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BUY OR SELL-Deutsche Telekom's U.S. ops: boon or bane?
September 9, 2010 / 10:06 AM / 7 years ago

BUY OR SELL-Deutsche Telekom's U.S. ops: boon or bane?

(For other BUY OR SELL stories, click on [BUYSELL/])

* Bulls see improvement, strategic options for U.S. ops

* Bears negative about future in U.S., iPhone

By Nicola Leske and Christoph Steitz

FRANKFURT, Sept 9 (Reuters) - Deutsche Telekom AG (DTEGn.DE), Europe’s biggest telecoms group by sales, has delivered a stable if uninspiring stock performance, but its shares may suffer from uncertainty over the future of its U.S. operations.

T-Mobile USA, once the group’s cash cow, has been struggling with customer losses and margin pressure. It is a distant fourth in the U.S. market behind AT&T (T.N), Verizon (VZ.N) and Sprint Nextel (S.N).

Deutsche Telekom’s official strategy is to grow the business organically, yet some analysts say an exit or partnership would make more sense.

BUY ON RECOVERY SIGNS

There are signs of improvement in the U.S. business, the bulls argue. They agree tough decisions need to be made about the business but argue these are not far off.

T-Mobile has said it does not plan to build a 4G network in the United States for at least two years and will rely on its current technology. It could bridge the gap were it to invest in network provider Clearwire CLWR.O.

According to media reports, Sprint Nextel (S.N) is debating whether to let a rival operator invest in Clearwire, in which it holds 56 percent.

“Pressure is building for DT to decide its 4G strategy,” ING’s Lawrence Sugarman wrote in regard to next generation mobile technology (4G), also known as long term evolution (LTE).

“Investors will respond well to clarity and this may not be far away. The U.S. remains the biggest swing factor for the valuation,” said Sugarman, who has a “buy” rating on the company.

Devices that are LTE compatible are expected to be available in the United States next year.

Analysts at Nomura said T-Mobile could also team up with potential new entrant LightSquared, which has signed a network contract with Nokia Siemens Networks NOK1V.HE (SIEGn.DE).

“LightSquared’s LTE network may offer T-Mobile wholesale access to provide 4G services,” the brokerage said, adding that it could offer T-Mobile a way to launch an LTE service without needing to purchase more spectrum.

SELL ON INCREASING INVESTMENT, IPHONE

Merck Finck’s Theo Kitz, the top rated analyst for Deutsche Telekom according to Thomson Reuters database StarMine, downgraded the stock to “sell” from “buy” this week.

“We believe that, given the margin weakness and the need to invest billions of (dollars) to upgrade the U.S. grid in the coming years, a complete sale or IPO of T-Mobile USA would be the best solution for Deutsche Telekom shareholders,” he wrote.

“However, we think that both possibilities are unlikely.”

Sources told Reuters in February the company was mulling options for T-Mobile USA, including a spin-off. [ID:nLDE6140O8]

Analysts at UBS, also rating the stock “sell”, pointed to media reports that the company may lose its position as sole seller of Apple’s (AAPL.O) iPhone in Germany as early as October.

“This would be a small negative for (the company) in our view, given ... it previously said it would retain exclusivity until at least the end of the year. But if it ends in October, this means T-Mobile would not have exclusivity over the important Christmas period.” (Editing by David Holmes)

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