Deutsche Telekom keeps options open for U.S.

FRANKFURT/NEW YORK Tue Mar 8, 2011 6:13pm EST

A woman talks on her phone as she walks past T-mobile and Sprint wireless stores in New York July 30, 2009. REUTERS/Brendan McDermid

A woman talks on her phone as she walks past T-mobile and Sprint wireless stores in New York July 30, 2009.

Credit: Reuters/Brendan McDermid

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FRANKFURT/NEW YORK (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.

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.

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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Comments (1)
grantchapman wrote:
I am not sure if now is the right time. Eventually tmobile and sprint will merge, its inevitable. While combining the two technologies would be costly and difficult, there is one solution sprint is already working on. Sprint has said in the past that it is planning on replacing its cdma network and using lte for voice. They have stated that would be one of the benifits of the network modernization project. Thus tmobile and sprint could both use the lte for voice, thus ending the technology debacle. I believe even sprint knows it may not be the right time to merge, but this may be the cheapest sprint can get Tmobile usa, considering its 4th quarter loss of 300,000+ in customer losses. There is much potential in this deal, with the right leadership of course. I believe under Dan hesse’s control, such a merger can be a success. He has brought the once soon to be bankrupt sprint back to life, which was considered inpossible by most of the wireless industry. Alluding back to the nextel merger of 6 years ago, there was little to no synergy in the nextel merger. Nextel made the most per customer and had the best customer service, mostly geered to businesses. Sprint on the other was a consumer brand and lacked sufficent customer service. Oh, I cant leave out the poor managment by Mr. Gary forsee. with the right leadership and price, this combination could be brutal.
In a nut shell I believe this merger is going to happen sooner or later. I simply hope they do not make the same mistake they made with nextel in an effort to run both companies. Pick one brand and stick with it. Cingler and ATT completed such a deal, when they merged, succesfully migrating from tdma to gsm. It is possible, it just takes time and patience.

Mar 08, 2011 1:18pm EST  --  Report as abuse
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