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T-Mobile and MetroPCS mobile minnows merge

Taking on Sprint with LTE prowess

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After failing to flog off T-Mobile USA to AT&T last year, Deutsche Telecom has gone another route, opting to absorb its smaller rival MetroPCS in a reverse-takeover.

The boards of both companies have approved a reverse merger, whereby MetroPCS will take over T-Mobile to form a combined company (called T-Mobile) that is owned 74 per cent by Deutsche Telecom and 26 per cent by MetroPCS, although the latter company's shareholders will get a $1.5bn cash windfall.

"This is not a deal to survive, it's a deal to thrive," said John Legere, CEO of T-Mobile in a video statement. "It's an aggressive plan to accelerate our return to market leadership."

That's a pretty bold ambition. MetroPCS has very good coverage in 14 city networks, including New York, San Francisco, and much of Florida, and more advanced LTE networks. Its nine million customers will give the new firm a combined footprint of 42 million users, compared to Sprint's 33 million, but still well behind the two market behemoths of AT&T and Verizon.

Both MetroPCS and T-Mobile are strong in the prepaid end of the market and both are using the offer of unlimited data, with T-Mobile a recent convert to that cause. Sprint's also a big player in that sector, while the big fish concentrate on the more lucrative contract side of the business.

"There are a lot of people in the US that have very low income, so it's a chance to really go after that segment," Julien Blin, directing analyst at Infonetics Research, told The Register. "It may also help T-Mobile get an iPhone, even companies like Cricket have one now."

The merger will also combine valuable spectrum and MetroPCS' more advanced LTE network. T-Mobile is still relying on HSPA+ for its "4G" service and will benefit from the smaller company's experience in rolling out LTE networks Blin said.

Assuming the deal goes through, nothing is going to change for customers until 2013, when the two companies will fully merge and concentrate on getting 20x20MHz LTE infrastructure up and running. Given that the prepaid market sees a lot of handset turnover this shouldn’t be an issue for most users. ®

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