Merged T-Mobile USA, MetroPCS to face tech challenges

Wed Oct 3, 2012 7:55pm EDT
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By Harro Ten Wolde and Sinead Carew

FRANKFURT/NEW YORK (Reuters) - T-Mobile USA, which plans to merge with MetroPCS, will have to overcome technology hurdles to be able to take on bigger rivals Verizon Wireless, AT&T Inc and Sprint Nextel Corp.

MetroPCS and T-Mobile USA, a Deutsche Telekom unit, said on Wednesday they hope to set themselves up as the leading provider of wireless services to cost-conscious U.S. customers by combining their assets.

But as their networks are incompatible, they will have to convince MetroPCS customers to move to T-Mobile's network with the aim of shutting down the MetroPCS network by the end of 2015. And T-Mobile USA has to upgrade its network with high-speed services to catch up to bigger competitors, the companies said.

"This all adds up to a hugely complex and challenging migration that will take significant time and investment, and which is a major risk for derailing the benefits of the deal," said Mike Roberts, principal analyst at research firm Informa.

MetroPCS shares, which rose 18 percent on Tuesday on reports that a deal was in the works, fell 9.8 percent to $12.24 as the reality of the challenges took hold.

Uncertainty about the deal's implied valuation for MetroPCS also did not help. One analyst calculated the value as low as $11 per share, while another put it at $19.51. The stock has more than doubled to since mid-July.

T-Mobile USA parent Deutsche Telekom has been looking for a Plan B for the No.4 U.S. wireless network since its $39 billion attempt to sell T-Mobile USA to AT&T collapsed in late 2011 because of opposition from antitrust regulators.

Deutsche Telekom said on Wednesday that it will take a 74 percent stake in the combined company, with the deal structured as a reverse merger in which smaller MetroPCS will buy T-Mobile USA. MetroPCS will declare a 1 for 2 reverse stock split and make a cash payment of $1.5 billion to its shareholders.   Continued...

Signage for a T-Mobile store is pictured in downtown Los Angeles, California in this August 31, 2011, file photo. REUTERS/Fred Prouser/Files