Over the past decade, U.S. cellphone providers have been involved in a ferocious competition to gain subscribers in a growing market. While some companies have found huge success through this competition, many others are now struggling to stay afloat. This week, a couple of those struggling underdogs reached a business reorganization deal that they hope will put them back in the race.
According to Boston.com, T-Mobile USA recently announced a merger with MetroPCS, a Dallas-based company with 9.3 million subscribers. Deutsche Telekom, the owners of T-Mobile USA, will retain 74 percent of the new company, while MetroPCS will keep the rest. The combined company will retain the T-Mobile name.
Executives from the two companies released statements announcing the agreement, claiming that the merger will give them the financial resources to expand their network and to compete more effectively with the other U.S. providers.
Of course, the deal will still require government approval. Another T-Mobile business deal was blocked at this stage of the process last year, when government antitrust regulators shot down a potential $39 billion purchase of T-Mobile by the larger AT&T. On that occasion, government officials felt that a combined AT&T and T-Mobile would be too powerful to encourage healthy competition.
It seems as though this merger, however, will not encounter any particular difficulties with the approval process. Both companies are much smaller than AT&T, and in a much weaker financial position. T-Mobile and MetroPCS are the fourth and fifth largest U.S. telecoms, and even after the merger the new company will still be smaller than the number three player, Sprint Nextel Corp.
Large mergers such as this one allow struggling businesses to maintain and expand their positions in the marketplace during difficult times. In some cases, the government attempts to block such activity, and business litigation attorneys are often required to argue against this action. In this situation, however, the two companies will probably not have much trouble, as it seems that permitting the merger will improve the market’s competition, rather than suppress it.
Source: Boston.com, “T-Mobile USA set to merge with MetroPCS,” Juergen Baetz, Oct. 3, 2012