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Friday, May 11, 2012 - Page updated at 10:30 a.m.

T-Mobile merger deal reportedly discussed

By Cornelius Rahn
Bloomberg News

NEW YORK — Deutsche Telekom is discussing a merger of its Bellevue-based T-Mobile USA unit with MetroPCS as it reviews options for the customer-losing business, according to people familiar with the matter. MetroPCS shares jumped as much as 29 percent.

Deutsche Telekom is considering a stock-swap transaction that would give the German company control over the combined entity, which would be publicly listed, said two of the people, who declined to be identified because the talks are private. Other options include an initial public offering or an outright sale of T-Mobile, the people said, adding that Deutsche Telekom is also in talks with other companies.

Europe's second-biggest phone company, whose $39 billion sale of T-Mobile to AT&T failed last year due to regulatory resistance, wants to bolster the business's ability to gain size and customers, the people said. After the deal's collapse in December, T-Mobile cut jobs and stepped up investments in faster networks as it tries to stop a flight of contract subscribers to rivals.

"The thing they lack is size and it would be easier to be part of something larger," said Alexandre Iatrides, an analyst in Paris.

Combining with a smaller player "isn't really the option they prefer, but they don't really have a choice" after the disposal plan failed, he said, adding that Sprint Nextel could be a viable partner.

Sprint discussed buying T-Mobile last year, people familiar with the talks said at the time. It also abandoned plans to buy MetroPCS, based in Richardson, Texas, people with knowledge of those talks said in February.

Andreas Fuchs, a Deutsche Telekom spokesman, declined to comment, as did MetroPCS representative Drew Crowell and Sprint's Bill White.

MetroPCS is also in discussions with other potential partners, the people said.

T-Mobile's 33 million clients make it the fourth-largest wireless provider in the country, behind Verizon Wireless, AT&T and Sprint.

Deutsche Telekom, which is scheduled to deliver results Thursday, is projected to report the loss of 470,000 T-Mobile USA contract customers in the quarter ended March 31, according to the average estimate of seven analysts compiled by Bloomberg.

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