This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

T-Mobile Buying MetroPCS? Don't Count On It

Stocks in this article: PCS T AAPL

NEW YORK ( TheStreet) -- Wednesday was a good day to own MetroPCS (PCS) and Leap Wireless (LEAP) as the postpaid cellphone carriers jumped higher on over three times the average volume for both companies. MetroPCS popped over 20% to a high of $8.45 Wednesday when Bloomberg reported Deutsche Telekom (DT) , the parent company of T-Mobile USA, and MetroPCS are in possible merger talks.

MetroPCS is headquartered in Texas and currently has 9.3 million customers located primarily in 13 metropolitan areas. Leap Wireless followed higher as well, on speculation that it may also become in play soon.

T-Mobile is the largest postpaid carrier not offering the Apple (AAPL - Get Report) iPhone after Sprint (S) added Apple products last year. T-Mobile's lack of iPhone sales is cited as one of the larger contributing causes of subscriber migration to other carriers. Last year, T-Mobile experienced a brutal subscriber decline of over 6%.

10 Stocks to 'Like' When Facebook Goes Public >>

When comparing the major carriers, T-Mobile ranks first as the value price leader. Even with such competitive pricing, T-Mobile needs to do more soon. T-Mobile needs to address subscriber losses or they run the risk of losing critical mass. To remain profitable, it is important to have the highest possible density of customers. After fixed costs are met, each additional revenue dollar falls almost directly to the bottom line. Adding an additional low-cost provider appears to be complimentary for both T-Mobile and MetroPCS. While it would appear that a competitive advantage could be gained by combining networks, I will describe why this deal is unlikely to happen.

If we search back to the failed AT&T (T - Get Report) offer for T-Mobile, we may gain insight to what MetroPCS is worth. AT&T offered to buy T-Mobile for $39 billion and would receive about 33 million customers in addition to the network. AT&T's offer came to over $1000 per subscriber, but T-Mobile is arguably more valuable per subscriber than that, even after factoring in T-Mobile's current customer loss rate.

T-Mobile and AT&T also share the same type of network and have roaming agreements. The synergies and cost efficiencies with merging T-Mobile into AT&T would have saved build-out costs for AT&T. No such cost savings is obvious with T-Mobile and MetroPCS.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,678.70 +6.10 0.03%
S&P 500 2,057.09 +5.27 0.26%
NASDAQ 4,771.7630 +13.8840 0.29%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs