* Q2 core profit 4.43 bln euros vs 4.35 bln expected
* Still sees stable 2014 core profit of about 17.6 bln euros
* Commercial momentum in US offsets weak Europe
By Harro Ten Wolde
FRANKFURT, Aug 7 Deutsche Telekom
rejected an offer from Iliad for its mobile business in
the United States and said regulators there should help smaller
players compete against bigger rivals if they are not allowed to
Deutsche Telekom makes about a third of its sales and a
fifth of core profits in the United States, but believes its
subsidiary T-Mobile US lacks critical mass, frequencies and
capital to compete with leaders AT&T and Verizon.
Its plan to sell T-Mobile US to local rival Sprint
foundered on Wednesday, leaving Iliad - a much smaller
French company with little experience of U.S. telecoms - as the
remaining bidder although others could still emerge.
Deutsche Telekom's Chief Executive Tim Hoettges made it
clear that Iliad's $15 billion offer was not good enough and
there was no need to rush into a sale, while leaving the door
open to an eventual U.S. exit.
"We have always said that we would be open to offers for
T-Mobile US which would improve its position and that of its
shareholders," he said on a conference call on Thursday. "At the
moment, we don't have an offer which fits those criteria."
The Sprint talks collapsed because a deal would have left
the United States with only three major mobile phone networks, a
prospect opposed by regulators in Washington. It was the second
failed attempt to sell T-Mobile US since late 2011.
Iliad's billionnaire founder Xavier Niel believes he can
secure a deal where Sprint failed because a takeover would not
lead to fewer competing U.S. mobile networks.
A person close to Iliad said on Thursday that it would weigh
whether to improve its $33 per share bid for 56.6 percent of
T-Mobile US, but that it first wanted to talk to the German
company to learn more about its expectations.
Much would depend on whether another bidder emerges, the
person said, and whether Iliad can convince Deutsche Telekom of
its ability to run T-Mobile in a more cost efficient way.
Deutsche Telekom shares fell as much as 5 percent to a
16-week low on Wednesday after the Sprint talks collapsed. They
were trading down 0.6 percent by 1355 GMT on Thursday, in line
with an index of European telecoms companies.
T-Mobile US shares were down 0.8 percent, while Iliad stock
in Paris was down 1.8 percent.
After years of losses and a purchase of smaller rival
MetroPCS, T-Mobile has become one of few parts of Deutsche
Telekom that is actually growing.
T-Mobile, the fourth-biggest U.S. mobile network operator,
last week reported its first quarterly net profit in a year,
raised its forecasts for subscriber growth and reported the most
post-paid phone subscriber additions in the industry.
Other suitors could emerge. The chairman of the
second-largest U.S. satellite operator, Dish Network Corp
, said on Wednesday it now made sense to consider
bidding for T-Mobile US, with Sprint out of the picture.
But a buyer will need deep pockets.
Analysts estimate that T-Mobile US will need anywhere from
$5 to $10 billion to bid for the best spectrum in an auction
next year, and further billions to keep upgrading its network to
keep up with consumer demand for quality and speed.
Hoettges is expected to lobby regulators for better
conditions in the auction, including setting aside low-frequency
spectrum for T-Mobile and on Thursday he said his company would
need special treatment.
"In the U.S. we have the situation that the two largest
operators take more than 100 percent of the cash flow in the
market," he said. "If consolidation is not desired, regulators
should help to improve the position of smaller operators."
But he also talked up T-Mobile US's commercial momentum.
"We have an excellent business in the U.S. which is growing
organically," Hoettges said. "At the moment we received no offer
(for T-Mobile US) which gives better growth perspectives than we
A rise in earnings in the United States helped Telekom
reported a bigger than expected second-quarter core profit on
Thursday, offsetting heavy investments in its German networks.
The strong U.S. performance helped Europe's largest telecoms
company by sales avoid larger revenue declines suffered by
rivals Telefonica and Orange.
U.S. PRICE WAR?
Deutsche Telekom's quarterly earnings before interest, tax,
depreciation and amortisation (EBITDA) excluding special items
rose to 4.43 billion euros ($5.9 billion), above the average
forecast of 4.35 billion euros in a Reuters poll.
With 50.5 million customers, T-Mobile US is bigger than
Deutsche Telekom's German business which has 39.3 million.
Average revenue per user (ARPU) stood at 26 euros a month in the
quarter, compared to 14 euros in Germany.
Deutsche Telekom's desire to leave the U.S. stems in part
from a realisation that it must invest heavily in faster fibre
broadband in its domestic market or continue losing customers to
cable. Hoettges also wants the group, which is 31 percent owned
by the German state, to take part in consolidation in Europe.
The global telecoms industry is in the midst of a wave of
dealmaking as companies look to take advantage of low interest
rates to build economies of scale.
Investors fear the end of talks with Sprint could mean a
price war could be imminent in an almost saturated U.S. market.
Sprint also named a new CEO to pilot a solo strategy.
($1 = 0.7470 euro)
(Additional reporting by Leila Abboud; editing by Tom Pfeiffer)