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Tag Archives: Piper Jaffray & Co.

T-Mobile, MetroPCS to Tie the Knot; But Will Sprint Cut In?

It has been a busy couple of weeks for the folks at T-Mobile. Between this week’s announcement of a reverse merger with MetroPCS Communications and last week’s sale of 7,200 towers to Crown Castle International, the carrier has kept bankers, stock analysts on their toes and, apparently, got Sprint Nextel’s attention, as well.

John Legere, T-Mobile’s new president and CEO, said merger with the MetroPCS will help the T-Mobile compete with the big three carriers.

“Together, the combined entity will be able to leverage a faster, stronger and more reliable network to provide amazing 4G services,” Legere writes on his blog. “We’ll have unsurpassed speed and reliability through a denser, higher-capacity network and deeper LTE coverage in key metropolitan areas such as New York, Los Angeles and Dallas. We’ll have greater network coverage and a path to at least 20×20 MHz of LTE in many areas.”

Christopher Larsen, senior research analyst, Piper Jaffray & Co., was a bit more cautious about the immediate benefits of the deal, noting that combining the two companies, from a technology perspective, will take a while. After the closing of the deal, T-Mobile said it will be a separate customer unit of the combined company.

“Because the networks use two different technologies and [the new company] will not combine the networks, synergies will be limited until subscribers are migrated to T-Mobile’s GSM network and PCS towers can be shut down. This is not likely to happen, on a notable scale, until years three and four of the deal,” Larsen writes. “While the combination should improve network quality, especially for PCS subs, we believe it may not be enough to achieve the growth … management expects, as T-Mobile’s network will still likely to be the third or fourth best of the national carriers.”

Jonathan Atkin, analyst, RBC Capital Markets, agreed that the combination of T-Mobile and MetroPCS will not create any operating synergies, because of the difference in technologies, in an Equity Research note written before the merger announcement. Sprint would have been a better partner for MetroPCS because of the technology synergies, he added.

“We assume the MetroPCS’ appeal to Deutsche Telekom lies solely in its spectrum position (3.1B MHz-POPs, mostly in top-20 markets),” Atkin writes. “We believe Sprint (and to a degree, Leap) would benefit competitively [if T-Mobile and MetroPCS merge], due to the significant potential for operational distractions.”

Interestingly enough, the day after the merger announcement, Bloomberg Business News reported a rumor that Sprint Nextel is considering a counter offer for MetroPCS Communications to top Deutsche Telekom AG’s bid to combine it with T-Mobile USA.

“Given the market reaction to the official announcement over the past two trading days, such a bid may make sense for Sprint and MetroPCS shareholders,” Larsen writes. “Sprint investors have indicated disappointment that Sprint was not involved in consolidation, while MetroPCS shares have languished following the disclosure of the details of the reverse merger.”

When T-Mobile USA announced its proposed merger with MetroPCS Communications this week, Crown Castle revealed that T-Mobile and MetroPCS represented, 17 percent and 5 percent, respectively, of its consolidated site rental revenues.

After buying T-Mobile’s towers, Crown Castle now has 1,400 towers that host both carriers. Any decommissioning resulting from the merger would affect towers that represent less than 2 percent of Crown Castle’s consolidated site rental revenues, according to the company. Any economic effect of possible decommissioning on Crown would not be immediate, either. There is an average of approximately ten years and five years of current term remaining on all lease agreements with T-Mobile and MetroPCS, respectively.