UPDATE 4-Deutsche Telekom keeps options open for U.S.

Tue Mar 8, 2011 6:10pm EST

Related Topics

* DT group open to all options in the United States

* Bloomberg says the two had held on and off talks

* Deal would be difficult, analysts say

* DT stock ends up 3.95 percent, Sprint up 4.9 percent

By Nicola Leske and Sinead Carew (Rewrites, adds analyst comments, updates shares)

FRANKFURT/NEW YORK, March 8 (Reuters) - Deutsche Telekom AG (DTEGn.DE) is keeping its options open for a T-Mobile USA deal, but the German operator has no clear path to catch up to far larger rivals in the United States.

The company has made no secret of the fact that it has held talks with smaller companies such as Clearwire Corp CLWR.O and Harbinger-backed start-up LightSquared about a potential spectrum deal with its U.S. operation, T-Mobile USA.

Deutsche Telekom has also quietly discussed with bigger rival Sprint Nextel Corp (S.N) a potential sale of T-Mobile USA in exchange for a stake in the combined company, according to a Bloomberg report.

Deutsche Telekom is open to all options in the United States, Chief Financial Officer Timotheus Hoettges said in an email. Hoettges said the operator was not pressed for time, although the company acknowledged earlier that it needs access to more wireless spectrum in coming years for data services.

T-Mobile USA, ranked a distant fourth in the U.S. mobile market, and Sprint, the No. 3 U.S. operator, declined to comment on deal talks.

A deal with Sprint would create a much bigger third U.S. mobile provider to compete with the dominant operators Verizon Wireless and AT&T Inc (T.N).

Combining the two companies' incompatible technologies, however, would make the deal complex.

Sprint and T-Mobile USA are expected to eventually move to similar technology, but Nomura analyst Michael McCormack said this was likely "many years from fruition."

Proceeding with a deal could risk repeating Sprint's earlier mistakes.

Sprint has only recently started turning around customer losses after its 2005 purchase of Nextel, another operator with an incompatible network. That deal led to steep and prolonged customer defections at Sprint.

A deal with T-Mobile USA, which has also been losing customers, would "further exacerbate the challenges" at Sprint, McCormack said.

Complicating matters, Sprint also depends on wireless spectrum owned by Clearwire for its high-speed wireless offerings. Sprint is a 54 percent owner of Clearwire.

NO DEAL

Two weeks ago, Deutsche Telekom Chief Executive Rene Obermann told Reuters Insider TV that he ruled out buying Sprint Nextel but said the company was looking at partnerships to mitigate future spectrum needs. [ID:nRTV194510]

Obermann has repeatedly said the company would not make any multibillion acquisitions.

T-Mobile USA, formed out of Deutsche Telekom's purchase of U.S. operator Voicestream in 2001, was long a major revenue contributor but has turned into a headache for the German company due to customer losses in recent quarters.

T-Mobile USA has lost out to smaller rivals like Leap Wireless International Inc LEAP.O and MetroPCS Communications Inc PCS.N, as well as bigger rivals such as AT&T and Verizon Wireless, a venture of Verizon Communications (VZ.N) and Vodafone Group (VOD.L).

The company has "reached a crossroads where they need to explore strategic options," said Ben Abramovitz, analyst at Kaufman Bros.

STRATEGIC OPTIONS

In an effort to address spectrum needs, T-Mobile USA has said it was considering partnerships with companies such as Clearwire and Harbinger-backed start-up LightSquared, both of which have the capacity to lend wireless spectrum to other operators.

T-Mobile USA is also the main bidder in a spectrum auction Clearwire is holding, sources have said. [ID:nN19254463]

Clearwire, which badly needs new funding to expand its network, has said it would work on resolving a dispute with Sprint before it can make a decision on any spectrum sale.

In January, Obermann said T-Mobile USA could look to sell its U.S. broadcast cellular towers, which could fetch up to $2 billion and could be used to fund any spectrum purchase.

Deutsche Telekom had looked closely at Sprint in 2008, a source close to the company said at the time, since the U.S. company announced a huge goodwill write-off in February of that year, but had backed away from any deal.

This time around, Sprint is faring better and that may put the company at an advantage. "In this position Sprint is in the catbird seat," Abramovitz said.

Deutsche Telekom shares finished up 3.95 percent at 10.01 euros, while Sprint shares closed up 4.9 percent at $4.70. (Reporting by Peter Maushagen and Nicola Leske in Frankfurt, with Jennifer Saba, Sinead Carew and Nadia Damouni in New York; Editing by David Holmes, Dave Zimmerman)

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