This week, Deutsche Telekom and MetroPCS Communications agreed to combine T-Mobile USA and MetroPCS into a new, larger mobile network operator to that will offer low-cost wireless services both domestically and globally.
Why is this a big deal? One reason is because this is the first CDMA2000 operator that Deutsche Telekom has ever acquired. This will give T-Mobile USA a nascent CDMA2000 network in fourteen markets in the United States. Normally, this could be quite problematic, since integrating and maintaining a CDMA network alongside T-Mobile’s GSM-based network could become a nightmare. However, MetroPCS has already committed to eliminating CDMA2000 from its network platform within two years without T-Mobile’s help. This changes nothing for MetroPCS in terms of its CDMA network. MetroPCS is already not investing in CDMA and focusing on expanding and bulking up its LTE network. It is entirely possible that this tie-up will accelerate MetroPCS’ plans to shut down its CDMA network.
Additionally, this jumpstarts T-Mobile’s LTE network in metropolitan areas. MetroPCS’ network (which is on the exact same spectrum that T-Mobile’s LTE network will be on and on the same spectrum as T-Mobile’s HSPA+ network is and will be on, as well) covers all fourteen markets that the CDMA2000 network covers, and uses equipment similar T-Mobile’s HSPA/LTE network equipment. MetroPCS’ network even has VoLTE (voice over LTE) deployed and commercially available in Dallas, with plans to expand to all MetroPCS markets in four to six months! Since MetroPCS and T-Mobile are using compatible core network equipment from the same vendor, it is a simple matter to bridge everything together to extend those capabilities out for MetroPCS subscribers to T-Mobile’s full network.
The combination of the spectral assets of both companies will allow the new company to offer DC-HSPA (with up to 42Mbps throughput and latency as low as 30ms) in all major metropolitan markets as well as 15MHz LTE with the option to expand it to 20MHz LTE-Advanced with the shutdown of CDMA2000 over time. MetroPCS’ PCS (1.9GHz spectrum) network (in the few markets it has that) will be fully converted to HSPA+ and LTE. MetroPCS also has additional AWS (1.7/2.1GHz spectrum) in markets where it has not deployed anything, and T-Mobile can take advantage of that immediately for LTE.
The sordid details
The deal is a little tricky, legally speaking. Legally, what is happening is that T-Mobile USA and all associated subsidiaries, affiliates, and partnerships are being acquired by MetroPCS Communications (who will rename itself and do business as T-Mobile USA), who will turn around and issue 76% ownership of the new company to Deutsche Telekom’s mobile arm, T-Mobile International AG. This is known as a reverse takeover. Regardless of how the transaction is playing out legally, Deutsche Telekom will retain considerable control over the new company.
NewCo (as it is tentatively called by Deutsche Telekom and MetroPCS Communications) will be publicly traded, which is why this odd way of combining the companies is being done. It makes the paperwork to turn T-Mobile USA from a subsidiary of a publicly traded foreign company into a domestic publicly traded one in its own right much easier. This also gives T-Mobile USA the flexibility to access cash generation schemes available to its competitors, like debt markets and such.
Deutsche Telekom will have representatives on the new company’s board and both companies’ organizational structures are being retained, with MetroPCS’ organization becoming the MetroPCS Customer Unit, and the T-Mobile USA organization becoming the T-Mobile Customer Unit. A new executive team comprised of members of both companies (with new T-Mobile USA CEO John Legere retaining the position for the new company) will manage the new company.
Benefits for T-Mobile customers
The single largest benefit to T-Mobile customers is that the increased size of the company’s subscriber base will allow T-Mobile to have a better shot at getting new devices that are typically exclusively for the big three carriers. While T-Mobile will still remain number four, it will have bulked up its subscriber base to about 43 million, as opposed to the 33 million it has now.
T-Mobile should be able to accelerate its network reconfiguration plans, which would mean that more places will get iPhone compatibility on the faster network more quickly. T-Mobile will also have greater leverage to get Apple to officially bring the iPhone 5 to T-Mobile, especially since it will be the only network in the United States that can take full advantage of what the iPhone offers in terms of network connectivity.
We should see LTE-enabled devices starting to arrive on T-Mobile within the next few months in preparation for the 2013 launch of LTE. Other than that, this really does not change much for T-Mobile customers.
Benefits to MetroPCS customers
If you thought MetroPCS was going to go away because of this, you’re wrong. The opposite will happen: MetroPCS will go nationwide. By having access to the T-Mobile network nationwide, the MetroPCS brand (which is well known as a prepaid innovator) can expand. This effectively gives T-Mobile a dual brand situation: T-Mobile for postpaid and business, and MetroPCS as the prepaid brand.
MetroPCS customers will gain the freedom to jump between brands and the services they offer. On the MetroPCS side, customers will likely see far better devices at the same or lower price points. Part of what made it so difficult for MetroPCS to make available affordable LTE devices was that CDMA2000 on AWS is exceptionally rare. The only two major networks that use it are Leap Wireless’ Cricket Communications and MetroPCS. Immediately after closing, the entire MetroPCS lineup will be replaced with better GSM/HSPA/LTE models at either the same price point or lower. Expect for devices to become considerably better and cheaper very soon.
Now, you may be thinking that your current device won’t serve you well going forward. That isn’t true either, at least if you have an LTE device. If your phone is CDMA-only, go and get an LTE phone like the LG Connect 4G (which includes VoLTE) or wait a few months for more LTE phones with VoLTE to be introduced at cheaper price points. While regular LTE phones will also work on the new combined network, the VoLTE ones will be able to offer the full range of functionality when outside of MetroPCS’ CDMA coverage zones. However, it is possible for MetroPCS to update current LTE phones to offer VoLTE support, so even current LTE phones that aren’t VoLTE enabled now can support it eventually. However, if you can wait until the deal closes, you’ll be able to get much better phones that support the entire T-Mobile/MetroPCS supported network.
MetroPCS customers will also gain the full range of roaming options domestically and internationally through the agreements T-Mobile USA and Deutsche Telekom have. Those who occasionally or frequently travel may find the new MetroPCS’ device lineup and plan options more appealing if they are contract-averse.
Who loses in this?
Mainly, Leap Wireless is the big loser. With MetroPCS shifting from CDMA/LTE to HSPA/LTE, the market for CDMA2000 devices on AWS spectrum shrinks down to pretty much just Leap’s network (with less than 6 million subscribers). Leap will have little market power whatsoever to get devices. Previously, Leap Wireless could rely on a 16 million subscriber base (between MetroPCS and Cricket) to fuel the ecosystem for decently unique handsets, but MetroPCS’ 10 million subscriber base is moving to HSPA and LTE. This means that Leap will have to rely more on its PCS CDMA network and its MVNO relationship with Sprint (which is on the brink of being cancelled since they defaulted on a payment to Sprint).
At some point in the future, CDMA-only MetroPCS subscribers will need to switch to newer handsets, as the CDMA network is being aggressively shut off. This isn’t really a change from MetroPCS’ current plans, but it is something that current MetroPCS customers will need to face.
Conclusively a good match
Despite the issues dealing with a small legacy CDMA2000 network, this combination is actually a good thing. MetroPCS and T-Mobile have compatible spectrum assets, and MetroPCS’ subscriber base is used to switching phones far more often than T-Mobile’s subscriber base, so the transition will be much smoother and quicker than the Sprint/Nextel debacle.
There’s not really any competitive harm in this deal, since MetroPCS operates in markets that have four or more wireless competitors to itself, already. The only hurt will be Leap’s ability to get AWS CDMA devices, but Leap should have been more proactive in upgrading its network to PCS/AWS LTE, anyway. It’s known for some time now that MetroPCS was going to kill off PCS/AWS CDMA.
Both carriers’ customers should experience massive improvements in quality on day one of the new company’s operation, as some of the spectrum can be utilized to improve current network performance as soon as access to it is granted. Hopefully, this deal will gain swift approval from the FCC in order for the benefits to be realized as soon as possible.
Read more: What is LTE?