The proposed merger between T-Mobile and MetroPCS has been huge news all week. If approved, though, the deal will still leave T-Mobile as the nation’s fourth-largest carrier.
So what’s the big deal and how could the merger impact the mobile landscape?
I see two big drivers for this deal. First and most significant, to compete in the present data world, a carrier needs to offer fast speeds and broad capacity.
Acquiring MetroPCS helps T-Mobile advance on these crucial fronts. Second, the merger helps solidify a business model focused on value-pricing.
Both of these drivers will have an important impact on the consumer’s mobile experience.
Spectrum and LTE
LTE has become the price of admission a carrier needs to pay to be competitive in the current mobile landscape. T-Mobile plans to launch its LTE service next year, becoming the last major U.S. carrier to move forward with LTE. As our “Need for Speed” report showed, we’ve seen some strong speeds from T-Mobile’s HSPA+42 network.
But those speeds can’t keep up with what LTE offers, and LTE has more room to grow. To put it simply: T-Mobile needs a strong LTE network.
T-Mobile has been making moves in this direction already. As part of Verizon’s spectrum deal with the cable companies, Verizon and T-Mobile will be swapping a number of AWS licenses. This will allow T-Mobile to offer LTE in cities where it would not have been able to otherwise and increase capacity in areas where it was limited.
The deal with MetroPCS advances T-Mobile’s LTE plans in two important ways: 1) it gives T-Mobile an immediate jumpstart by bringing in MetroPCS’s more than 1 million LTE customers, and 2) it adds even greater depth to the spectrum T-Mobile can use for its LTE infrastructure.
Acquiring MetroPCS (the first US carrier to launch LTE service) will give T-Mobile (the last major US carrier to launch LTE service) improved capacity in a number of markets. T-Mobile’s press release even claims the merger creates a “path to at least 20×20 MHz of 4G LTE in many areas.”
That’s an impressive configuration: the top speeds we’re seeing from AT&T and Verizon are coming from a 10×10 MHz configuration. Coupling its broad and already existing HSPA+42 coverage with an upcoming LTE infrastructure of significant capacity, T-Mobile could conceivably offer the fastest speeds out there.
What does this mean for current MetroPCS customers already on LTE?
Our tests show that MetroPCS’s service is currently much slower than what the other LTE carriers offer. Limited to a 5 MHz x 5 MHz configuration, they simply haven’t had the capacity to offer the same speeds as AT&T, Sprint, or Verizon.
As current MetroPCS customers upgrade their devices, T-Mobile plans to transition them to the merged LTE network. At that point, they should see a dramatic increase in LTE speeds. To put things in perspective, our tests show an LTE-download speed of roughly 2.5 Mbps on MetroPCS’s 5×5 MHz configuration; AT&T, Sprint, and Verizon have recorded 10 – 16 Mbps for LTE-download speed in our tests. We haven’t tested any of them on the 20×20 MHz configuration T-Mobile is proposing; the fastest results we’ve seen are coming from 10×10 MHz.
Value-pricing and device selection
The other significant impact of the merger centers on value. It’s counterintuitive to think that consolidation and removing a carrier could actually lead to greater price competition, but that could happen here.
As consumers use their mobile devices more and more frequently, consumers are looking to find the most bang for their buck. Value is becoming an increasingly important point of differentiation. T-Mobile and MetroPCS have been champions of prepaid and value plans. T-Mobile, for instance, recently made waves by offering an unlimited data plan without any throttling attached.
Acquiring MetroPCS only expands T-Mobile’s ability to grow its value offerings. Indeed, T-Mobile proposes that the merger “will create the leading value carrier in the U.S. wireless marketplace” and allow them to offer “a wider selection of attractive, competitively priced plans . . . including contract, no-contract monthly, SIM-only, pay-as-you-go and mobile broadband services.”
From this perspective, the merger leads to not only more LTE but also more choices for how consumers choose to access that network. The merger could even improve T-Mobile’s device offerings: they’ll have more pull to attract top devices from manufacturers. Long locked-out from the iPhone, T-Mobile could even finally have a network ideally prepped for Apple’s flagship mobile device.
Combining with MetroPCS will also give T-Mobile more marketing clout as it pushes its value offerings, which could put pricing pressure on the other carriers and force them to respond. If that happens, we’ll see not just the LTE landscape change, but also the marketing and pricing landscapes.
So, while the new combined company won’t challenge the others for sheer size, it could create a large impact, leading to faster speeds, expanded value offerings for consumers, and increased pricing pressure on the other carriers. That’s a potential win for consumers, and we’ll be there testing to see how the new network performs.
Bill Moore is CEO Of RootMetrics, a Seattle area startup that gathers independent data on wireless carriers.