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MetroPCS Jumps into Leap's Territory

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To compete with arch rival Leap Wireless International Inc. , MetroPCS, the prepaid arm of T-Mobile U.S. Inc. (TMUS - Free Report) , has doubled its operational territory. This puts MetroPCS on par with Leap in many new markets.

MetroPCS’ coverage has expanded to a potential customer base of 150 million from 100 million and includes 13 metropolitan areas. MetroPCS will also operate separate stores in markets where T-Mobile services are available. Additionally, it plans to add 1,000 prepaid stores in the new markets by the end of 2013.    

Notably, in May 2013, T-Mobile USA, a subsidiary of Deutsche Telekom, acquired MetroPCS Communications Inc. Per the deal, MetroPCS shareholders will get cash consideration of $1.5 billion along with a 26% stake in the combined entity, as compared with Deutsche Telekom's 76%. Post the deal, MetroPCS added 9 million customers to the existing 34 million of T-Mobile USA.

Going forward, T-Mobile is reportedly planning to close down MetroPCS' network over a period of two years and move the latter’s customers into T-Mobile’s network. T-Mobile U.S. plans to utilize MetroPCS’ airwaves to build and expand its own network.   

Meanwhile, AT&T Inc. (T - Free Report) has proposed to take over the largest prepaid wireless operator in the U.S., Leap Wireless, for $1.2 billion. Including Leap’s net debt of $2.8 billion, the value of the deal is around $4 billion. Leap offers 3G CDMA and 4G LTE networks, which cover almost 98% of the U.S. population.

T-Mobile U.S., the fourth largest carrier in the U.S., competes with AT&T Inc., Verizon Wireless and Sprint Corporation (S - Free Report) for postpaid customers, who pay their bills regularly MetroPCS’ superior position in the no-contract wireless market has encouraged the company to venture into the prepaid sector.

At the end of first-quarter 2013, almost 32% of the smartphones sold were prepaid as compared with 21% in the year-ago quarter. The expansion of its prepaid operations is a timely one for MetroPCS given the growing nature of the business. As it will take 6-9 months for AT&T to complete the Leap deal, we believe that penetrating into its rival’s market will be beneficial for MetroPCS, given the nation-wide footprint of T-Mobile U.S.

TMUS currently carries a Zacks Rank #3 (Hold).

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