BY KATE RYAN
Madison Dearborn Partners L.L.C. is betting $300 million that people who pay their cell-phone bills in advance will pay dividends for the private-equity firm.
The Chicago firm, Boston’s TA Associates Inc. and other investors are paying $739 million for about a third of Dallas-based MetroPCS Communications Inc., a small but growing wireless network in California, Florida and Georgia.
Madison Dearborn sees an opportunity for prepaid cell-phone service, which analysts say is growing faster than the traditional wireless business. By expanding MetroPCS’ service, the investors hope to double or triple their money in three to four years, said Kevin Landry, chief executive officer of TA Associates.
As it expands, MetroPCS also will find plenty of competition.
Big wireless companies are going after the same market-Cingular Wireless L.L.C. is pushing its GoPhone in splashy TV commercials aimed at youth. Mergers among smaller operators also could pose a threat to MetroPCS.
“Consolidation in the next 12 to 18 months could leave any smaller operator without a sustainable market position,” says Brian Lesieur, director of Technology Business Research Inc. in Hampton, N.H. “To invest in any smaller player is a risk.”
MetroPCS has about 1.7 million customers, who pay $35 to $45 a month for unlimited wireless minutes. Many of the firm’s customers avoid traditional wireless plans because they don’t want monthly bills or because they have poor credit. The average subscriber talks for 1,800 minutes a month.
“It’s cheaper than the pay-as-you-go plans offered by traditional wireless companies,” says Michael Cole, a partner at Madison Dearborn who worked on the deal. “It targets markets underserved by traditional wireless providers.”
MetroPCS ranks No. 2 for marketshare in Miami, its largest customer base. Cole says Hispanic customers are a majority of MetroPCS’ subscribers there. That’s why the firm is planning an expansion into Los Angeles, which also has a large Hispanic population.
MetroPCS also plans to begin service in Detroit and Dallas. It’s already in Atlanta; Sacramento and San Francisco, Calif., and Tampa/Sarasota, Fla. Madison Dearborn and its partners expect to close on the acquisition this month.
Kate Ryan is a reporter with Crain’s Chicago Business, a sister publication of RCR Wireless News.
