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Could MetroPCS take over T-Mobile's slot in the Tier I carrier ranks?

If it wins TerreStar's MSS spectrum, Metro will be in a position to launch a nationwide voice and mobile broadband network

If AT&T succeeds in its bid to buy T-Mobile USA—and it looks like it will—the Tier I carrier ranks will shrink to just three operators. In today’s highly saturated mobile market, it’s hard to envision a new nationwide operator emerging, given the scarcity of spectrum and the difficulty of raising a voice and data network from the ground up. But MetroPCS seems to have just such intentions.

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Metro’s national ambitions emerged out of the recent reports on Dish Network’s stalking horse bid for bankrupt TerreStar’s satellite spectrum. According to Reuters, MetroPCS and a group of backers are among the potential bidders for TerreStar’s 20 MHz in the mobile satellite services (MSS) band, which it could use to launch a robust long-term evolution (LTE) network, dwarfing the capacity of its current narrowband system, and allowing it to expand far beyond its limited regional footprint.

Of course, Dish could do the same thing. In fact, it could do it a lot better than MetroPCS. As BTIG Research analyst Walter Piecyk pointed out in his blog, it has already committed to buying 20 MHz of similar spectrum bankrupt DBSD (BTIG: Will MetroPCS keep Ergen honest?), which would give Dish the capacity to deploy a 20 MHz-by-20 MHz LTE network, making it the fastest thing on the airwaves bar none—at least until the traditional operators consolidate their spectrum.

Dish hasn’t betrayed its plans for the spectrum though—nor for the 700 MHz licenses it bought at auction (CP: 700 MHz: Meet the new operators—same as the old operators), but chances are Dish has no plans to become a full-fledged voice and data operator. It will likely use its spectrum to become a mobile ISP like Clearwire as well as a means to transmit its own on demand video content. Dish probably wouldn’t shy away from supporting VoIP services, but I doubt it sees voice as a big revenue generator.

But Metro’s core business is still voice. An LTE network wouldn’t help it expand its primary CDMA circuit-switched voice network, but MetroPCS is being very aggressive about moving its legacy services to LTE. MetroPCS has already shifted all of its 4G customers’ SMS and MMS traffic onto the LTE network using Mavenir’s IP Multimedia Subsystem (IMS)-based messaging platform, and it's currently working on doing the same with voice. It will take a few years, but MetroPCS is prepping itself to become an all-IP service provider while still offering up traditional voice and SMS services.

While a nationwide voice network is nice, what MetroPCS really needs is the data network. As Piecyk points out, MetroPCS has set itself on a trajectory of potential disaster by undercutting the operators on their smartphone plans. In most markets, MetroPCS is running a meager 1.5 MHz-by-1.5 MHz carrier, the equivalent of a single CDMA 1X voice carrier. If MetroPCS continues to ramp up its smartphone operation it will soon be facing network overload. Says Piecyk:

"Metro PCS has had success selling smartphones to its customer base based on its attractive price. A Metro PCS customer pays only $60 per month for unlimited voice and data on an Android phone. The lowest price alternative from a national operator is $90 per month by T-Mobile and the rest charge over $100 per month. If Metro PCS’ success continues, they are likely to quickly burn through their spectrum. If they are not successful it will likely be because they have deployed a thinner version of LTE that offers a less attractive speed than what Verizon and AT&T are offering on their wider channel versions of LTE. In either case, Metro PCS will be needing to spend billions on acquiring more spectrum."

The big question is who wants that spectrum more? According to Piecyk, Dish may have the greater desire since coupling that 20 MHz of MSS with its DBSD spectrum makes the combined assets that much more valuable. But MetroPCS is also presented with a rare opportunity to challenge the Big 4—or soon to be Big 3—on their own turf. T-Mobile was always the budget operator among the four Tier 1 operators, but MetroPCS has been able to undercut even T-Mobile with its prepaid all-you-can-eat plans. If it can scale that strategy nationally, it could become a fierce competitor.

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© 2014 Penton Media Inc.

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