know anything about Sprint’s LTE plans with this post.

      Sprint owns 50% of a small company called Clearwire, and they own a nice size(150Mhz average in the top 100 markets) of 2.5ghz spectrum. Sprint with the help of clearwire could be the first and ONLY company in the US to deploy TRUE 4G. I believe they have no plans to do so, because the have said they care more about consistent service over peak service. Also Clearwire will be deploying 20mhz TD-LTE, which will give customers similar speeds as 20X20 with half the spectrum, since they do not need separate uplink and downlink.

      Sprint infrastructure is LTE rel 9, which is software upgradeable to LTE rel 10.

      While Tmobile just got a large amount of new customers, we do not know how many will stay or leave, plus prior to the deal, Tmobile was stagnant at 33million customers. This deal does not increase their coverage, so what is going to make customers come that previously would not? Comeback down from the clouds. Tmobile is going to have to do more than buy customers to get back to having positive customer growth.

      • Adrayven

        MEh.. the problem with that, is the 150MHZ avg is 2.5 GHz.. which has HORRIBLE building penetration, and I mean HORRIBLE.. Unless you want to stand outside for that nice speed you’re talking about, forget it in many cases.

        They had WiMax in many markets but MOST installations HAD to have external antenna to even get signals.. It’s not nearly as a good of a fall back as you drum it up to be.. and Sprint KNOWS this.. They wouldn’t be pulling out as majority owner in Clearwire if they thought otherwise.. really.. YOU should read up on them more..

        • iansltx

          2500MHz sucks as a macro-cellular network. But if you’re using it to augment capacity in localized areas, that works. Just ask T-Mobile’s parent, DT, about 2600MHz LTE in Germany, though I’m not sure whether they’ve deployed on their license there yet.

    • bleeew

      I don’t know why people are with Sprint anyways. It’s slower, smaller coverage, and cost more than T-Mo, but I guess it was sacrifice for an iPhone, when people could have gotten it unlocked to use on T-Mobile.

      • iansltx

        Slower? For now, yes. Smaller coverage? Watch me laugh at your T-Mobile phone as it drops from HSPA+ to GPRS (not EDGE, GPRS) west of Austin or north of San Antonio, TX. Sprint has decent 3G in that area, and already has one LTE site up deep into TMo’s GPRS-only territory.

        • M42

          You have a very valid point. T-Mobile’s 4G footprint is very small. I’m on slow as mud Edge all the time. And what this merger does is signal the end of HSPA+ expansion. They’re going to have start building LTE towers in order to merge these two incompatible technologies. And T-Mobile is way way behind everybody else here. Bottom line, T-Mobile customers are going to be stuck on Edge for the next two to three years.

      • AM3RIG

        i loathe Sprint w/ my passion!

    • iansltx

      Oh hey, look, it’s a TMo employee who is misinformed about their competition.

      Sprint’s current LTE network is all Rel-9, and is software upgradeable to Rel-10 (LTE-A). Verizon and AT&T are Rel-8.

      As for 20×20 LTE, you are completely correct in saying that Sprint can’t do that on PCS. None of its phones even support that channel width other than the iPhone, and many support only 5×5 (including my GSIII). But Sprint can absolutely deploy four 5×5 carriers as they draw down their CDMA network and turn off iDEN…and they can deploy this across most of their footprint as soon as August 2013. Which is probably well before 20×20 LTE goes up on T-Mobile.

      Also, for areas where Sprint needs lots of capacity (which 20×20 LTE will supply for T_Mobile), Clearwire LTE-A will be available. Small cells with one or more 20MHz TD-LTE carriers mean that performance will be comparable to 20×20 FD-LTE where that performance is needed.

      Point number four: MetroPCS will lose CDMA customers as T-Mobile tries to transition them. My guestimate is that, of the 10 million or so customers MetroPCS has, 2 million will leave, many to Sprint MVNOs, rather than transition to T-Mobile. These 2 million may even leave before T-Mobile officially completes the merger, if competitors’ marketing agencies are on the ball.

      If you’ve got a rebuttal to any of the facts/opinions I’ve stated here, shoot. Maybe I can get you to give the TMoNews community a tidbit or two of information beyond what’s already available in spectrum analyses or corporate talking points.

      • TMOTECH

        Fair enough on the Release 9 info. I was misinformed about that. But how long do you truly think it will take Sprint to “draw down” their CDMA network. I would guess at least 5 years if not longer. So we will still be ahead of them. And i would really like to see how long it will take clear wire to replace all of its infrastructure to switch from what they have deployed now to an LTE A network. They may have the Spectrum but they surly dont have the equipment in place yet. If they did Sprint would not be spending money deploying their own LTE network.

        • iansltx

          Let me rephrase what I said: 2500MHz flat-out sucks for a macro-cellular mobile network. Sprint/Clearwire refused to acknowledge this the first time around, in 2008. Now they’ve faced the hard truth that you can’t use that spectrum in a mobile context except to augment capacity over a small area (freeing up bandwidth on the macro-cellular network in the process). And by small area I mean within a 0.5-1 mile of the tower. The reason Sprint is deploying LTE in 1900MHz now (and 800MHz starting next summer) is because that’s how to build a macro-cell LTE network. I guarantee that AT&T has a similar strategy with WCS; either it will be for primarily fixed wireless (a la VZW HomeFusion) or it will be for capacity augmentation (a la Clearwire TD-LTE). 2100 MHz uplink and downlink doesn’t provide enough coverage per site to do a full overlay…heck, AWS is pushing it, but T-Mobile has done a really good job with H+ there, and will continue to with LTE (except at my apartment, where, last I checked, I only get EDGE).

          As for Clearwire prepping equipment for TD-LTE, a number of cell sites in the field have software defined radios that only need a software upgrade to go from 802.16e WiMAX (which is TDD) to TDD-LTE. Some of those sites will be where Sprint needs them for capacity augmentation. In other cases, Clearwire will have to add its equipment to a Sprint site on a cherry-picked basis…which won’t take too long, because the infrastructure (including backhaul) will already be there and can largely be shared with Sprint.

          As for drawing down Sprint’s CDMA network, in order to deploy four 5×5 LTE carriers (three in PCS, one in SMR) in most markets, Sprint needs tohave at most 5×5 of CDMA in PCS. That may sound like a small number, but they will have a CDMA 1x voice channel in SMR, and 5MHz is enough to host three CDMA channels (1x voice or EvDO data), including guard bands on each side of the CDMA channels. There are tons of areas where Sprint has four or fewer CDMA channels active already, and as people decrease their voice usage and start using LTE for data Sprint can drop, respectively, redundant 1x and EvDO carriers from sites that have a lot of them, leaving room for LTE. Ericsson will be watching Sprint’s network closely to make sure these transitions happen in proper time, but rest assured, you’ll see 90% of Sprint’s footprint with 5MHz or less (FD) devoted to CDMA by the time MetroPCS CDMA goes dark.

    • Gouv

      very bold predictions, but… regardless i’m happy to see tmo finally have a real future. I’ve been saying on here for the longest time that DT needs to leave sooner than later and luckily it will. Also the fact that they will be publicly traded will finally introduce real accountability internally. As far as catching up to AT&T in 5 years i’m very skeptical of your prediction as well. I’d see them over-taking sprint if this pans out well by then (5 years). If Sprint were to experience a massive exodus and they all headed to tmo then “yeah!!”, i’d say that’s likely. Also you have to realize that tmo doesn’t have the most reliable customer base with respect to paying bills on time and overall churn. Metro PCS also is likely not the most profitable customer base either to drop into tmobile land. As a stand alone entity they had something but throw that in with TMO’s dynamic and it’s kind of a gamble of how it’ll perform imo. Though your enthusiasm has merit i feel the magnitude of it and the momentary excitement behind the overall matter is making your predictions disproportional to a likely outcome. Also, it’ll take a little while for the gears to really start turning. No, it won’t take as long as the sprint/nextel abortion, but it’ll still take time to work the bugs out. I doubt VZW and AT&T are just going to cower in fear and hope for the best. AT&T is a total spectrum whore, they just bought nextwave and already controlled 44% of WCS and now after that they’ll hold an even larger sizable share and they apparently have even more secret spectrum deals in the works. So don’t start celebrating a victory yet, but by all means celebrate the victory of a much needed change for magenta. And as always, never count your chickens before they’ve all hatched.

    • jon

      Agree with everything you say but the laughable line of getting rid of home internet. Sorry, ain’t gonna happen. Let’s just list the devices in my home that require internet. A 73 inch mitsu dlp. An oppo bluray player. Two apple tvs. An onkyo receiver. Two DirecTV receivers. A desktop computer. A laptop. A galaxy 10.1 tablet. A ps3. A Wii. I will always use cable internet. The only thing I would consider switching to is verizon fios. LTE cannot compete in speed and certainly wouldn’t be able to keep up with the bandwidth a typical home consumes.

      • TMOTECH

        I don’t think you are the typical user. That is a lot of gear. and truly how often is it all used at the same time? When I say what I said I meant for the average home that has a couple of laptops and maybe a game counsel. That being said I wonder if you realize what a true Release 10 LTE-A network has the potential to provide. Were talking 1Gbps with a very minimal ping time. I know that that will be further down the road and it is a theoretical Peak speed but it still has the potential to put a dent in the home internet service. I speak to customers all the time that Are using HSPA+ for their home internet now because all they have is a couple of laptops and they are very happy with their service. But I do get your point. High end users such as yourself that demand high bandwidth will probably always use the reliable connections and speeds that cable or FIOS can provide.

  • wat

    I just see that merger is more benefits for MetroPCS than DT. I don’t know why DT letting it happens. I mean MetroPCS will receives more than DT do. 74% shares of New T-mobile would be worthless (barely $1 Billion). I feel that DT will not sell their shares anytime because they would be too stupid to get over their $35 billion investment in VoiceStream in 2001. It would take long time to pay off that investment for DT. Maybe, It will help DT to re-focus on Europe Market fully. I dunno… Still unbelievable.

    • aNYthing6

      This is beneficial to both companies, but make no mistake, T-Mobile wins this deal for a couple of reasons.

      1. MetroPCS has quite a bit of PCS (1900 MHz) and AWS (1700 MHz) spectrum, both which are needed by T-Mobile now, especially with the refarming and imminent LTE roll out.
      2. MetroPCS’ customers are all prepaid, so T-Mobile can eventually wean them off of CDMA phones.
      3. MetroPCS has already begun rolling out their LTE network, so it will give T-Mobile a nice boost.
      4. Gives T-Mobile about 10 million more customers, something they desperately needed.

      • wat

        yeah I see that, but what about DT? They only get: 74% shares (barely $1 billion) and an exist strategy. To me, it would be foolish for DT to sell all shares next few years. I could be wrong, that shares (for new T-mobile) may rise to new highs next years, so DT may find that is good time to sell or buy more. I am sure that MetroPCS will enjoy MASSIVELY beneficial merger. For DT, I dunno… just meh shares and an exist strategy.

        • iansltx

          …and DT ends up owning a lot of T-Mobile debt. $15 billion if I remember correctly. At 8% interest. That’s a good deal for DT.

          As for MetroPCS’s LTE network, my bet is that it gets scrapped. They’re probably using Ericsson in regions where T-Mobile uses NSN, and Samsung in regions where TMo is using Ericsson. The differences in equipment would lead to higher costs, which TMo doesn’t want. 2.5 years from now, the only thing left of MetroPCS’s network, LTE or otherwise, will be its spectrum, being used by equipment purchased by T-Mobile.

    • umad

      Check out the article: http://arstechnica.com/business/2012/10/with-merger-deutsche-telekom-finally-has-viable-plan-for-us-market/

      tl;dr: DT will not leave anytime. They will not control new T-mobile fully, but it would be different in the future. Not bad. Just good. :D

    • HaHa

      Not sure where you are getting 1 billion, I get over $13 billion. There are currently 363,424,000 shares of Metro PCS outstanding, at current asking price of about $12.40, that comes out to over $13 billion.

      • wat

        ohh my bad.. but, 74% shares = 268,933,760 – DT will own. Its value would be $3,334,778,624 ($3 billion). Still pretty bad. However, that price will change next year. We will wait and see.

        Umm.. where did you get that 13 billion?

        • LOL

          You are looking at it the wrong way. The current shareholders DO NOT own T-Mobile, and T-Mobile is not buying their stock from them. There is just going to be wider shares. So currently there are 363.424 Million shares, and those shares are going to account for 26% of the overall company. Which means that DT will own 1.150844 BILLION shares of T-Mobile at an asking price of $12.40 which comes out to just under 14.5 BILLION dollars.

  • aNYthing6

    DT will not exit that quickly, but it does give them an out. Ars Technica has a nice article about this: http://arstechnica.com/business/2012/10/with-merger-deutsche-telekom-finally-has-viable-plan-for-us-market/

    • umad

      Very nice article! I hope it is true. That would be very smart move from DT. I don’t mind that DT will come back to re-buy all stakes when the time is right.

  • TMOLOYAL

    How is this not a good thing? T-Mobile and Metro will combine their spectrum holdings and customer bases and continue to move towards an LTE-A roll out, only now they have the spectrum to do it right.

    Plus if DT want to bail, “Don’t let the door hit you in the @$$ on the way out.” Finally to be free from DT and all of their mismanagement BS. This will be a win for every single T-Mobile and Metro customer.

    All of the people talking about wanting out of their contracts or bailing as soon as their contract is over are crazy. What will the increase capacity of the network, faster speeds offered by the added spectrum and the additional customers that will allow T-Mobile to better leverage deals with vendors do to your account that you are so upset about?

    • http://www.facebook.com/people/Jeremy-Washington/100000190010519 Jeremy Washington

      thats kind of true more money back into the us economy as well instead of them sending most of it back over seas to balance there books in the Europe markets

  • TMoFan

    This is DT having both ways just how they like it. Given the setup I’m convinced that they’ll make a slow and eventual exit, but if the fortunes return then they could easily buyout Metro’s part of the “NewCo” entity. Same with the at&t deal. The either got a boat load of cash and a seat on at&t’s BoD, or they got a huge cash infusion from the breakup.
    This time though I could care less what they do. DT wants to get out, fine, but everyone gets what they want this way and it guarantees that TMo/”NewCo” is going to hang around for a while instead of being eaten alive. Far more prefferable from the consuermers point of view.

    • Mirad77

      No one has said it better or see this better than you. At this point we can all care less if DT bails as TMOUS wil stay on for a while.

  • Rorison Meadows

    Maybe. But I’d like to see it differently. T-Mobile USA has it in with a more advanced market. See, DT in Europe is already starting VOIP cell services along with the other Euro carriers. It’s a couple years ahead of the US and essentially just requires straight data services to phones and a bit more development on the SMS/MMS standards (MOIP). GMS vs. CDMA won’t matter in a few years when the carriers will eventually just have to maintain data networks. The way to do that is to capture spectrum from anywhere (MetroPCS in this case), then blow out your LTE. If you think about it this way, T-Mo could potentially be the first to the scene on the VOIP circuit in the US pretty much because they’ll have the spectrum, the expertise from Europe, and barely anything to lose.

    Feel free to hire me, PhoneDog! Moving to Charleston soon!

  • taron19119@gmail.com

    So T-Mobile will have to give metro pcs 300 million dollars if the deal don’t go through

  • joel_axel

    so who bout who?

  • BigMixxx

    It’s the perfect exit strategy. Metro gets cash….T mobile gets spectrum, the combined company is now T-mobile (or something like that).

    @TMOTECH has it on the money….T mobile is driving the right path.

    …SPRINT STILL HAS TO RAISE MONEY TO BUILD OUT THEIR NETWORK…..The rollout is not as fast as it should be.

    How much is DT holding in this new company?

  • http://twitter.com/YepiimGS_Blanco Jay J. Blanco

    Dont leave us T-Moile :(

    • http://tmonews.com David

      T-Mobile isn’t leaving, or wouldn’t be leaving, the parent company would.

      • http://twitter.com/YepiimGS_Blanco Jay J. Blanco

        oh ok. I understand now

  • M42

    Counting down the months until I go back to AT&T. This merger is going to be a cluserf****

  • Mirad77

    Having done some research and reading one can stipulate that by no means is DT using this deal to exit US market. Just take a minute and look at this for a minute, DT just named a new CEO for TMOUS then turn around and announce this deal. My take is they had being in talks for a minute and knowing what was going down as in owning 74% of the T-Mobile Inc, they put in a new CEO. DT doesn’t have to insert cash no more to T-Mobile Inc but just harvest when it is fruitful in the near future when the LTE will be up and running with very good chance of competing in this market. Since 74% of T-Mobile Inc only give DT ~$14B I don’t think they will exit the US market anytime soon but just sit and have their investments generates some good revenue for them. All in all is the with or without DT, T-Mobile Inc is here to stay.