Bloomberg News

T-Mobile USA Open to Deals to Increase Scale, Ray Says

November 16, 2012

T-Mobile USA, the fourth-largest U.S. mobile-phone company, is prepared to look at more deals to catch up with rivals once it completes a merger with MetroPCS Communications Inc. (PCS:US)

“Are there opportunities for us to continue to grow scale on our business through combinations or acquisitions?” Chief Technology Officer Neville Ray said today at a conference organized by Morgan Stanley in Barcelona. “Historically we’ve always been open and looked at those opportunities and will continue to do so.”

Even with the addition of MetroPCS, T-Mobile still trails Verizon Wireless, AT&T Inc. and Sprint Nextel Corp. (S:US) in customer numbers. At the same time, the addition of wireless frequencies and the departure of millions of contract customers have left T- Mobile, a unit of Deutsche Telekom AG (DTE), with capacity for more voice and data traffic.

T-Mobile is pursuing more agreements with virtual mobile operators, which offer services on other operators’ networks. The company has a pipeline of partners for the next year, Ray said in an interview, adding that such operators are attractive as they move from text messaging and voice calls to data offers.

This year, T-Mobile has signed deals with MVNOs including Solavei and Ultra Mobile.

New CEO

“A major part of our strategy is to drive some shift in share amongst the big four, and that’s going to be the richest area we see with the greatest return,” he said.

T-Mobile, which named John Legere as chief executive officer in September, has boosted its network investments and plans to begin offering faster services based on long-term evolution technology mid-next year.

“There is a near- and medium-term opportunity for us to aggressively grow and take on share,” he said, naming AT&T and Sprint as facing “challenges with a limited LTE capacity.”

At the same conference, T-Mobile Chief Operating Officer Jim Alling said an industry deal to reduce the number of nationwide wireless providers to three is likely “in the longer term” following regulatory shifts.

“Is it possible that four major players could go down to three?” Alling told investors in Barcelona. “I think that is possible, and likely in the longer term. I don’t know how likely that is, based on the current regulatory environment” of U.S. President Barack Obama’s administration.

Shareholder Meeting

Deutsche Telekom’s attempt to sell T-Mobile USA to AT&T Inc. (T:US) for $39 billion was thwarted last year as regulators were concerned that the combination would reduce competition. Germany’s former phone monopoly reached an agreement last month to merge T-Mobile with MetroPCS.

MetroPCS shareholders will probably meet in February or March to discuss approval of the deal, said Braxton Carter, the U.S. company’s chief financial officer who’s set to keep the same position in the enlarged company. That timeframe compares with a prediction by Deutsche Telekom CEO Rene Obermann in October that investors in Richardson, Texas-based MetroPCS would agree to the deal as early as the end of 2012.

Under the agreement, Bonn-based Deutsche Telekom would hold a 74 percent stake in the combined U.S. operator. The partners are targeting completion of the transaction by the end of June.

Deutsche Telekom fell 2.3 percent to close at 8.16 euros on the Frankfurt exchange. MetroPCS added 1.3 percent to $10.59 at 11:44 a.m. in New York trading.

SEC Talks

The parties will probably go through multiple rounds with the U.S. Securities and Exchange Commission that will include a review of pro-forma financial data of the merged entity, including purchase-price allocation adjustments, Carter said.

The joint company’s earnings before interest, taxes, depreciation and amortization will probably be on the “upside” of its Oct. 3 forecasts, Carter said. The partners predict the venture will post average profit growth of 7 percent to 10 percent over five years and an Ebitda margin of 34 percent to 36 percent.

T-Mobile USA will take steps to halt departures of contract subscribers next year and post “moderate growth” in this higher-paying customer category in 2014, Alling said. T-Mobile lost 492,000 subscribers in the third quarter.

The merged company, which will receive a $15 billion shareholder loan from Deutsche Telekom, plans to refinance the debt in the next several years, Carter said in an interview. T- Mobile will be able to spread out the refinancing over five years, he said.

Sprint last month was bolstered by Tokyo-based Softbank Corp. (9984), which agreed to pay $20 billion for a 70 percent stake in the carrier. Sprint will probably become more aggressive on prices for the handset it sells to clients, Alling said.

To contact the reporter on this story: Cornelius Rahn in Barcelona at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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