The whiff of M&A in the US mobile market returned on Monday.
In fact it was more than a whiff: usually knowledgeable sources are convinced that Deutsche Telekom is in full-throated discussions to combine its T-Mobile business in America with its smaller, fast-footed rival MetroPCS.
A deal, if it happens, is expected to be worth something approaching $5bn.
Such a combination has been dismissed as fanciful in the past, given the lack of compatibility between the T-Mobile and PCS networks in the US. But those who claim knowledge of the talks say the German company is looking ahead – positioning itself for the next generation of technology, which will hopefully see a convergence of standards.
Such a deal would also be about grabbing market share while it is still available.
The US market is now chronically competitive. Four national network operators – Verizon, Sprint, AT&T Wireless and T-Mobile – have been fighting it out with a range of smaller players. Other than PCS there is also Leap (with which PCS tried to merge in 2007 – and with which it continues to be linked), Clearwire, Tracfone, and Virgin Mobile.
T-Mobile, it seems, feels it has some catching up to do.
As Eric Savitz pointed out in Barrons on Monday:
With revenue growth in mobile down to the low single digits in the U.S., the players are fighting for market share with a weapon that hurts the entire industry: low price…It’s a shooting war, and there will be heavy casualties.
Savitz notes the resurgent speculation that PCS might try again to merge with Leap, and also the recent suggestion that T-Mobile might target Sprint – which he doubts.
For one thing, the two companies use incompatible technologies. T-Mobile uses the GSM standard, while Sprint Nextel runs on two others, iDen for the old Nextel network, and CDMA. Sprint’s takeover of Nextel is widely regarded as a debacle. Would it make sense to compound the problem with a third standard? Then you have the likely pushback a deal would get from the FCC and the Justice Department, both leery of reducing competition. Not least, Deutsche Telekom is too heavily leveraged to easily finance such a deal; an offer for another U.S. carrier could spark a shareholder revolt.PCS, it seems, does not carry the same risks…
Related links:
Sprint finish(ed)? – FT Alphaville
MetroPCS to launch 4G mobile network – FT