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Deutsche Telekom is doubling down on its U.S. wireless subsidiary T-Mobile USA with a plan to buy the prepaid regional carrier MetroPCS. But what’s it mean for wireless subscribers?
Yesterday, Deutsche Telekom announced it had agree to buy MetroPCS and combine it with T-Mobile USA. The move is an indication that T-Mobile’s German parent isn’t giving up on the wireless carrier, which spent most of last year in a holding pattern while regulators considered AT&T’s $39 billion bid to buy the company. Regulators didn’t like the idea of the No. 2 AT&T buying a distance No. 4 T-Mobile, and they blocked the transaction. AT&T finally gave up on the merger in December.
As part of its break-up deal with AT&T, T-Mobile received cash and some much needed spectrum from AT&T, which the carrier is now putting to use in a massive network transition to build a 4G LTE network. And now Deutsche Telekom is on the hunt for more wireless spectrum to help T-Mobile compete against its rivals. The deal with MetroPCS is meant to give T-Mobile more of this valuable asset.
But what does this deal mean for average T-Mobile and MetroPCS subscribers? And what will it mean to the industry and competition in the future? CNET has put together this FAQ to help answer these questions.
Before we get started, can you explain what just happened?
Deutsche Telekom, which owns T-Mobile USA, has struck a deal with MetroPCS to gain control of the company. Deutsche Telekom plans to merge MetroPCS with T-Mobile, and the new company, which will be called T-Mobile, will be publicly traded on its own.
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According to the agreement, MetroPCS shareholders will get $1.5 billion in cash and a 26 percent stake in the combined company. Deutsche Telekom will own the remaining 74 percent of the new company. And therefore, at least for the time being, Deutsche Telekom will still control the shots.
T-Mobile is a GSM carrier and MetroPCS is a CDMA carrier. So why are these two companies combining forces? Sounds like an integration nightmare.
This is a good question. And it’s one that analysts have been asking since the deal was first rumored. But T-Mobile CEO John Legere says this won’t be a major issue for either company, since T-Mobile and MetroPCS have already begun repurposing or refarming their existing spectrum to deploy 4G LTE services. He also argues that the companies are well suited for each other since they use the same slivers of spectrum in the PCS band as well as in the Advanced Wireless Service or AWS band of spectrum. This should make it easier to tie the two services together.
Greg Sandoval/CNET
The way it will work, according to the plan outlined by T-Mobile, is that the LTE service will run on AWS spectrum that is combined from T-Mobile and MetroPCS. And the new T-Mobile will use its and MetroPCS’s PCS spectrum to deliver HSPA+ service. MetroPCS’s current CDMA network will be phased out by the end of 2015.
I’m a MetroPCS customer, so what does this move mean for me?
Initially, it won’t mean anything. On day one, you will still be able to use your existing phone. But over time, T-Mobile will be repurposing the the MetroPCS spectrum to work with T-Mobile’s yet to be launched LTE service and it’s existing HSPA+ service.
This means that you will have to get a new handset, since over time, T-Mobile would get rid of the old CDMA voice network, and replace it with a GSM network. But because this change will happen over several years, most people will probably naturally upgrade to a new phone that will work on the new network. And for those who aren’t inclined to change handsets within a year or 18 months, T-Mobile will likely offer incentives. But the reality is that you will eventually have to upgrade your handset.
Will I still be able to keep my low-cost prepaid service or is T-Mobile going to get rid of that?
Hard to say, as the deal was just announced. T-Mobile hasn’t said for sure which plans it will keep, but the company’s executives said during a conference call with reporters after the deal was announced that they were bullish on the prepaid business.
“Prepaid in the U.S. is a good business,” said Rene Obermann, CEO of Deutsche Telekom. “It really depends on the cost base. In Europe it’s different. But in the U.S. prepaid is a great market. It’s merely a payment method coupled with a no contract. It’s strong and it’s where the growth is.”
Judging from these comments and the fact that T-Mobile has its own innovative prepaid offering that also allows you to bring your own device to the network, I think that T-Mobile will try to preserve the offering that MetroPCS has.
“We think about the contract and no-contract service plans as a continuum,” said T-Mobile’s CEO John Legere. “And we want to blur that line completely. There is the classic archaic high subsidy and lock-up on the contract side, and then the other end is a straightforward pay-as-you-go model. But we think you can mix and match those offers.”
The bottom line is that T-Mobile will likely offer a variety of options for consumers. So I imagine they will keep the regular pay-as-you-go model, but they’ll also offer other options for consumers, too.
What about unlimited data? Is the company planning to preserve that offer?
Again, T-Mobile hasn’t offered specifics about what it will do with its service plans. But T-Mobile’s CEO did say that the company plans to continue to compete as the value player in the market and he sees unlimited data as a differentiator. One of the benefits of the merger is the fact that T-Mobile will be adding significant capacity to its network in cities where it’s likely to have congestion on its network.
The MetroPCS deal will give T-Mobile roughly 50MHz of wireless spectrum in the AWS band in major cities, such as New York, Los Angeles, Dallas, and San Francisco. This will allow the company to build a 20MHz-by-20MHz network, which means it will have 20MHz for download as well as 20MHz for upload. Experts say that this much spectrum is ideal for an LTE deployment because it gives substantial capacity. What this means for consumers is that T-Mobile’s LTE network will be faster and will be able to handle more usage.
With this in mind, it’s conceivable that T-Mobile will continue to allow unlimited data usage. T-Mobile recently went back to a truly Unlimited Nationwide 4G Data service. Customers who pay a bit more for their service can get unfettered data use. T-Mobile still offers another service for value customers, where the service is slowed down or throttled when a threshold is crossed. The only catch with the “truly unlimited” service is that customers are not allowed to use their smartphones as a modem to attach other devices to the Internet.
With the additional spectrum from MetroPCS, T-Mobile will have a lot more capacity, which means it can accommodate more usage. So I don’t think the company will get rid of unlimited data. But I also think there will still be some restrictions. And I don’t imagine that the cheaper prepaid plans that MetroPCS offers will have the truly unlimited data option. But MetroPCS doesn’t offer truly unlimited today anyway. The company’s supposedly unlimited data service cuts customers off when they reach a certain threshold.
By contrast AT&T and Verizon charge customers if they exceed their monthly data caps. And I don’t see T-Mobile taking that route even after it merges with MetroPCS.
I’m a T-Mobile customer. How will this merger affect my service?
T-Mobile customers should not be affected at all as the MetroPCS service is integrated into the business. T-Mobile is already refarming or repurposing its AWS spectrum to clear the way for an LTE service. So the company will continue to do that.
The addition of MetroPCS may actually help the company do this more seamlessly, since it will have additional spectrum. In other words, what T-Mobile is doing with this network transition is like renovating a house while a family is still living in it. With the addition of the MetroPCS spectrum, they will have an entirely separate house where they can move the family as they are renovating. So the MetroPCS spectrum will actually give T-Mobile more headroom to make the transition to LTE.
Of course, there may still be integration hiccups. But there would likely be hiccups anyway as T-Mobile refarms this spectrum for LTE use.
So what’s the bottom line? Will this merger be a good thing or a bad thing for MetroPCS and T-Mobile customers?
How well this transition goes depends entirely on how much time, effort and money T-Mobile devotes to making it a smooth and seamless transition. Given that the company admits it lost focus after the merger with AT&T was announced, I think it will put in the necessary effort to ensure it doesn’t lose many of its 35 million customers or the 9 million subscribers now with MetroPCS.
I also think that this merger will be good for subscribers of each of these companies in the long term. T-Mobile needs more spectrum to be able to offer advanced data services. MetroPCS’s spectrum will give it the additional capacity it needs in key markets to be truly competitive with AT&T and Verizon Wireless.
As for MetroPCS customers — well, even though MetroPCS is an innovative company, it simply didn’t have the spectrum or the resources to build a robust 4G LTE network. This meant spotty coverage and unimpressive speed because it lacked spectrum.
While the company did a great job squeezing efficiencies out of the network to offer cheap voice service, it would never be able to do that long-term with data services. Building data networks that can sustain the kind of growth in traffic that wireless operators are seeing today is very expensive. And MetroPCS didn’t have the spectrum nor did it have the capital to continue to invest in its network in the way that it needed to invest. Ultimately, getting bought by T-Mobile or some other larger carrier was the best thing that could have happened.
In addition to getting better LTE service, the other benefit is that MetroPCS customers will now be able to use their phones in a lot more places than they can today. Not only will they be able to use the service throughout most major cities in the U.S., but they’ll also be able to roam internationally wherever GSM and HSPA+ are in use.
When is this merger expected to be finalized?
The merger must still be approved by shareholders. And regulators in the U.S. also have to approve the deal. Still, T-Mobile said its target for closing this merger is in early 2013.
The other potential monkey wrench in T-Mobile’s plan is that Sprint may be considering a counteroffer. Bloomberg reported Thursday that Sprint, which had been close to its own deal to buy MetroPCS earlier this year, is talking to advisers about whether it should offer a higher price to buy the company. If that happens and if MetroPCS is able to get out of its deal with Deutsche Telekom, then we could have an entirely new deal to evaluate.
Do you think this merger will have trouble getting approved by regulators?
The short answer to this question is “No.” When regulators rejected AT&T’s bid to buy T-Mobile last year, part of their reasoning was they wanted to preserve T-Mobile as a competitor. The agency pointed to the fact that T-Mobile had been a “maverick” in the market with aggressively priced plans. It was also the first carrier to offer Google Android smartphones.
But the reality is that T-Mobile cannot survive without more wireless spectrum. The FCC seemed pleased with Verizon’s recent deal to sell T-Mobile some of its AWS spectrum in exchange for the FCC’s approval of Verizon’s deal to buy spectrum from a consortium of cable operators. But that isn’t enough for T-Mobile, and the FCC recognizes this fact.
In general, what regulators are trying to avoid is allowing the two largest and most dominant players — AT&T and Verizon Wireless — to gobble up everyone else. But I think they recognize that T-Mobile, Sprint, and other carriers will need to merge with each other in order to compete effectively with AT&T and Verizon. So the bottom line is that I expect the FCC to act on this quickly. And I expect them to approve the spectrum transfers. I also expect the Department of Justice to follow the FCC’s lead on this and approve the deal as well.
Do you think this merger will bring the iPhone to T-Mobile’s network?
This is a very tough question to answer, because it seems like the decision of whether the iPhone will come to T-Mobile’s network rests largely with Apple.
One of the reasons the latest iPhone didn’t make it to T-Mobile is likely due to the fact that T-Mobile hasn’t built its LTE network yet. Of course, T-Mobile offers HSPA+ 21Mpbs and HSPA+ 42Mpbs, which are as fast if not faster than competitors’ LTE deployments. But supporting that technology would require Apple to add network technology and radio frequency support the iPhone 5 doesn’t currently feature.
That said, the iPhone 5 will work on T-Mobile’s network, but not at top speeds. T-Mobile has been encouraging people to bring their unlocked devices to its network. But because the iPhone 5 lacks support for T-Mobile’s very high speed services, it won’t likely perform as well on T-Mobile as it would on a Verizon, AT&T or Sprint LTE network.
I don’t think this merger itself will change Apple’s mind about building a T-Mobile compatible iPhone. (MetroPCS also does not offer the iPhone.) But as T-Mobile builds out its LTE network, it’s possible that future Apple iPhones will work on its network. We’ll just have to wait and see.
Updated 2:00 p.m. PT:This story was updated to clarify T-Mobile’s unlimited data service. The company now offers a plan that it calls “truly unlimited.” It still offers a so-called unlimited data service at a lower price. With this cheaper “unlimited” data service, customers’ service is slowed if they exceed a monthly threshold for data.
