Sprint Connection

T-Mobile criticizes Sprint amid MetroPCS merger talk

Amid speculation of a counteroffer for MetroPCS, the company brings up Sprint’s troubled deal with Nextel.

Updated: 2012-10-09T12:52:43Z

By MARK DAVIS

The Kansas City Star

T-Mobile USA took several digs at rival Sprint Nextel Corp. Monday in an effort to bolster its bid to merge with smaller cellphone company MetroPCS Communications Inc.

The comments came amid speculation that Overland Park-based Sprint might make a counteroffer for MetroPCS and its 9.3 million subscribers. Sprint has not responded to those reports and declined Monday to respond to T-Mobile’s commentary.

During a conference call with analysts, T-Mobile’s chief technology officer Neville Ray took more than one swipe at Sprint’s disastrous 2005 merger with Nextel Partners and referred to Sprint’s wireless technology as “dying.” Sprint uses technology called CDMA.

T-Mobile, which is owned by Germany-based Deutsche Telekom, essentially beat Sprint to the deal last Wednesday by announcing its agreement to merge with MetroPCS. Sprint’s management reportedly had tried to acquire MetroPCS in February, only to be blocked by its own board of directors.

The two rivals are battling for a boost to their customer counts in an industry dominated by Verizon and AT&T Inc., each of which has more than 100 million subscribers.

Sprint is a bit more than half that size with 56.4 million customers. T-Mobile has 33.2 million.

Ray spoke with investment analysts mainly to dispel concerns that T-Mobile and MetroPCS, which use different wireless technologies, could repeat the problems Sprint had in merging with Nextel.

The Nextel merger is widely seen as a key reason Sprint has struggled financially.

Nextel used a wireless network called iDEN, and now Sprint is shutting it down after years of burdensome costs from running two networks. The Nextel shutdown has buoyed Sprint’s recent prospects.

Ray said T-Mobile wouldn’t make the same mistake though MetroPCS uses CDMA technology and T-Mobile uses yet another technology called GSM.

“This is not about combining CDMA with GSM band technology,” Ray said. “We’re going to close the CDMA network down.”

Ray’s central message was that T-Mobile would migrate MetroPCS customers toward its network rather than run parallel systems.

T-Mobile expects to be able to move most of them off MetroPCS’s CDMA network in only eight months after the deal is completed in mid-2013, according to Craig Moffett, senior analyst at Sanford C. Bernstein Co., the host of the conference call.

Moffett, in a note to clients, said MetroPCS experiences lots of customer turnover, which gives T-Mobile a quick opportunity to upgrade them to phones that work on T-Mobile’s network. That would avoid “the mess and cost” of trying to combine the different technologies, he wrote.

T-Mobile said it would be able to shut down that network by the end of 2015, generating cost savings and other benefits from the merger.

Ray contrasted that with Sprint’s experience with the Nextel network, which he said was an indication of what could happen in a Sprint/MetroPCS merger.

“Track record is important in these things,” Ray said. “That’s an interesting story I’d love to hear them tell.”

He said Sprint would run into new troubles with a MetroPCS merger. The two companies use different wireless spectrum.

Spectrum is essentially the licensed airwaves that cellphone companies use to carry their traffic. Ray said Sprint would need to install expensive equipment to its already complex multiple technology to use MetroPCS’s spectrum.

T-Mobile and MetroPCS use the same wireless spectrum, which will make it easy for T-Mobile to put MetroPCS’s spectrum to new use as it migrates customers off the MetroPCS network.

In another jab at Sprint, Ray called its CDMA technology a “dying” one.

T-Mobile’s strategy is to move all of its customers, including the MetroPCS subscribers, quickly to an advanced technology called Long Term Evolution, or LTE. LTE carries data — such as videos and other downloads — at far faster speeds and is being adopted industry wide.

Sprint is rolling out LTE service as part of its Network Vision upgrade that also includes enhancements to its CDMA network that it will continue to use for voice traffic.

Analyst Jennifer Fritzsche, who follows the industry at Wells Fargo Securities, said CDMA will be “around for a long time” because a successor is not yet ready.

Fritzsche also said T-Mobile was likely to face more difficulty with its plans for the MetroPCS switchover than it expected. The industry is riddled with such problems, she said, even if they’ve rarely risen to the level of difficulty Sprint had with Nextel.

And that opens the door to rival carriers — including Sprint — to go after the MetroPCS customers as they change networks, Fritzsche said.

Sprint has lost many of its Nextel customers as it tried to switch them to its CDMA network. About 40 percent are staying with Sprint, with the rest going elsewhere.

Sprint has an opportunity to rebut Ray’s comments Wednesday. Joe Euteneuer, Sprint’s chief financial officer, is scheduled to talk with analysts at a conference in Arizona. It will be broadcast on Sprint’s website.

To reach Mark Davis, call 816-234-4372 or send email to mdavis@kcstar.com.

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