Deutsche Telekom in Discussions with MetroPCS


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German telecommunications company Deutsche Telekom AG, the second largest telecommunications company in Europe, is reportedly discussing a merger of its T-Mobile branch with U.S. cellular provider MetroPCS. According to Bloomberg, Deutsche Telekom is considering moving stocks around in a way that would give it control over both U.S. entities, which could lead to an IPO or a plain sale of T-Mobile USA. Upon these rumors, MetroPCS stock rose 14 percent yesterday.

Deutsche Telekom tried to sell T-Mobile to AT&T last year for $39 billion, but the sale fell through due to regulatory resistance. T-Mobile also lost 802,000 contracts in Q4 2011, and DTAG has been trying to figure out what to do with the company. Alexandre Iatrides, a Parisian analyst at Oddo & Cie states, “The thing they lack is size and it would be easier to be part of something larger,” describing why DTAG might want to merge T-Mobile with MetroPCS.

MetroPCS launched its Metro USA nationwide service in 2010, and covers roughly 90% of the U.S. population. It offers cheap plans, starting at $40 a month. The tagline of the provider is wireless for all - I personally subscribed to the service for a while during a stint in Tampa, and it sucks. Still, $40 a month for unlimited use of a feature phone sans contract is hard to beat - you get what you pay for. Basic unlimited talk and text plans start at $25 a month.

T-Mobile lost another 510,000 contract subscribers during Q1, 2012, though prepaid users, a la MetroPCS, are on the rise. By the end of March, T-Mobile's customer base was as 33.4 million, the fourth largest in the U.S., behind Verizon, AT&T and Sprint. After news of the potential DTAG/MetroPCS merger hit, DTAG shares rose 4.2% to 8.90 euros, the largest increase since last November. Perhaps directing T-Mobile towards more of a pay-as-you-go model will be key in turning things around.