Deutsche Telekom Considering Buying MetroPCS

Deutsche Telekom AG is nearing a deal to buy MetroPCS Communications and create a public equity for the new company. T-Mobile USA earlier in 2012 had said it had “no need” of such an acquisition.

Deutsche Telekom is said to be considering a stock-swap deal with MetroPCS that would give Deutsche Telekom control over the combined U.S. entity. As a byproduct, such a public vehicle would allow Deutsche Telekom to gradually monetize its investment in T-Mobile USA, an original impetus for the decision to be acquired by AT&T.


Image via www.metropcs.com

Separately, Sprint had also contemplated its own deal to buy MetroPCS. The notion that both Sprint and T-Mobile USA will be making acquisitions is not hard to understand. Both carriers need to get bigger to compete with AT&T and Verizon. Moreover, both firms need additional spectrum assets, which such acquisitions also would bring.

Raymond James analyst  Ric Prentiss predicts that both Sprint and T-Mobile USA will engage in a rather furious wave of acquisitions in 2013 and 2014 to bulk up.

“We think the September 19 announcement of the new T- Mobile USA CEO hired externally and the $2.4 billion tower sale to Crown Castle on September 28 are strong indicators that T-Mobile USA, and its owner Deutsche Telekom, are not interested anytime soon in network sharing or merging with Sprint," Prentiss says.

"We believe T-Mobile is more likely a competing bidder against Sprint for smaller M&A deals that bring spectrum, cash flow, synergies, and the potential for public currency,” he says.

The rationale for predicting acquisitions of tier-two regional providers also is fairly clear. The Federal Communications Commission decision to deny approval for the AT&T acquisition of T-Mobile USA also suggested that both the FCC and the Department of Justice consider the U.S. mobile market too highly concentrated already.

In addition to opposing the AT&T purchase with T-Mobile USA, DoJ regulators also signaled a likely future opposition to any proposed merger of T-Mobile USA and Sprint, a combination that despite technology integration issues, would create a third competitor in the U.S. market with enough market share to rival AT&T and Verizon.

But that particular combination is unlikely to pass regulatory review at this point, so the alternative of Sprint and T-Mobile USA acquisitions of smaller regional providers is viewed as a more likely route to growth.

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