By Brendan Sasso - 10/03/12 02:01 PM EDT
Deutsche Telekom, the parent company of T-Mobile, agreed to buy MetroPCS on Wednesday, a move that will solidify T-Mobile's standing as a national competitor in the wireless marketplace.
MetroPCS shareholders will receive $1.5 billion in cash and 26 percent ownership of the combined company, which will keep the T-Mobile name.
MetroPCS is a regional carrier that offers prepaid monthly service without long-term contracts. It has 9.3 million subscribers, which will be combined with T-Mobile's 33.2 million subscribers. The merger is a major boost to T-Mobile, but will still leave it behind third-place Sprint, which has about 56 million customers, and well behind industry leaders Verizon and AT&T.
But the Justice Department and the Federal Communications Commission concluded that the merger would have stifled competition and led to higher prices for consumers. They said T-Mobile was a "maverick" competitor, undercutting the industry giants with lower prices.
Wednesday's deal puts T-Mobile on stabler ground, and could be seen as vindication for the regulators' decision that T-Mobile could compete on its own.
T-Mobile will gain access to MetroPCS's radio spectrum — the airwaves that carry signals. All wireless carriers are looking to accumulate more spectrum to keep pace with the booming demands placed on their networks by smartphones and tablet computers.
The company will also gain MetroPCS's cell towers, including its next-generation LTE towers, which will help T-Mobile expand its network coverage.
“The T-Mobile and MetroPCS brands are a great strategic fit — both operationally and culturally," René Obermann, Deutsche Telekom's CEO, said in a statement. "The new company will be the value leader in wireless with the scale, spectrum and financial and other resources to expand its geographic coverage, broaden choice among all types of customers and continue to innovate, especially around the next-generation LTE network. We are committed to creating a sustainable and financially viable national challenger in the U.S., and we believe this combination helps us deliver on that commitment.”
The companies said the merger will allow for between $6 billion and $7 billion in cutbacks and cost savings. The companies have a combined annual revenue of $24.8 billion.
The companies said they expect the deal, which is subject to regulatory approval, to close in the first half of 2013.
Rep. Anna Eshoo (D-Calif.), the top Democrat on the communications subcommittee and a critic of the AT&T deal, said she hopes regulators conduct a "thorough, but swift review."
"At a time when two companies continue to dominate the wireless marketplace, the need for a strong national competitor has never been greater," Eshoo said. "The proposed merger of T-Mobile and MetroPCS has the right ingredients to provide consumers with a viable alternative for wireless voice and data service."
Free Press, a consumer advocacy group that lobbied against the AT&T deal, said the marketplace needs stronger competitors to push back against AT&T and Verizon.
"But consolidation at the bottom between a regional prepaid carrier and the last-place national carrier is not going to fix all of the problems in our wireless market," Policy Director Matt Wood said. "The FCC is going to have to formulate bold public policies to bring consumers the relief they need."
— This story was updated at 12:50 p.m.