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Not so fast, T-Mobile: Sprint may bid for MetroPCS

Consolidation ahead for US wireless market

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Reports that US mobile carriers T-Mobile and MetroPCS are headed for a merger may be premature if rival carrier Sprint Nextel is close to making a counter-bid, as sources claim.

On Wednesday, fourth-place US carrier T-Mobile and its smaller rival MetroPCS jointly announced that their boards had approved a merger that would combine the two companies under the T-Mobile brand.

But on Friday, an anonymous source told Reuters that Sprint Nextel, the third-largest US carrier, has called a special board meeting to decide whether to try to block that deal by making MetroPCS an offer of its own.

It won't be the first time Sprint has mulled such a move. According to reports, Sprint came close to buying MetroPCS for around $8bn in February, before deciding its cash could be better used to build out its own network.

As a seller of no-contract, prepaid wireless service, however, MetroPCS is an attractive acquisition target for either company. All four top carriers are seeing their high-margin contract revenues dwindle as customers switch over to lower-cost, prepaid plans. Acquiring MetroPCS could help either Sprint or T-Mobile shore up its market position as this trend continues.

Either company could also benefit from the additional wireless spectrum that would come with a MetroPCS merger. But Sprint might actually have more to gain, because its wireless technology is more similar to MetroPCS's than T-Mobile's is.

T-Mobile has its roots in GSM technology and is only now moving to 4G LTE. As such, it has said that post-merger it plans to phase out the current MetroPCS network, which is based on CDMA technology. But Sprint also uses CDMA, which means it could potentially merge the existing MetroPCS network with its own.

There is one stumbling block in Sprint's way, however. Now that MetroPCS has concluded its negotiations with T-Mobile, it would have to pay a fee of $150m if it decided to pull out of the merger, which might make a deal with Sprint too costly.

But Sprint might have one more option, say some analysts. Instead of moving on MetroPCS now, it could potentially wait until the merger has completed and then snap up the combined company all at once. Sprint has not commented on the rumors, so at this point nothing is off the table. ®

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