Oct. 26 (Bloomberg) -- MetroPCS Communications Inc., the pay-as-you-go mobile carrier, will have to grow either through acquisitions or by selling itself as larger rivals threaten to poach customers, said Matthew Niehaus, at Battery Ventures.

America Movil SAB may target the flat-rate, contract-free wireless carrier to acquire its own network after buying space on Verizon Wireless’s network, Niehaus said.

A deal may happen in the next year, said Niehaus, a partner at the firm that provided some of MetroPCS’s funding and still owns shares. Larger, nationwide carriers are entering its market to tap growth as other parts of the mobile industry slow. Sprint Nextel Corp.’s Boost Mobile, which sells unlimited calls for $50 a month, has dealt the biggest blow, he said.

“I see a world where there is one, unlimited footprint company in the U.S.,” Niehaus said in an interview from the Supercomm conference in Chicago Oct. 21. “From a Wall Street perspective, they’re under attack.”

MetroPCS profit probably fell for a second straight quarter, according to the average of analysts’ estimates compiled by Bloomberg. The company has lost about half its value in the past year.

It may combine with Leap Wireless International Inc., a smaller competitor, to gain scale as bigger companies enter the pay-as-you-go wireless business, Niehaus said. The companies ended talks about a combination in 2007 after disagreeing on price, they said at the time.

Jim Mathias, director of investor relations at MetroPCS, declined to comment, as did a spokeswoman for America Movil.

‘The Low End’

America Movil, based in Mexico City, may shy away from owning a U.S. network, at least while carriers are burdened with upgrading their systems to third and fourth-generation wireless technology, said Christopher King, an analyst at Stifel Nicolaus & Co. America Movil may also sit on the sidelines as the U.S. government considers tighter industry regulations, King said.

The company currently sells its Tracfone Wireless Inc. service over Verizon Wireless’s network and has a deal to sell the devices at Wal-Mart Stores Inc. It’s competing for customers who want to pay a flat rate for unlimited talk time without signing up for a two-year contract.

“America Movil could do it easily, but I’m not necessarily sure they want to be in the business of operating their own network in the U.S.,” said Baltimore-based King, who advises investors to buy shares of America Movil and doesn’t own any. “It will be up to the players fighting it out down there at the low end to do a deal among themselves.”

Growing Competition

Sprint, the third largest U.S. wireless carrier, sells Boost Unlimited plans without a contract. The company agreed to buy Virgin Mobile USA Inc. in July. Prepaid customers were the company’s fastest-growing segment in the second quarter, adding 777,000 contract-free lines. Verizon Wireless and AT&T Inc., the two biggest U.S. mobile-phone companies, also sell contract-free calling plans.

The prepaid market will inevitably consolidate into fewer, larger companies, say analysts, including King and Michael Nelson at Soleil/Nelson Alpha Research. The most logical merger would be MetroPCS and Leap, both Nelson and Niehaus said.

Leap Wireless spokesman Greg Lund declined to comment.

MetroPCS dropped 12 cents to $6.52 at 4 p.m. in New York Stock Exchange composite trading. Leap fell 34 cents to $13.86 on the Nasdaq Stock Market. America Movil rose 18 centavos to 30.50 pesos in Mexico City trading.

MetroPCS probably added at least 20 percent fewer subscribers in the third quarter than it did a year earlier, Nelson said. Leap’s customer additions may increase 16 percent, slower than last year’s jump of more than fourfold.

It’s becoming “increasingly more difficult for these smaller, regional players to compete with the national players,” said Nelson, who is based in New York and advises investors to hold the shares of PCS and Leap, which he doesn’t own. “I’m expecting pretty disappointing results from both of them.”

MetroPCS and San Diego-based Leap are both scheduled to report third-quarter results on Nov. 5.

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net

Last Updated: October 26, 2009 16:16 EDT