Bloomberg News

Deutsche Telekom to Evaluate Options for T-Mobile USA Assets

September 05, 2011

(Updates with closing share price in sixth paragraph.)

Sept. 5 (Bloomberg) -- Deutsche Telekom AG said it will evaluate options for T-Mobile USA to facilitate a $39 billion sale of the business to AT&T Inc. that is being contested by the U.S. Justice Department.

“If there are conditions to be attached to the transaction, we will work on the matter together with AT&T,” spokesman Philipp Kornstaedt said in a phone interview today. He reiterated that Deutsche Telekom will join AT&T in court to defend the transaction, which was agreed in March.

A resolution for the takeover, which the Justice Department sued to block last week, is important for the telecommunications industry, said Julio Linares, chief operating officer of Telefonica SA, Europe’s biggest phone company by market value. The takeover is the largest announced acquisition this year, according to data compiled by Bloomberg. It’s also the biggest step for Deutsche Telekom Chief Executive Officer Rene Obermann in his almost five years in the job.

“We’ll keep an eye on the resolution as it will be a clear and significant message for the whole industry,” Linares said today at an industry conference in Santander, Spain. “When those two important companies try to consolidate, it is because there’s no room for so many players.”

Madrid-based Telefonica isn’t interested in expanding into the U.S. market, Linares said.

Shares Fall

Deutsche Telekom fell 40.3 cents, or 4.6 percent, to 8.33 euros at the close of trading in Frankfurt. Germany’s benchmark DAX Index lost 5.3 percent. The shares have declined 13 percent since the Aug. 31 U.S. complaint saying the deal would “substantially lessen” competition in the wireless market. Bonn-based Deutsche Telekom has a market value of 36 billion euros ($51 billion).

Dallas-based AT&T slipped 0.8 percent to $28.05 on Sept. 2, giving the company a market capitalization of $166 billion. U.S. markets are closed for the Labor Day holiday today.

“I’m sure they’ll be proactively entering into discussions with regulators on a region-by-region basis,” said Mark James, an analyst at Liberum Capital in London. ‘If you’re a Deutsche Telekom investor you’re going in the face of regulatory uncertainty.”

Deutsche Telekom will continue to record the U.S. business, which accounted for 24 percent of net revenue in the second quarter, as “discontinued operations” in its financial reports, Kornstaedt said today. The unit’s net income dropped 55 percent in the first six months as its base of subscribers declined by 663,000, or 2.5 percent of its total.

Market Leader

The purchase of Bellevue, Washington-based T-Mobile would combine the second- and fourth-largest carriers to create a new market leader ahead of No. 1 Verizon Wireless. The new company would dwarf current third-biggest carrier Sprint Nextel Corp., which argued against the deal.

CEO Obermann stands by his assessment that the deal would be “the best option” for Deutsche Telekom shareholders, T- Mobile USA employees, customers and the U.S. as a country, he said in a Sept. 1 newsletter to employees.

“There’s no point in lamenting, we’ve got the authority’s complaint and now we have to deal with it,” he said, adding that the approval process is “still on schedule.”

T-Mobile USA, headed since last year by Philipp Humm, is betting on new wireless packages without subsidized phones as well as mobile-data growth and routing more traffic over its own network as it aims to meet profitability targets this year, CEO Obermann said last month.

Separately, Deutsche Telekom said today it will allow customers in Germany to reserve the next generation of Apple Inc.’s iPhone as of today in anticipation of supply bottlenecks for the device. The operator will distribute coupons to consumers who request the successor model to the iPhone 4, according to spokesman Alexander von Schmettow. Cupertino, California-based Apple hasn’t released details about its next iPhone.

--With assistance from Manuel Baigorri in Santander, Spain. Editors: Kenneth Wong, Robert Valpuesta

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net


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