T-Mobile USA/MetroPCS merger poses content integration headaches


The merger of Deutsche Telekom's T-Mobile USA subsidiary and MetroPCS Communications (NASDAQ:PCS) not only brings together their respective customer bases and spectrum licenses but also their mobile content efforts, calling into question which services the combined company will continue to offer moving forward.

The Deutsche Telekom and MetroPCS boards on Wednesday approved an agreement to combine the nation's fourth and fifth-largest carriers. The transaction is structured as a recapitalization, in which MetroPCS will declare a 1 for 2 reverse stock split, make a cash payment of $1.5 billion to its shareholders and acquire all of T-Mobile's capital stock by issuing to Deutsche Telekom 74 percent of MetroPCS' common stock on a pro forma basis. DT also will roll its existing intercompany debt into new $15 billion senior unsecured notes of the combined company, thereby providing the combined company with a $500 million unsecured revolving credit facility and a $5.5 billion backstop commitment. The post-merger company will operate under the T-Mobile brand under the leadership of current T-Mobile CEO John Legere and serve 42.5 million U.S. subscribers and projects 2012 pro forma revenues of $24.8 billion.

"The T-Mobile and MetroPCS brands are a great strategic fit--both operationally and culturally," Deutsche Telekom CEO Rene Obermann said. "The new company will be the value leader in wireless with the scale, spectrum and financial and other resources to expand its geographic coverage, broaden choice among all types of customers and continue to innovate, especially around the next-generation LTE network."

Deutsche Telekom said it will expand MetroPCS's data plans and services to a larger number of new areas to complement T-Mobile's existing offerings. However, given the size of Deutsche Telekom's ownership stake and the relative scale of T-Mobile's business, the post-merger operator seems likely to resemble the current T-Mobile from a content and services standpoint.

Signature T-Mobile efforts include the free Bobsled IP communications suite, which includes Bobsled Calling (enabling users to place free Internet calls over almost any data connection, across devices including iOS and Android smartphones and tablets) and the cloud-based Bobsled Messaging application (which allows Android users to share rich media messages with other Android device users as well as iOS, Windows Phone and BlackBerry smartphones and even most feature phones).

More than a million consumers worldwide already use Bobsled services, which should hold significant appeal for MetroPCS's prepaid customer segment. MetroPCS already offers the complementary textPlus, which delivers free, ad-supported group texting services across device platforms including Android and iOS, offering both mobile applications and a permanent shortcode.

Other T-Mobile USA calling cards include the T-Mobile Mall, which is featured inside the larger Google (NASDAQ:GOOG) Play storefront and offers apps and games curated by the carrier. The mall includes Music Hub (offering access to music apps like Shazam and TuneIn as well as MP3 tracks, albums and ringtones), Game Base (a collection of pre-screened titles) and Apps (highlighting T-Mobile's own applications as well as solutions from selected partners). MetroPCS currently offers its own MetroPCS Music, which is powered by Livewire Mobile and preloaded on all of the operator's Android devices. MetroPCS additionally offers music services in partnership with Rhapsody.

There's also T-Mobile TV, which offers live and on-demand programming from broadcasters including ABC, Fox and PBS and is powered by mobile broadcast solutions provider MobiTV. MetroPCS's similar MetroStudio video app is likely to be a casualty of the merger due to redundancy: The service offers comedy, sports, news, drama and multicultural content from partners including Disney/ABC Television Group, NBCUniversal, Black Entertainment Television and Univision.

MetroPCS additionally supports Dyle, which offers mobile digital TV content from more than 90 stations in 35 U.S. markets. MetroPCS pledged earlier this year to preload Dyle across its Samsung devices, leveraging ATSC-Mobile technology to deliver live programming to subscribers. Dyle's emphasis on regional programming could allow the service to co-exist alongside T-Mobile TV, although content overlap will pose difficulties.

Likely unaffected by the merger is Isis, the forthcoming nationwide mobile commerce network spearheaded by T-Mobile in partnership with Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T). First announced in late 2010 and slated to begin consumer trials this summer, the Near Field Communications-based Isis recently announced its kickoff has been delayed indefinitely while the company continues to fine-tune its customer experience. Isis is expected to update its status sometime this month.

Special Report: T-Mobile USA and MetroPCS merge: Complete coverage

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