At the onset of the month, the media was awash with reports on the long awaited closure of the MetroPCS Communications Inc (NYSE:PCS)–T MOBILE US INC (NYSE:TMUS) deal. T-Mobile closed the MetroPCS buyout following prolonged debate and possibilities of an initial fallout. In order to ink the deal, T-Mobile’s German parent Deutsche Telekom was compelled to take an aggressive stance.
Amid talks for the deal, Deutsche Telekom amended its initially proposed terms; in the process bridging the gap between divided MetroPCS Communications Inc (NYSE:PCS) shareholders. The latter were initially divided over the debt burden that the post-merger company would have. To put these worries to rest, Deutsche Telekom reviewed its terms and reduced the combined debt burden from $15 billion to $11.2 billion. It also slashed interest on loans to shareholders by a half a percentage point. In addition, the German telecom big wig increased the lock up period, or the period it cannot sell shares in the post-merger company, from 6 months to 18 months. These amendments softened the stance of indifferent shareholders and facilitated a vote for the deal.
At the wake of the deal’s closure, the key question that remains is what’s next for the two?
Offset stalled progress in Europe, unearth prospects in U.S.
For T MOBILE US INC (NYSE:TMUS), or Deutsche Telekom if you will, the deal couldn’t be timed any better. The 9 million subscribers that MetroPCS Communications Inc (NYSE:PCS) will pull in will not only countervail T-Mobile’s 13% decrease in its U.S. contract customer base between 2009 and 2012, but it will also allow T-Mobile to offset stalled progress made in Europe by its parent company Deutsche Telekom.
Deutsche Telekom has suffered considerably in Europe. In addition to the unending economic crisis in the region, competition from cable companies is weighing down on the company. Players such as Liberty Global Inc. (NASDAQ:LBTYA) are roping in phone and internet users in droves. To make it worse, the economic crisis has put its squeeze on revenues. Regulatory driven price cuts have led to an overall decline in top lines throughout the sector.
A chance to make headways in the U.S. therefore avails a real solution to T MOBILE US INC (NYSE:TMUS)’s parent Deutsche Telekom.
For MetroPCS Communications Inc (NYSE:PCS), the deal allows the company to reach places it couldn’t before. Moreover, it allows it to do this in an ingenious way. The post-merger company will in essence be a single company filtering the market through two brands. This will brighten the chances of bringing in more customers for the post-merger company. T-Mobile CEO john Legere earlier said that operations to introduce new devices as early as next month were underway. Ideally, the devices will wear the MetroPCS brand but run on T MOBILE US INC (NYSE:TMUS)’s network. This means that MetroPCS Communications Inc (NYSE:PCS) will be able to maintain, if not grow, its customer base while at the same time improve customer satisfaction through T-Mobile’s more robust and wider spectrum layout.
Although there is a possibility of introducing the iPhone to MetroPCS, the actual introduction is not imminent. What MetroPCS and T MOBILE US INC (NYSE:TMUS) have hinted however, is the introduction of flexible payment plans. This could pan out well for both companies. Especially after considering that most of the devices offered by MetroPCS Communications Inc (NYSE:PCS) before the merger were in the $99 ballpark.
Huge bet on data will pay off
Despite the seemingly favorable prospects that came with the deal, MetroPCS’s core reason for signing off was not the softened terms as many would want to imagine, but the deal’s ability to furnish its critical spectrum needs.