LOS ANGELES -- T-Mobile USA and MetroPCS Communications have announced they will merge in a move to combine two weaker wireless companies in an industry dominated by bigger players.
Under the terms of the agreement, MetroPCS shareholders will receive $1.5 billion in cash and 26 percent ownership in the company, which will have the T-Mobile name. Deutsche Telekom, the Germany company that owns T-Mobile, will receive a 74 percent stake.
In a teleconference call with media Wednesday, Rene Obermann, chief executive of Deutsche Telekom, said the merger "means we are here to compete, we are here to unlock value and we are here to win. This deal has the potential to be a game changer."
The merger will establish "the leading value-focused wireless carrier" by combining customer and revenue scale, the companies said in a statement Wednesday. T-Mobile, with 33.2 million mobile customers, is the nation's fourth-largest cellphone company; MetroPCS is the fifth with 9.3 million customers.
Based on analyst consensus estimates for 2012, the combined company is expected to have roughly 42.5 million subscribers, $24.8 billion of revenue, $6.3 billion of adjusted EBITDA, $4.2 billion of capital expenditures and $2.1 billion of free cash flow in 2012.
"The T-Mobile and MetroPCS brands are a great strategic fit -- both operationally and culturally," Obermann said. "We are committed to creating a sustainable and financially viable national challenger in the U.S., and we believe this combination helps us deliver on that commitment."
Still, the combined company will be in the No. 4 position behind Verizon Wireless, AT&T and Sprint Nextel.
The deal is expected to close in the first half of 2013 and is subject to MetroPCS shareholder approvals, regulatory approvals and other closing conditions.
The news comes a day after Deutsche Telekom, which owns Bellevue, Wash.-based T-Mobile, confirmed it was in talks with Richardson, Texas-based MetroPCS.
Analysts were initially wary of a possible deal because T-Mobile and MetroPCS use different network technologies, which prevents phones from one carrier from working on the other's network.
But the companies are currently deploying the same 4G technology, which would make the networks compatible. They said Wednesday that they were working on a "path to at least 20x20 MHz of 4G LTE in many areas" and that existing MetroPCS customers will be migrated to a common LTE-based network as they upgrade their handsets.
"Our enhanced spectrum position will be the foundation for a faster and more reliable network, and will allow us to deploy a deeper and more robust LTE rollout, particularly in major metropolitan areas," said John Legere, chief executive of T-Mobile.
Before the deal was announced, analysts speculated that a buyout or merger between the two companies would likely result in a more bifurcated U.S. wireless industry, with Verizon and AT&T competing for the post-paid customer segment, and T-Mobile focusing on the lower-end pre-paid segment.
Once the merger is completed, the combined company is expected to continue trading on the New York Stock Exchange. Legere will serve as president and CEO of the new company, and J. Braxton Carter, currently chief financial officer and vice chairman of MetroPCS, will be CFO.
The company's headquarters will be in Bellevue, Wash., although it will retain a "significant presence" in the Dallas area.
Last year, AT&T announced it had agreed to buy T-Mobile USA for $39 billion. But the deal was called off after running into opposition from government agencies that said it would create a less competitive wireless industry and potentially lead to higher prices for consumers.
The deal between T-Mobile and MetroPCS is expected to go more smoothly, as both are smaller wireless companies.