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T-Mobile USA and metroPCS have made it official, with news of a merger of the two companies this morning.

Rather than being absorbed into T-Mobile, the merger is essentially starting a new company with MetroPCS holding 26% and T-Mobile USA holding 74%.

Combining T-Mobile and MetroPCS’ complementary spectrum is expected to provide greater network coverage, deeper LTE network deployment and a path to at least 2×20 MHz of 4G LTE in many areas. Existing MetroPCS customers will be migrated to a common LTE-based network as they upgrade their handsets. That migration is anticipated to be complete by 2H 2015.

MetroPCS and T-Mobile use AWS spectrum (1.7/2.1 GHz) making it easier for the two companies to combine their resources, and move to a unified LTE approach. Both see the AWS band as the future for 4G LTE.

In the more common PCS band (1.9 GHz), used by virtually all U.S. carriers, the two companies currently use different 3G technology for voice and data — T-Mobile uses GSM/UMTS while MetroPCS uses CDMA.

The combined company delivers around 42.5 million subscribers in the U.S. with an estimated revenue of around USD 24.8 billion with an EBITDA margin of around 28.6 percent.

The company’s presentation indicates it will capture growth in industry’s fast growing no-contract services, with:

  • Greater customer value and choice Value Leadership
  • Greater spectrum position, network coverage and capacity
  • Deeper LTE network deployment with path to at least 20×20 MHz
  • Improves marketing and purchasing scale
  • Projected cost synergies of $6 – $7Bn NPV(1)
  • Clear cut technology path to one common LTE network
  • Straightforward integration with clear migration path for MetroPCS subscribers onto TMobile network

Merging T-Mobile and MetroPCS could prove tricky, reports the NY Times. While the two could eventually combine their LTE networks, the majority of their phones run on incompatible network standards, reducing any cost savings from a tie-up in the short run.

MetroPCS currently has 19 markets running 4G LTE in 2X5MHz channels, but MetroPCS shares CDMA and LTE on their AWS band, so their 4G data speeds are similar to 3G speeds.

The band will have to be cleared of CDMA before it can be repurposed entirely for LTE. And MetroPCS offers only prepaid plans, a business that T-Mobile has been eager to exploit — but which also carries lower margins.

T-Mobile USA CTO Neville Ray said they will deploy LTE Advanced (Release 10) and be the first to deploy integrated multimode radios that can handle GSM, HSPA+ and LTE.

It’s unclear how regulators will react to the combination of T-Mobile (the nation’s fourth largest wireless carrier) and MetroPCS (the nation’s sixth largest wireless carrier), but it appears that the transaction might have a better chance of succeeding than AT&T’s purchase of T-Mobile.

The transaction brings the spectrum holdings closer to those of the big three carriers, AT&T, Verizon, and Sprint (with Clearwire’s 2.6 GHz spectrum). But with 2 x 20 MHz in the AWS band, twice that of AT&T and Verizon, and 4 times that of Sprint, it may put pressure on Sprint to expand its 2 x 5MHz position in the PCS band. AT&T is behind in the LTE spectrum race, with only a proposal for expanding service at 2.3 GHz (in 3-5 years). That means it may have to go with Dish (with 40 MHz of 2.1 spectrum) or do a deal with Sprint on 2.6 GHz.

Shares in Leap Wireless, another prepaid wireless service provider, closed more than 8 percent higher on Tuesday, as investors hoped the company would prove to be another merger target. But analysts said that Leap, with its focus on lesser markets and with major operational problems, may remain independent for a while longer, according to the NY Times.

It’s bad news for Sprint, which has a number of prepaid divisions, including Boost Mobile, Virgin Mobile, and Assurance Wireless. Sprint was reportedly close to buying MetroPCS, but its board nixed the deal due to strained financial resources.

The merged company will be headquartered in Bellevue and have $24.8 billion in annual sales, although the combined company will “retain a significant presence” in Dallas, its release said.

Brier Dudley in the Seattle Times notes that McCaw Cellular established the first national, roaming network in 1990. Two years later, McCaw sold the company to AT&T for $11.5 billion. That led to the founding of Western Wireless in 1994, which became VoiceStream Wireless which was eventually sold to T-Mobile in 2001 for US$35 billion. McCaw then took interest in Nextel. Within four years Nextel grew significantly and was later acquired by Sprint Nextel, for $6.5 billion in 2006. In August 2004, McCaw founded Clearwire Corporation, which now covers some 120 million people in the United States.

Related Dailywireless articles include; T-Mobile USA Upgrades to LTE, T-Mobile Gears Up for LTE, T-Mobile Gets AWS Spectrum from Breakup and T-Mobile & Leap Wireless Do Spectrum Swap

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