The main reason that T-Mobile’s merger with AT&T never made it to the altar is that it would remove a low-cost competitor from the marketplace, effectively creating a duopoly of AT&T and Verizon Wireless, with Sprint being stuffed into a closet and forgotten about.
But Consumer Reports’ Paul Reynolds believes that a T-Mobile/MetroPCS deal could actually improve the level of competition between major carriers.
“The merger with MetroPCS should give an expanded T-Mobile a better shot at remaining competitive with other telecom titans in coverage and more,” he explains.
Of particular interest is the pre-paid business that T-Mobile would absorb. Taking on MetroPCS’ pre-paid customers only adds to T-Mobile’s already strong pre-paid offerings. It could compel the other majors, especially Sprint — which has several pre-paid brands like Virgin Mobile and Boost — to compete and could increase U.S. consumer awareness of contract-free pre-paid plans.
As we’ve mentioned in earlier stories, MetroPCS’ existing 4G LTE network would help T-Mobile play catch-up to its competitors, especially since the MetroPCS network is not only compatible with T-Mobile’s, but is also located in heavily populated metropolitan areas.
Then there is the bad news…
In Consumer Reports’ customer satisfaction surveys of wireless carriers, neither T-Mobile nor MetroPCS came out smelling like roses.
“Despite its decent prepaid score, T-Mobile rated lower than most others for reader satisfaction in its key segment, namely contract service,” writes Reynolds. “And Metro PCS was among the lower-scoring prepaid carriers.”
Perhaps of more importance is the future of MetroPCS’ rock-bottom prices.
Currently, the carrier offers unlimited talk and text with 250MB of data for as low as $40/month, but the closest comparable T-Mobile plan comes in at $70, and that’s for only 200MB of data/month.
“Based on past mergers between carriers, the lesser partner’s pricing is typically subsumed by the major that bought it,” explains Reynolds, “which strongly suggests that a combined T-Mobile-Metro PCS will adopt T-Mobile’s pricing.”
This merger still needs to run the regulatory approval gauntlet, with both the FCC and the Justice Dept. signing off. While the deal doesn’t raise as many red flags as the failed T-Mobile/AT&T merger did, there will still likely be concerns that consolidation in the wireless industry has reached a critical point.
It’s unlikely that approval of the deal will spark a buying spree of smaller carriers. MetroPCS is rare among the independent pre-paid carriers in that it built up its own network, while most of the others simply resell network access from larger providers. That is what makes MetroPCS so valuable to T-Mobile, and the fact that the others don’t have their own networks is what might keep them safe from being gobbled up.