These 2 Mobile Networks Will Almost Definitely Merge. Now What?
Mar 23rd 2013 6:30PM
Updated Mar 23rd 2013 6:36PM
The proposed merger between MetroPCS and T-Mobile USA had to wade through acres of red tape before consummation. All the legal and regulatory hurdles have been vaulted, leaving MetroPCS shareholders to issue a final seal of approval.
It's still not a completely done deal. MetroPCS's largest shareholder, hedge fund Paulson & Co., has said that it will vote its 9.9% stake against the current deal structure. On the other hand, second-largest shareholder Madison Dearborn Partners will absolutely support this deal with an 8.3% vote block -- one of the the investment firm's managing directors will have a seat in the new T-Mobile/MetroPCS boardroom.
I wouldn't exactly call it a nail-biter. MetroPCS could use the scale and the deep pockets that T-Mobile brings to the table. Its own cash flows have become dependably positive in recent years, but top-line growth has trailed off. The company needs some kind of catalyst to jump to the next level, and merging into T-Mobile would most definitely be a game-changer. In short, MetroPCS investors would be silly to turn this deal down.
Time to take action
This is no time to rest on your laurels. Sprint Nextel , the other mini-major among the big four, will pose a serious threat as it combines with Japanese sugar daddy Softbank and high-speed network partner Clearwire later this year. That three-way combination puts Sprint's large subscriber Rolodex together with Softbank's cash reserves and maverick business ideas, underpinned by Clearwire's generous spectrum license catalog. This Frankencarrier should scare the snot out of its direct rivals.
SprintBank and T-Metro might even worry Verizon and AT&T . Smaller networks often introduce more innovative and consumer-friendly choices than Ma Bell and Big Red, but they can't compete with the near-duopoly's brand awareness and nationwide network builds. Putting pressure on their business models with credible threats from below can only be good for consumers. Investors behind the usurpers will obviously benefit right away, but even AT&T and Verizon should wind up healthier in the long run amid more serious competition.
MetroPCS adds 9 million subscribers to T-Mobile's list, creating a 42 million-strong customer pool. That's in the same ballpark as Sprint's 56 million subscribers, but it's still far behind Verizon's 98 million and AT&T's 105 million.
The smaller network also expands Magenta's network coverage in major metro areas. In particular, this deal should accelerate T-Mobile's introduction of 4G LTE services. Oh, and T-Mobile is jumping the gun by acting as if it could change the mobile game all by itself: The company is expected to introduce all new service plans next week, doing away with handset subsidies entirely and basing your service payments on data plans only -- everyone gets unlimited calling and texting.Big changes ahead
With Sprint and T-Mobile closing in on the largest networks in terms of subscriber counts, and both companies rejuvenated by their respective mergers and foreign investments, I believe the American mobile industry will gain some huge new wrinkles in a year or two. Expect lower prices and innovative new features thanks to exponentially increased competition. It happened in Japan and in Europe, and now we're about to join the next generation here in America.
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The article These 2 Mobile Networks Will Almost Definitely Merge. Now What? originally appeared on Fool.com.Fool contributor Anders Bylund holds no position in any company mentioned. Check out Anders' bio and holdings, or follow him on Twitter and Google+.
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