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In 2013, T-Mobile closed its merger with MetroPCS, one of the largest U.S. prepaid carriers. In hindsight, the deal emerged a significant success for T-Mobile as it realized larger than expected cost synergies, while solidifying its foothold in the prepaid market.T-Mobile's stock is up roughly 3x since the deal closed in May 2013, compared to rivals Verizon up less than 20% and ATT which is almost flat in the same period. T-Mobile's adjusted margins have also increased by almost 10% over the last 6 years.While the stock price appreciation and improvement in margins is partly due to T-Mobile's "Un-carrier" strategy of ending contracts on its postpaid plans, it's safe to say that its success in the prepaid space has also played a role.
T-Mobile Steadily Scaled-Up Its Prepaid Subscriber Base Post The Deal
T-Mobile was a relatively marginal player in the prepaid market prior to the deal, with just about 6 million subscribers. However, in 2014, the first full-year post the deal, the carrier had 15 million prepaid subscribers (adding MetroPCS's base of ~9 million), and its prepaid base steadily expanded to over 21 million in 2018.The improvement has been driven by better segmentation of T-Mobile's brands. MetroPCS was marketed as a value brand, while T-Mobile & its postpaid plans were positioned against larger (and more premium) rivals Verizon and AT&T. T-Mobile's higher distribution reach also helped Metro PCS scale up. The brand was available in just 15 markets at the time of the deal.
T-Mobile Branded Pre-paid Customers
Cost Savings And Margin Improvements
The swift integration helped cut costs of operating 2 different networks, while giving MetroPCS customers access to a faster 4G LTE network. Moreover, the shutdown helped T-Mobile free-up MetroPCS' spectrum, and deploy it on the T-Mobile network. While the exact details of realized cost savings are not available, a year into the merger, T-Mobile indicated that NPV of synergies would stand at $9 to $10 billion, ahead of its $6 to $7 billion projection. T-Mobile's adjusted margins have grown from levels of under 30% 6 years ago to about 39% currently. While this is largely due to growth in postpaid business, it's possible that the prepaid business has also contributed to this.
NPV of Synergies
T-Mobile Adjusted EBITDA Margin