Published October 02, 2012
FRANKFURT/NEW YORK – Deutsche Telekom said on Tuesday it is in talks to combine its T-Mobile USA unit with MetroPCS and take a majority stake in the combined wireless service provider.
However the German company, which has been looking for a way to bolster its customer-losing U.S. business, said that "the conclusion of the transaction is still not certain" as key issues have not yet been finalized in its talks with MetroPCS.
The company, which tried to exit the U.S. market last year but failed to complete a $39 billion T-Mobile USA sale to AT&T, also said its board had not "taken the resolutions necessary for such a transaction".
MetroPCS shares were up 17 percent higher at $13.52 after Deutsche Telekom confirmed the talks. A MetroPCS representative did not return requests for comment on Tuesday.
Speculation that T-Mobile USA and MetroPCS were considering a merger have come up in the past although analysts have pointed out that a deal would be complicated by the fact that both companies use different network technologies. However, they are both upgrading to the same high-speed technology.
A combination of No. 4 U.S. mobile provider T-Mobile USA and smaller rival MetroPCS might spell bad news for third-ranked Sprint, which also looked into buying MetroPCS. The plan was vetoed by Sprint's board at the last minute.
MetroPCS as well as rival Leap Wireless caters to cost-conscious customers but has been feeling the heat as bigger rivals such as Sprint enter their low-cost phone markets.
Sprint has been struggling to find its footing for the last several years, and buying a company that is worth more than half its market value would have significantly strained its already stretched finances.
"A T-Mobile/PCS combination could make it more difficult for Sprint to merge with that combined entity longer term due to potential anti-trust complications," said William Power, an analyst at Robert W. Baird & Co.
"That in turn could hinder Sprint's ability to gain more scale to compete more effectively with AT&T and Verizon," he added.
Sprint shares lost almost 5 percent on Tuesday, falling to $4.9. Deutsche Telekom shares closed up 1.3 percent in Frankfurt, while shares in LEAP jumped 12 percent.
Deutsche Telekom last year tried to sell its U.S. business T-Mobile USA, once a strong growth engine, to AT&T but fierce regulatory opposition scuppered the deal, leaving the German company with a $6 billion breakup package.
Deutsche Telekom has to compete with much bigger rivals Verizon Wireless, AT&T Inc and Sprint Nextel.
In the second-quarter T-Mobile USA lost 205,000 customers in the United States and is expected to feel the pressure from the launch of the new iPhone, which it will not be selling in the United States.
(Additional reporting by Arno Schuetze in Frankfurt, Nicola Leske in New York and Leila Abboud in Brussels; editing by Elaine Hardcastle and Andrew Hay)