T-Mobile + MetroPCS merger: Great for them, bad for us

MetroPCS customers have reason to worry following Tuesday’s confirmation of talks between Deutsche Telekom and the company. The talks, which are not guaranteed to result in a deal, would combine T-Mobile USA and the discount carrier, potentially making the resulting company more competitive in a market dominated by two carriers, Verizon and AT&T.

MetroPCS sells flat-rate monthly plans and reported 9.3 million subscribers as of the end of the second quarter, including about 700,000 customers on its LTE network. In the quarter that ended June 30, T-Mobile had 33.1 million customers.

T-Mobile, the fourth-largest U.S. mobile operator, continues to lag behind its larger rivals in both subscribers and deployment of a fast, next-generation LTE network. Parent company Deutsche Telekom is actively searching for a way to keep T-Mobile USA competitive in the wake of its failed merger with AT&T last year; a deal with MetroPCS might do the trick.

The breakup deal gave T-Mobile $3 billion cash and spectrum licenses in 128 markets, but the carrier is still in catch-up mode–making likely some type of acquisition or another attempt at selling off T-Mobile USA.

MetroPCS customers lose the most

There’s an issue with combining these two companies though that could leave many consumers in a bad spot. MetroPCS's 3G network uses CDMA, a different technology from T-Mobile's GSM-based system.

This means phones owned by MetroPCS customers will not work on T-Mobile’s network. As a result, these customers will be forced to upgrade their phones, and that’s a potentially expensive proposition considering the way MetroPCS does business.

While the carrier’s low monthly rates and no-contract terms are attractive, it does not subsidize the cost of many of its phones. This makes those phones much more expensive in comparison to other carriers.

A great example is MetroPCS’ Galaxy S Lightray 4G smartphone, retailing for a hefty $460. The problem: it’s essentially a year-old phone, comparable to the Droid Charge released on Verizon almost a year ago. On top of this, the Charge is available for $100, $360 less than a consumer would pay for it at MetroPCS. Just imagine if this deal happens–that shiny new Galaxy smartphone purchased by a MetroPCS customer could soon become an expensive brick.

If the merger happens, it could take years to complete, and most consumers will either want to or need to upgrade well before they’re forced to. At the same time, MetroPCS customers wanting the benefits will pay to take advantage of T-Mobile’s relatively better network, and could bear the brunt of the cost of this merger.

Stephen Lawson of IDG News Service contributed to this report.

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