T-Mobile, MetroPCS Merger Would Increase Competition With Rivals, Companies Say

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By Paul Barbagallo  

The merger of T-Mobile USA Inc. with MetroPCS Communications Inc. would allow the combined company to compete with larger rivals like Verizon Wireless and AT&T Inc. “on terms that neither could achieve on their own,” the carriers wrote in a filing with the Federal Communications Commission.

Deutsche Telekom AG, T-Mobile's parent company, announced Oct. 3 that it would pay $1.5 billion to shareholders of MetroPCS, the fifth-largest U.S. mobile provider, and merge the company with T-Mobile, the fourth-largest.

If given FCC and Department of Justice approval, the new combined company would have 42.5 million subscribers, or about 12 percent of the U.S. wireless market. The top two carriers, Verizon Wireless and AT&T, have a combined market share of 58.5 percent, and the third-largest carrier, Sprint Nextel Corp., has 15.2 percent.

“The proposed transaction will actually increase competition nationally by strengthening the smallest of what the commission has described as 'nationwide' carriers [T-Mobile] and better enabling [the combined company] to be a more effective and disruptive force,” the companies said in a redacted version of their filing, made publicly available Oct. 19.

With more customers, a T-Mobile-MetroPCS company would be able to distribute the fixed costs of its network over a broader base and more efficiently use its spectrum resources, the companies explained.

“The commission is well aware of the scale and spectrum challenges facing T-Mobile USA and MetroPCS in competing today on a standalone basis,” they wrote. “At present, T-Mobile USA trails AT&T, Verizon Wireless, and Sprint in market share, service revenue, and market capitalization--in many cases by a significant margin. T-Mobile USA has a well-documented need for additional spectrum to enable an effective deployment of the high-performance 4G LTE [fourth generation, long term evolution] network that it will require to remain competitive long term.”

MetroPCS as well is “limited by a lack of spectrum,” they said.

“Even within its existing service areas, MetroPCS is spectrum-constrained, challenging its ability in the future to continue to meet growing customer demands for data services and making it impossible, absent significant cost and refarming, to deploy a 4G LTE network with the large blocks of spectrum necessary to match the speeds and capacity of its larger competitors,” the companies noted.

By combining spectrum portfolios, the new company would have a network capable of supporting “at least” 20 x 20 megahertz LTE deployments in many areas, which will better challenge larger competitors for premium users, they said.

“In so doing, the proposed transaction benefits not only the customers of T-Mobile USA and MetroPCS, but the wireless industry and consumers as a whole,” they wrote.

And despite merging spectrum assets of the No. 4 and No. 5 carriers in the United States, the combined company also would not trigger the FCC's “spectrum screen” in any affected local area. At least four competitors with 70 percent population coverage and 50 percent geographic coverage will remain in all local areas impacted by the proposed transaction, the companies said.

“Post-consummation, the merged company will continue to be constrained by the full range of competitors and products available at the local level,” they said.

FCC Formally Initiates Review.

The FCC has opened a docket for the proposed transfer of control of MetroPCS to Deutsche Telekom AG--Docket No. 12-301. According to the companies' filing with the FCC, they will later file with the Department of Justice.

The FCC will review whether the merger serves the public interest, convenience, and necessity, while the Justice Department will assess whether a combination of T-Mobile and MetroPCS is anti-competitive under antitrust law.

For more information about the merger of T-Mobile and MetroPCS, visit http://apps.fcc.gov/ecfs/proceeding/view?name=12-301.

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