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Cell Carrier Mergers: One On, One Off For Now

9/17/2007 01:19:00 PM Eastern

New York – T-Mobile’s acquisition of Southeast carrier SunCom Wireless is on, but the unsolicited bid by MetroPCS for Leap Wireless – which would have created a fifth national carrier — is off for now.

GSM/EDGE carriers T-Mobile and SunCom announced a definitive merger agreement that they expect to close in the first half of 2008 after regulatory and shareholder approvals. The combined entity, which will carry the T-Mobile name, will boost T-Mobile’s subscriber base by more than 1.1 million to 28.1 million and its nationwide population coverage to 259 million people from 244 million.

SunCom has been providing roaming coverage to T-Mobile in its markets in the Carolinas, Tennessee, Georgia, Puerto Rico, and the Virgin Islands. The merger, valued at $2.4 billion, will save the companies about $1 billion in reduced roaming and operating expenses, the companies said.

Separately, Leap Wireless rejected an unsolicited bid by fellow CDMA 1X carrier MetroPCS to merge, but some stock analysts believe Leap will eventually come around because the two carriers share the same basic prepaid, unlimited-calling business model and the merger will save $2.5 billion in costs, position them better to participate in 700MHz spectrum auctions, and rationalize network build out.

Both carriers are operating in, or have licenses to operate in, almost all of the top 200 markets, MetroPCS said.

Leap cited multiple reasons for rejecting the offer, including a bid price that didn’t reflect the greater number of markets in which it operates, Leap’s future growth prospects, the expected challenges of MetroPCS’s planned launches in Los Angeles and New York City, and MetroPCS’s lack of broadband service.

By the end of 2006, MetroPCS operated in seven of the top 25 largest metropolitan areas with a population of about 39 million. As of June 30, it had about 3.5 million subscribers. The carrier also owns or has access to wireless licenses covering a population of about 140 million, including 14 of the top 25 largest metropolitan areas in the country.

For its part, Leap currently operates in 23 states, including 35 of the top 50 markets, with a population of 51 million people. Expansion plans call for coverage of markets with a total 53 million people by the end of the year and 73-81 million by the end of 2008.

For the six months ending June 30, Leap posted a net loss of $4.9 million, and MetroPCS posted net income of $94 million.

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