T-Mobile & MetroPCS in Merger Talks, Companies Confirm

Updated 12:45 pm Pacific
Fourth-place US mobile carrier T-Mobile, heading in a new direction after its failed merger with AT&T last year, is getting more serious about tying up with a smaller carrier.

Bellevue, WA-based T-Mobile’s parent company, German carrier Deutsche Telekom, confirmed on Tuesday that it’s discussing a merger with MetroPCS, a small pre-paid wireless provider based in Dallas.

In a brief statement posted on its website, Deutsche said the aim of the talks was to operate the combined companies as a spinout, with Deutsche as the majority shareholder. MetroPCS issued a similar statement.

Both companies said the deal was not final, with Deutsche saying that contracts haven’t been signed yet and “significant issues have not yet been finalized.” The confirmation comes after several media reports this week indicated that T-Mobile was nearing a possible merger deal with MetroPCS.

The merger talks come as new CEO John Legere takes the reins at T-Mobile, which also hit the headlines recently for executing a big lease of its cell towers for $2.4 billion in cash.

Consolidation in the lower tiers of the U.S. carrier business makes a lot of sense following the federal government’s rejection of AT&T’s proposed $39 billion buyout of T-Mobile. With the feds clearly not ready to see the top carriers (AT&T and Verizon) get too much stronger, T-Mobile and third-place carrier Sprint seem more likely to beef up their positions by rafting together with smaller pre-paid and regional carriers.

MetroPCS has also been heavily rumored to be looking for acquisition or partnership suitors in recent months, with Sprint and TV provider Dish Network.

Those kind of deals don’t come without complications. As with anything in the wireless industry, there’s a huge amount of technical matchup that has to be worked through—the carriers use different combinations of the various technology platforms that make cellular networks run, and they’re also currently in the middle of moving to the fourth generation (so-called “4G”) networks.

That’s one of the potential problems for a T-Mobile and MetroPCS deal. Their current technologies aren’t compatible, leading one industry analyst to say the possible deal would be like sticking “a baby’s head on a monkey’s body.

T-Mobile did pick up a big chunk of cash and spectrum as its breakup fee over the failed AT&T deal, and it has been working to build apps and services, like multi-platform messaging application Bobsled, that compete with third-party developers as it plays the scrappy innovator’s role in the marketplace.

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