Deutsche Telekom confident U.S. merger will still deliver cost savings

FRANKFURT (Reuters) - Deutsche Telekom DTEGn.DE said on Thursday it still expects the merger of its U.S. unit T-Mobile TMUS.O with Sprint S.N to generate $43 billion in cost savings even after tweaking the deal to secure antitrust clearance.

FILE PHOTO - Brochures with the logo of Deutsche Telekom AG are pictured at the shop in the headquarters of German telecommunications giant in Bonn, Germany, February 19, 2019. REUTERS/Wolfgang Rattay

The U.S. Department of Justice approved the deal, which was struck more than a year ago, after T-Mobile agreed to sell Sprint's prepaid business to satellite TV firm Dish Network Corp DISH.O to create a fourth U.S. wireless carrier.

However, a lawsuit filed by over a dozen U.S. states seeking to halt the deal is still outstanding and although Deutsche Telekom - which owns 63% of T-Mobile - is open to a settlement, it said it expects the case to go to trial in December.

The merger of the No.3 and No.4 U.S. mobile players would create a business accounting for more than three fifths of group revenue at Deutsche Telekom, which is the leader in its home market and has a broad European presence.

“Our plans to build a bigger, stronger T-Mobile remain unchanged - even after the conditions agreed with the DoJ,” CEO Tim Hoettges told reporters, adding he still expected the merger to yield the cost savings originally envisaged.

Deutsche Telekom earlier reported in-line second-quarter results with revenue up 2.9% and core profits rising 3.5% on an underlying basis. It confirmed guidance for profits to reach 23.9 billion euros ($26.8 billion) this year.

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T-Mobile, which has already reported results, led growth with a 5.1% increase in dollar revenues. Germany lagged with weakness in its consumer internet business and costs related to network upgrades.

The so-called IP migration, which is costing hundreds of millions of euros per year, has prompted some customers to cancel contracts rather than upgrade. German revenues rose by just 1.2% in the quarter.

Some analysts picked up on that weakness, and Deutsche Telekom shares traded 0.8% weaker in Frankfurt. They are down 2% year to date, just outperforming the European sector index .SXKP.

Hoettges told reporters that the IP migration would be completed for retail customers by the end of 2019 and for business customers in the first half of 2020.

Updating on the restructuring of troubled IT services arm T-Systems, Hoettges said a recent decision to bundle telecoms services for both large and small business customers at Deutsche Telekom would be good for clients and revenues.

He also said plans to carve out T-Systems’ cybersecurity and industrial internet businesses would position them as profit and growth centers, rather than service organizations. The units were not for sale, he added.

The further shakeup at T-Systems, where CEO Adel Al-Saleh has already let go thousands of staff in a restructuring exercise, will be put to Deutsche Telekom’s supervisory board for approval.

Reporting by Douglas Busvine; editing by Tom Sims, Michelle Martin, Kirsten Donovan