What T-Mobile gains from a MetroPCS merger: Surgical spectrum

Within hours of making their merger plans official on Wednesday, T-Mobile and MetroPCS(s pcs) started selling their grand plan to investors, customers, the media and the world. On a conference call with analysts and press, T-Mobile’s new CEO John Legere painted a picture of a new hyper-competitive carrier that would dominate the prepaid and budget mobile markets and offer the country’s most powerful 4G network in the biggest metro markets.

In short, the new carrier – which the companies are referring to as NewCo while waiting for regulatory approval – would be much greater than the sum of its parts, according to Legere, who would take over the helm of the new carrier. “When you add MetroPCS to an already aggressive challenger strategy, it acts as an accelerant,” he said.

T-Mobile USA CEO John Legere

From a consumer’s perspective, there’s a lot to like in combined T-Mobile and MetroPCS assuming they can pull their complex transition plan off. Its 42 million subscribers would still leave it the No. 4 carrier in the U.S. rankings, but it will have closed considerable distance with No. 3 Sprint(s s). What’s more, those two subscriber bases would match up almost perfectly, Legere said.

T-Mobile already has a sizable prepaid customer base, but the merger would allow it to expand Metro’s highly successful contract-free business model beyond its regional footprint of a dozen big cities. The companies’ combined networks and economies of scale would allow them to get even more aggressive with mobile data pricing. Legere said NewCo would be able to offer unlimited data plans not just to contract customers but prepaid ones as well.

During the call, however, it quickly became apparent what T-Mobile parent Deutsche Telekom saw as the biggest advantage of the deal. It all comes down to spectrum.

The Big Apple gets big LTE

T-Mobile will be able to bulk up its 4G airwaves in some of the key cities where bandwidth is in highest demand, such as New York City, San Francisco and Los Angeles. In the top 25 markets, T-Mobile will see its average spectrum holdings increase from 63 MHz to 76 MHz, and much of those gains will be in the Advanced Wireless Service (AWS) band where both companies are launching LTE.

T-Mobile currently has the spectrum to launch a 20 MHz network in half of its metro markets, but it would only be able to support a 10 MHz network in other regions. Metro’s licenses certainly don’t fill in all of those holes, but in 11 major cities the combined company will have more 50 MHz of AWS spectrum, enough for NewCo to launch a mammoth 40 MHz network. That’s double the size of any 4G network AT&T(s t) or Verizon(s vz)(vod) has today.

Those gains are nothing to scoff at, but it’s important to note that they’re only in handful of markets. For every New York and LA, there’s a Chicago or Washington, DC, where T-Mo’s position remains unchanged. Also it will take time for NewCo to clear those airwaves. Right now MetroPCS has both 2G and 4G in the AWS band, so the band will have to be cleared of CDMA before its capacity can be repurposed entirely for LTE. According Legere, that transition would be complete by the end of 2015. That leaves three years in which the carrier will be running two separate, incompatible networks.

This is no Sprint-Nextel

On Tuesday I compared the merger to Sprint’s(s s) ill-fated acquisition of Nextel. Forced to run two separate networks and manage two separate customer bases, Sprint has been far worse for the wear for the last seven years. Legere, however, bristled at the comparison.

“The sound-byte that this is a Sprint-Nextel do-over is absolutely completely wrong,” he said. “Nothing could be further from the truth.”

Legere’s point is that Sprint and Nextel launched into their ill-advised marriage with the aim of running separate networks. T-Mobile’s aim is to shutter Metro’s CDMA systems as quickly as possible and create a unified network. As soon as the merger is complete, NewCo will begin selling as HSPA-LTE devices to MetroPCS’s customer base, and given Metro’s prepaid model turnover will be very quick.

Legere said 60 percent of Metro’s customer base switches out handsets on an annual basis. If those trends hold, the majority of Metro’s 9.3 million customers will have HSPA devices in two years. At that point, NewCo will have to offer incentives (read: free handsets) to the remaining holdouts before the CDMA kill date arrives, he said.

I still think T-Mobile and MetroPCS are being overly optimistic. The new company may not have to endure Sprint’s 7 years of operational hell, but it still faces three years of such hell. T-Mobile has two conflicting objectives here: to harvest Metro’s spectrum and the keep Metro’s customers. I’m not saying it can’t accomplish both, but its certainly not going to be easy. Even if it meets its timeline, NewCo will still spend several years managing two disparate networks while transitioning 10 million subscribers to a new technology.

The question is whether all of that hassle is worth the relatively limited gains. Remember we’re not talking about a new nationwide network here. We’re only talking about boosted 4G capacity in a dozen major markets.

Handshake image courtesy of Flickr user buddawiggiNYC skyline photo provided by Shutterstock.