Deutsche Telekom is to merge its struggling U.S. unit, T-Mobile, with smaller rival MetroPCS in a $1.5-billion deal that would give MetroPCS shareholders 26-percent ownership of the new entity, the companies announced Wednesday.
The announcement came just a day after reports that the companies were holding merger talks in a bid to present a more powerful challenge to leading US mobile phone carriers Verizon, AT&T and Sprint by expanding their customer base and improving service over fourth generation LTE wireless networks.
A fusion of the two companies would address Telekom's biggest problem - its small size as the fourth largest US mobile carrier. T-Mobile is also at a disadvantage because it does not offer Apple's iPhone.
The new company will have approximately 42.5 million subscribers, $24.8 billion of revenue, and $6.3 billion in earnings, the companies said in a press release.
The deal follows a proposed $39-billion takeover of T-Mobile by AT&T, the second largest US carrier. That was blocked in late 2011 by the U.S. Federal Communications Commission, which found the deal would harm consumers and result in an overly concentrated industry.
"We are extremely pleased to announce this transaction with MetroPCS, which enhances Deutsche Telekom's position in the expanding US wireless market," said Rene Obermann, chief executive of Deutsche Telekom.
"We are committed to creating a sustainable and financially viable national challenger in the US, and we believe this combination helps us deliver on that commitment."
The combined company will continue trading under the T-Mobile name and will be headed by John Legere, president and chief executive of T-Mobile. The transaction is expected to be completed in the first half of 2013.
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