T-Mobile and MetroPCS Set To Stick Together and Unlimit Themselves

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MetroPCS is no stranger to merger and acquisition (M&A) activity, and after close calls with Sprint, Leap and possibly other overtures from additional suitors (that were never made public), it was announced this morning that Deutsche Telekom’s T-Mobile USA will merge with MetroPCS.

This announcement comes some 10 months after the Department of Justice (DOJ) blocked AT&T’s attempt to acquire carrier T-Mobile on the grounds that the acquisition would diminish competition in the marketplace and harm tens of millions of consumers across the United States. Will this deal face similar scrutiny?

Probably not.

Unlike past announcements with Sprint & Nextel, Verizon Wireless & Alltel, and especially AT&T & T-Mobile, this latest M&A deal is not a case of a large carrier simply buying more subscribers and eliminating competition. The AT&T/T-Mobile merger was blocked by the DOJ because it would increase the market concentration of the wireless industry to such a degree that it was believed it would harm consumers in the process. But using the Herfindahl-Hirschman Index (HHI) – the commonly accepted method of assessing market concentration – the proposed T-Mobile/MetroPCS merger does not pose the same threat.

The HHI for the top 8 wireless carriers, based on current subscriber totals, is 2263*. Any market with HHI between 1,500 and 2,500 is considered to be “moderately concentrated” and a market with a higher score is considered “highly concentrated”. This proposed T-Mobile/MetroPCS merger would result in a modest 56 point increase in the index, which is not likely to raise any eyebrows at the DOJ. To put this in perspective – if the AT&T/T-Mobile merger were simulated under current market conditions, it would result in a 639 point increase!** This is clearly a different scenario – thus, our position is that the merger will likely pass unbesmirched by any antitrust rulings.

So while this merger is unlikely to have an adverse affect on market concentration, will it make a difference for T-Mobile and MetroPCS?


Though T-Mobile postpaid subscriptions have suffered in the wake of the failed AT&T merger, both T-Mobile and MetroPCS have proven themselves formidable players in the growing prepaid space. (According to Compete.com, interest in T-Mobile prepaid services are up ~70% year-over-year.) Additionally, when we looked at T-Mobile & MetroPCS prechurn rates – that is the rate at which current T-Mobile and MetroPCS subscribers browse and shop competitive websites – we found very little overlap between the two sets of online customers. This suggests that T-Mobile & MetroPCS will get the benefits of larger scale and improved spectrum without the risk of cannibalizing each other’s customers.

The data suggests that this merger is unlikely to be blocked and that this could be a great new U.S. strategy for Deutsche Telekom. Unlike previous wireless acquisitions with large carriers buying more marketshare, this is about two spectrum-constrained companies working together to stand a fighting chance.

*This calculation was performed using the subscriber figures for the top 8 wireless providers, as reported in their most recent quarterly reports.
**Any increase more than 200 in a “highly concentrated” market is likely to attract negative attention from the DOJ

About Nathan Kollett:
Nathan Kollett is an Analyst in the Technology & Entertainment vertical at Compete. Nathan is a graduate of the University of Massachusetts Amherst and earned his B.A. in Economics with a minor in Mathematics and Statistics. You can follow him on Twitter at @nathankollett and connect with him on on Linkedin