When AT&T was forced to scuttle its bid to acquire T-Mobile last year because of regulatory roadblocks that stemmed from consumer concerns, an executive from T-Mobile's parent company Deutsche Telekom publicly said, "There is no Plan B." Today, Deutsche Telekom announced it was going ahead with its plan to acquire a majority stake in MetroPCS and merging its operations with T-Mobile's.
Well, we finally know what Plan B is.
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Deutsche Telekom appears to be really making a go of it with T-Mobile by acquiring MetroPCS, adding its 9 million subscribers to T-Mobile's 33 million. Besides that, the spectrum both carriers use is very similar, meaning the merged carrier won't have as many headaches in combining their networks as, say, Sprint and Nextel did.
The two companies made a presentation to investors Wednesday outlining their plan to merge their networks, with completion in 2015. T-Mobile has previously said it's going to roll out its own LTE network next year, and once MetroPCS turns off its old CDMA network in 2015, it'll be able to double down -- quite literally, in terms of speed -- on LTE.
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Let's Make a Deal... in 2015
All that will make T-Mobile more attractive to subscribers, but Deutsche Telekom is more likely thinking how much more it'll be attractive to buyers. Harry Wang, a mobile analyst with Parks Associates, thinks that's the plan.
"I doubt this combined entity has a long-term future in the U.S. market," says Wang. "I feel like this is an interim step before they actually sell the venture. Once they finish the network migration, by that time frame the new entity's appeal is much higher for a new operator to come in and acquire it."
For all of the benefits the merged company may have to customers and investors, it doesn't necessarily make T-Mobile a better choice for phone makers. The subscriber base of the merged company brings its total to about 42 million -- still well south of third-place Sprint, who also struggles with getting the best handsets from its manufacturing partners.
Phone makers want to get their phones into the hands of the most customers possible, and for the U.S. that means saving the best stuff for AT&T and Verizon, who also have the most marketing dollars. The deal doesn't give those hardware partners much more reason to deal with the new T-Mobile as the old one.
The deal also doesn't magically create an LTE network. For all of T-Mobile's promises today of near-effortless combining of the two networks and its plan to offer lightning-fast 4G speeds, network towers don't build themselves. T-Mobile already struggles to provide "4G" service with its HSPA network that's comparable to Verizon's LTE coverage. Infrastructure ain't free.
"They may have more spectrum today," Wang says, "but because of the weak financial position I really doubt the new organization can invest big enough and fast enough to scale up the operation to compete with AT&T and Verizon -- and even Sprint."
Finally, the deal certainly doesn't get T-Mobile the iPhone -- one of the primary factors in the exodus of subscribers T-Mobile has been experiencing for the past couple of years.
Moreover, it doesn't signal any change in T-Mobile's overall brand strategy of being a value carrier. T-Mobile has always embraced the lower end of the market of cheaper handsets on prepaid plans. But the other major carriers have been content to more or less ignore that part of the market in lieu of cultivating the much more lucrative "loyal" base of contract subscribers.
"Being No. 4 in this very competitive market is no fun," points out Wang. "AT&T and Verizon can better procure the handsets that people want, and keep costs down as well. That's why you see Sprint and T-Mobile struggling."
What the deal does get T-Mobile (and Deutsche Telekom) is breathing room. It has got a real plan to create a well-performing 4G LTE network. It is boosting its customer base. And it may even convince a few more customers to join its network.
In other words, T-Mobile is still the ugly duck among the major U.S. carriers, but now it's got stuffing, side dishes and a recipe. Come 2015, the right buyer could still make a decent dinner out of it.
This story originally published on Mashable here.
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