T-Mobile’s attempts to merge with pre-paid wireless service provider Metro PCS is widely expected to face little objection from federal regulators, giving the companies a better shot at dominating a segment of customers the biggest carriers aren’t going after, analysts say.
But the potential deal leaves bigger questions for Sprint Nextel, the nation’s third-largest provider of wireless services that has been unable to catch up to AT&T and Verizon Wireless for smartphone and tablet users.
Sprint has long been the focus of merger rumors with investors and analysts saying the company needed to merge with T-Mobile or smaller no-contract carriers in the race for 4G wireless customers.
“Now Sprint is left at the altar and is facing what is almost certainly a more challenging industry structure,” wrote Bernstein Research analyst Craig Moffett.
Metro PCS on Tuesday confirmed reports, first by Bloomberg, that it was in talks with T-Mobile’s parent Deutsche Telekom. The firm doesn’t have a broad portfolio of spectrum but it has a strong position in a market for consumers who can’t afford monthly contracts, particularly in urban areas.
“There can be no assurances that any transaction will result from these discussions, and the company does not intend to comment further unless and until an agreement is reached,” Dallas-based Metro PCS said in a statement.
A T-Mobile spokesman declined to comment on the matter late Tuesday.
Combined, the companies would have just 12.9 percent of the total U.S. wireless market. But they would have nearly 30 percent of the pre-paid market, Moffett wrote.
A potential merger won’t hurt Leap, Metro PCS’s main rival because they don’t compete in the same locations, wrote Stifel Nicolaus analyst Christopher King. It could push Sprint into a position to hasten an acquisition for a company like Leap or even push more strongly for Metro PCS, analysts say.
Industry consolidation has long been expected and even though the FCC rejected AT&T’s bid for T-Mobile late last year, a merger of smaller carriers probably won’t face opposition, King said.