T-Mobile’s Solid Execution On MetroPCS Acquisition Bodes Well For Sprint Deal

In 2013, T-Mobile (NASDAQ: TMUS) closed its merger with MetroPCS, one of the largest U.S. prepaid carriers. In hindsight, the deal emerged a significant success for T-Mobile as it realized larger than expected cost synergies while solidifying its foothold in the prepaid market. T-Mobile’s stock is up roughly 3x since the deal closed in May 2013, compared to rivals Verizon up less than 20% and ATT which is almost flat in the same period. T-Mobile’s adjusted margins have also increased by almost 10% over the last 6 years. While the stock price appreciation and improvement in margins are partly due to T-Mobile’s “Un-carrier” strategy of ending contracts on its postpaid plans, it’s safe to say that its success in the prepaid space has also played a role.

View our interactive dashboard analysis on Why T-Mobile’s 2013 Acquisition Of Metro PCS Was A Success

T-Mobile Steadily Scaled-Up Its Prepaid Subscriber Base Post The Deal

• T-Mobile was a relatively marginal player in the prepaid market prior to the deal, with just about 6 million subscribers.
• However, in 2014, the first full-year post the deal, the carrier had 15 million prepaid subscribers (adding MetroPCS’s base of ~9 million), and its prepaid base steadily expanded to over 21 million in 2018.
• The improvement has been driven by better segmentation of T-Mobile’s brands. MetroPCS was marketed as a value brand, while T-Mobile & its postpaid plans were positioned against larger (and more premium) rivals Verizon and AT&T.
• T-Mobile’s higher distribution reach also helped Metro PCS scale up. The brand was available in just 15 markets at the time of the deal.

The Deal Has Helped Improve T-Mobile’s Prepaid ARPUs

For more details on how the MetroPCS deal helped improve T-Mobile’s Prepaid ARPUs, view our interactive dashboard analysis.

T-Mobile’s Prepaid Revenues Account For About 30% Of Its Service Revenue

• T-Mobile’s prepaid revenues have trended steadily higher, rising from about $7 billion post the deal, to close to $10 billion currently, driven by expanding ARPUs and a higher customer base.

T-Mobile’s Integration Of Metro PCS Was Swift, As It Shut Down Its CDMA Network Within ~2 Years Of the Deal Closing

• While MetroPCS used a legacy CDMA network, T-Mobile was quick to phase out this network, while bringing customers on to its more modern LTE infrastructure.
• By December 2014, a little over a year post-deal close, the company brought 87% of MetroPCS’ users onto its network and shut down the MetroPCS network by mid-2015.

Conclusion

• Overall, the acquisition proved to be very fruitful for T-Mobile, considering its swift execution of its network integration and smart segmentation of its brands, which allowed it to address a larger market.
• The success of the Metro PCS deal could bode well for T-Mobile’s planned acquisition of Sprint, which is likely to be a significantly larger transaction given that Sprint has over 50 million subscribers.

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