MetroPCS Jumps into Leap's Territory - Analyst Blog

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To compete with arch rival Leap Wireless International Inc. ( LEAP ), MetroPCS, the prepaid arm of T-Mobile U.S. Inc. ( TMUS ), 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 ) 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 ) 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).

LEAP WIRELESS (LEAP): Free Stock Analysis Report

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AT&T INC (T): Free Stock Analysis Report

T-MOBILE US INC (TMUS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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