Two of the nation’s largest low-cost wireless carriers have agreed to merge. T-Mobile USA and MetroPCS will form a combined company that will be called T-Mobile. The new company will have 42.5 million subscribers and will have annual sales of nearly $25 billion.
MetroPCS will send $4.09 per share ($1.5 billion) to its shareholders and then perform a 1-for-2 reverse split of stock. This means that the number of outstanding shares would be halved and the value of each share would double. MetroPCS will then purchase all of T-Mobile USA’s assets by giving T-Mobile parent company Deutche Telekom 74% of its common stock. Deutche Telekom will remain in control of the combined company and will provide financial support through debt and credit offerings.
The deal will not be a seamless transition. Industry analysts expect complications from T-Mobile’s subsidiary status and the two companies’ incompatible wireless technologies, which means that MetroPCS’ phones are incompatible with T-Mobile’s network and vice versa. Both companies have struggled recently, though each remains profitable. The companies are also far behind the curve on network technology, their smartphone offerings are lackluster, and their customers are leaving in droves.
The new company plans to deploy a 4G-LTE network that will work across both customer bases and upgrade all customers to the new technology over several years. Company executives said they expect all MetroPCS users to be migrated to T-Mobile’s network by the end of 2015. The complex migration will be expensive and is “a major risk for derailing the benefits of the deal,” according to Informa Telecoms & Media analyst Mike Roberts.
For now, customers will continue to deal with two distinct brands operating separately. Combining the companies’ wireless spectrum, customers, and finances will help give the new company the resources and scale needed to succeed in a market dominated by their competitors. The combined companies will have an estimated cost savings of up to $1.5 billion per year and a much easier path to 4G-LTE network deployments.