Merging Wireless Firms Project 'Synergy' Savings of Up to $6 Billion, but Expect No Large-Scale Store or Office Closures Or Job Cutbacks
The Federal Communications Commission on Tuesday approved the merger between T-Mobile, owned by Germany based Deutsche Telekom, and MetroPCS (NYSE:PCS
), creating the fourth-largest wireless company, behind Verizon, AT&T and Sprint.
Like the merger proposed by AT&T and T-Mobile in 2011, which ultimately failed to win federal approval, the real estate and employment implications for the merger are significant.
T-Mobile and MetroPCS claim the proposed transaction would allow the combined company to realize significant projected network synergies resulting in savings of approximately $5 billion to 6 billion on a net present value basis, according to filings.
The savings would come from the new company's merging of T-Mobile's and MetroPCS’s LTE networks into a single network, decommissioning of overlapping cell sites, eventual decommissioning of MetroPCS’s CDMA/EV-DO network -- and "elimination of overlapping functions, and reduction in duplicative network-based capital expenditures."
A number of concerned parties, including the Communications Workers of America and several elected officials from regions where the smaller MetroPCS has operations saw that as code for closures and job cuts. The mayors of Richmond, VA; Tampa, FL; Charleston, SC and members of the Tennessee statehouse and congressional delegation filed objections to the merger with the FCC. Other Tennessee lawmakers filed letters in support of the merger, noting that T-Mobile continues to hire new workers at its Chattanooga and Nashville call centers.
The companies responded by assuring the federal agency that none of the facilities would be closed post-merger -- a major reason cited by FCC commissioners in expediently approving the transaction, first announced last October.
"The companies have pledged to me that they have no plans to close any domestic call centers, to move them offshore, to close any retail stores, or to reduce retail positions as a result of this deal," said FCC Commissioner Jessica Rosenworcel. "They have also assured me that they plan to increase the overall number of workers they employ in the United States.
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"I expect that the company will keep its word - and live up to these promises."
Commissioner Mignon L. Clyburn also noted that T-Mobile and MetroPCS stated that they have no plans to move call centers offshore or to reduce employment levels at T-Mobile call centers, and further stated that over the last six months, the company has hired more than 3,600 employees in its 17 domestic call centers, and "plans to continue hiring in those call centers, increasing the number of overall U.S. positions, to support its customers."
According to T-Mobile and MetroPCS, the combined company will continue the MetroPCS business model, brand, and distributions channels after the merger, but will also to extend the MetroPCS brand to new metro areas serving both new and existing customers nationwide.
The companies assert that "both the T-Mobile USA and MetroPCS brands will be maintained as separate business units and that the two distribution networks of retail stores and dealer franchises will also be retained," according to the FCC
In addition, the merger applicants claim that their model for synergies and cost savings "assumes no reductions in retail stores or retail store positions, in keeping with their post-merger plans to keep the two brands as separate lines of business and to maintain the two distribution networks of retail stores and dealer franchises," according to the FCC.
T-Mobile USA, headquartered in Bellevue, WA, is the fourth largest wireless service provider in the U.S. in terms of network coverage, number of subscribers, and revenues. At the end of the fourth quarter of 2012, T-Mobile USA reported a total of 33.4 million U.S. subscribers and service revenues totaling $4.1 billion.
MetroPCS Communications, Inc. is the fifth-largest wireless service provider in the United States in terms of network coverage, number of subscribers and revenues.
The companies rejected requests for a comprehensive accounting of their office, retail and cell tower leases and post-merger plans for the properties, calling the information "strictly confidential," according to administrative documents.
According to information in listed in SEC filings, MetroPCS occupies 21 regional offices in 12 states, in addition to its 115,583-square-foot corporate headquarters building in Richardson, TX, at Lakeside Centre II at 2250 Lakeside Blvd. under a lease with CapLease, Inc., the firm that bought the property last year.
As of Dec. 31, 2012, MetroPCS also operated 163 corporate-operated retail stores throughout its metropolitan areas. Its executive offices, all regional offices, switch sites, retail stores and virtually all cell sites are leased from unaffiliated third parties, according to the company. Hundreds more outlets are operated as franchises or by third parties.
The Texas-based carrier has regional offices at Marina Village in Alameda, CA (17,852 square feet); Riley Professional Center, Folsom, CA (9,471 square feet); Market Place Center, 350 Commerce Dr, Irvine, CA (26,680 square feet); Los Angeles, Riverside, CA; Ft. Lauderdale, FL; Jacksonville, FL; Orlando, FL; Tampa, FL; Norcross, GA; Shreveport, LA; Chelmsford, MA; Grand Rapids, MI; Livonia, MI; Las Vegas, NV; Hawthorne, NY; Garden City, NY; Fairfield, NJ; East Hartford, CT; Ft. Washington, PA (32,610 square feet); and Plano, TX.
T-Mobile operates cell sites, switch sites, retail stores and office facilities which are leased with contracts expiring between 2013 and 2028. The majority of cell site leases have an initial term of five years, with renewal options for varying additional five-year periods.
Aggregate rental expense for T-Mobile’s office facilities, retail stores, cell sites and switch sites, including accounting for lease expense on a straight line basis, was $1.8 billion for the year ended Dec. 31, 2012 and $1.7 billion for the years ended Dec. 31, 2011, and 2010.
MetroPCS urged shareholders on Tuesday to approve its merger with T-Mobile USA at a scheduled April 12 shareholders' meeting, despite strong opposition from two major hedge funds that claim the deal will saddle the new company with too much debt.