Possible merger brewing with T-Mobile and MetroPCS

Cellphone company T-Mobile USA is making merger news again — and again without Overland Park-based Sprint Nextel Corp. as a potential partner.

T-Mobile’s parent company, Deutsche Telekom, based in Germany, confirmed Tuesday it was in talks with smaller U.S. wireless carrier MetroPCS Communications Inc. Deutsche Telekom’s statement followed unconfirmed reports that its board of directors would vote on an acquisition at a special meeting today.

A deal, if completed, would combine two companies that each separately had been linked to Sprint in previous merger speculations.

Last February, Sprint chief executive Dan Hesse reportedly presented a deal to buy MetroPCS but was knocked down by Sprint’s board of directors. Sprint has not acknowledged any offer for MetroPCS.

Sprint similarly had been considered the likely merger candidate with T-Mobile in March 2011 when T-Mobile instead agreed to a $39 billion buyout from No. 2 carrier AT Inc. Federal antitrust concerns nixed that deal last December, putting T-Mobile back into the merger pool.

Shares of Sprint tumbled by 5.4 percent on the T-Mobile/MetroPCS talks, shedding 28 cents and closing at $4.90. It was the stock’s first close below $5 a share since Sept. 6.

A Sprint spokeswoman said the company would not comment on Deutsche Telekom’s statement.

Hesse, however, recently said publicly that Sprint would be part of an expected consolidation of players in the wireless phone industry.

Analysts offered varied reactions to the news’ effect on the industry and more specifically on Sprint, the third-largest wireless company.

Sprint probably would still be able to pursue a merger with T-Mobile regardless of the latter’s acquisition of MetroPCS, several analysts agreed.

Any larger merger, however, may be pushed off for at least six months to a year, according to a report from Christopher Larsen at PiperJaffray.

A T-Mobile acquisition of MetroPCS would put it on a more equal footing with Sprint in any future merger talks.

No. 4 T-Mobile had 33.2 million customers at the end of June, or a third as many as No. 1 Verizon Wireless and No. 2 AT Inc., and about 60 percent as many as Sprint.

MetroPCS, based in Richardson, Texas, would give T-Mobile, with its headquarters in Bellevue, Wash., 9.3 million additional customers who buy service from month to month. It would add no new contract customers, which generate more revenue for wireless carriers.

The companies’ combined total of 42.5 million customers still would trail Sprint’s 56.4 million, which has been growing and includes contract and month-to-month customers.

T-Mobile is the only one of the big four carriers without iPhones to offer subscribers, and it has struggled in the battle for customers who buy service under a two-year contract. It lost 2.76 million contract customers, or more than 10 percent of its subscriber base, in the last two years through the end of June.

At the least, a T-Mobile/MetroPCS merger would mean Sprint misses out on what analysts said would have been a good deal for Sprint.

Jennifer Fritzsche, with Wells Fargo Securities, said in a note to clients that buying MetroPCS would have helped Sprint financially, given the companies’ “common technologies and the recent improvement Sprint has seen in its stock.”

Sprint’s purported February bid for MetroPCS came when Sprint shares were about half their current value and would have made a deal costly.

Analyst Craig Moffett saw a more damaging effect from a T-Mobile/MetroPCS merger.

A Sprint merger with T-Mobile would become “vastly more difficult,” the analyst at Sanford C. Bernstein Co. wrote in a note to clients. Regulators would be more reluctant to approve their merger with MetroPCS already a part of T-Mobile, Moffett wrote.

The purported deal also would further concentrate under T-Mobile the “low end” and month-to-month segment of the U.S. cellphone market, with Verizon and AT dominating the contract customer “high end,” according to Moffett. He wrote that it would leave Sprint “in the middle” with higher costs than T-Mobile and a lesser network than the larger carriers.

“Sprint may be so badly disadvantaged as a result of this combination that the company may have no choice but to make a hostile counter offer,” Moffett wrote.

Attention also turned Tuesday toward potential industry interest in bidding for MetroPCS’ main competitor, Leap Wireless International Inc. in San Diego.

The merger talks follow other changes at Deutsche Telekom. In the last two weeks it named John Legere to head T-Mobile and agreed to sell the rights to operate T-Mobile’s cellular towers for $2.4 billion. Legere is the former CEO of Global Crossing Ltd.

Shares of MetroPCS jumped $2.09, or 17.8 percent, and closed at $13.57. Leap shares gained 59 cents and closed at $7.59.

Bloomberg News contributed to this report.