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Summary:

Rumors of a merger between Leap Wireless and MetroPCS are flying once again, signaling a rush to consolidation among the second- and third-tier players in the space. But is T-Mobile USA a better fit for MetroPCS than its prepaid rival?

Rumors of a tie-up between Leap Wireless and rival MetroPCS are flying again following yesterday’s report in the Wall Street Journal that Leap is seeking a buyer. But will Leap strike a deal with MetroPCS before T-Mobile USA finds a partner in what looks to be a coming wave of carrier consolidation?

The U.S. wireless market has striated into first-, second- and third-tier carriers, and AT&T and Verizon Wireless continue to increase their leads over the rest of the field. The saturated market leaves little hope for Sprint and T-Mobile to turn things around in terms of subscriber adds, plus T-Mobile is in a sticky position when it comes to having enough spectrum and the funds to acquire more for next-generation wireless technologies. In the meantime, there’s pressure from prepaid carriers attacking from below and high fees paid to other telecommunications players for Sprint’s and T-Mobile’s mobile backhaul that’s cutting into profits and revenue.

That’s the case for both Sprint and T-Mobile to find a dance partner, if not to pair off together. A MetroPCS buy of Leap primarily offers cost synergies that would help the two lower their costs for running the network and serving customers. They already have an agreement signed in 2008 that lets customers of each roam onto the other’s network, which was a big step in giving them nationwide coverage. So really what they need is a deal that allows them to cut costs as they try to stay ahead of the brutal price wars in pre-paid.

The reality is that at this stage in the game, finding the right dance partner is a challenge. Deutsche Telekom in November said it was keeping its options open regarding T-Mobile’s fate, leading to speculation about potential tie-ups. A Sprint/T-Mobile merger has long been rumored, but network incompatibilities and antitrust concerns make that scenario unlikely. A merger between T-Mobile and MetroPCS makes more sense. Unlike Sprint, both T-Mobile and MetroPCS are headed down the LTE path, and a tie-up could help T-Mobile compete without setting off antitrust alarms. I’m hoping that this year, we’ll see who finds a partner and who has to sit out as mobile broadband and wireless service drive technological innovation.

Image courtesy Flickr user teo_ladodicivideo.

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  1. Don’t think T-Mobile and Metro would work as they use different network technologies. Sure, they’ll both be LTE eventually, but that’s a long, long, long time away. T-Mobile mobile data path is actually pretty solid – they’re going to push out 21-Mbps to multiple markets this year and they have a legit chance to be offering the fastest download speeds to the largest number of customers by the end of the year. They’ll eventually move to LTE but there’s still some life to be squeezed out of 3G

  2. just seems logical to me that AT&T and t-mobile combine somehow. maybe just share spectrum and networks but remain separate entities.

    the fact is that t-mobile has a great network but lacks spectrum. combining the networks wold help both give t-mobile the spectrum they need and AT&T the network improvement they desperately need to support the growing iphone customer base.

    also for consumers it would be great if an unlocked phone from AT&T or t-mobile could work on either 3G band regardless of the carrier currently subscribed too.

  3. McGuire’s Law » Blog Archive » Observations: Carriers – February 22, 2010 Monday, February 22, 2010

    [...] Mobile Industry Dances Toward Consolidation [...]

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