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

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) 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%.

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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) 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.

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