Even though the boards of T-Mobile and MetroPCS have agreed to a merger of the fourth and fifth smallest US carriers, it looks like things just got more complicated. We’ve known that Sprint has had its eye on MetroPCS for a while, and it even tried to buy MetroPCS outright for $8 billion before the board of directors at Sprint cancelled the deal.
But now that T-Mobile and MetroPCS have both agreed to the deal – and their combined subscriber counts would be much closer to Sprint’s – Sprint now has more motivation to make sure the deal falls through. After all, the final nail in Sprint’s coffin might just be its potential loss of third place status.
However, since T-Mobile and MetroPCS have agreed to proceed with a merger, MetroPCS would have to pay a break-up fee of $150 million if it decides to back out. That could stand in the way of any potential counter offer from Sprint, but Sprint could simply factor that fee into its overall acquisition costs, if it chose.
Logistically, it makes more sense for MetroPCS to merge with Sprint, rather than T-Mobile. Since both Sprint and MetroPCS are CDMA carriers, subscribers of both networks could immediately see a nice boost in coverage. Additionally, MetroPCS could provide Sprint the spectrum it needs to continue its LTE roll out and keep the new network from getting overly congested, like its 3G network is right now.
T-Mobile, on the other hand, does need help if it wants to have a competitive LTE network. But does it really need LTE right now? 42 Mbps HSPA+ rivals the speeds of Verizon LTE, and it’s much easier (and less expensive) for T-Mobile to upgrade to HSPA+, rather than building an LTE network from scratch.
How about you? Would you rather see a MetroPCS marriage with Sprint, or is T-Mobile the best option?[Bloomberg]