Mobile Telecom August 10, 2010, 12:01AM EST

T-Mobile Looks to Lag in Offering 4G Service

As AT&T and Verizon prepare fourth-generation LTE networks, the Deutsche Telekom unit says it can rely for now on its HSPA+ 3G technology

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Deutsche Telekom (DTE:GR) risks getting left behind in the U.S. market—again.

After four years of delays, Europe's biggest phone company—whose T-Mobile USA unit accounts for a quarter of its revenue—leapfrogged bigger rivals Verizon Wireless and AT&T (T) in some locations this year with a faster mobile Internet network. Now, Verizon and AT&T are on the cusp of network upgrades that might once again leave T-Mobile in the dust.

"In the not-too-distant future they're going to be playing catch-up again," said Mike Roberts, an analyst at London-based research company Informa Telecoms & Media.

T-Mobile USA has been finding it harder to retain customers as Verizon and AT&T lure them with promises of faster networks or more attractive handsets such as Apple's (AAPL) iPhone. The German company's unit said last week that it lost 93,000 customers in the second quarter and posted an 11 percent decline in operating income, to $1.42 billion, before depreciation and amortization. For now, Bonn-based Deutsche Telekom is banking on its current third-generation network to drive U.S. growth.

"We'll get a fourth-generation wireless network either by buying spectrum or re-farming existing spectrum, or potentially leasing spectrum together with others," Chief Executive Officer Rene Obermann said at a press conference on Aug. 5. "I don't think we'll trail others in the next two years."

"We still have plenty of capacity"

T-Mobile last year started rolling out its so-called high-speed packet access, or HSPA+ 3G network that outpaced those of Verizon and AT&T in some locations. Verizon, the U.S.'s largest mobile operator, expects to offer its next-generation, long-term-evolution technology network this year, while AT&T will start offering LTE in 2011.

"With HSPA+ we're in a very good position," Obermann said. "We still have plenty of capacity, so we are competitive."

Some analysts question the company's confidence. "The question is: Are they facing another technology gap where they might struggle to catch up on 4G?" said Simon Weeden, an analyst with Citigroup Global Markets (C) in London. "It's not a problem yet, but it could become one."

As private customers and companies use application-rich mobile devices to connect with friends on Facebook, upload or download videos on YouTube, and conduct business transactions from the road, mobile operators are scrambling to beef up networks to handle growth in data traffic.

LTE networks will eventually reach speeds more than five times faster than T-Mobile USA's current 21 megabit-per-second rate. While its rivals are graduating to LTE, T-Mobile says it's in no hurry.

no sign of an iPhone pact, either

Deutsche Telekom expects to spend about $3 billion in the U.S. this year, Chief Financial Officer Timotheus Hoettges said at the Aug. 5 press conference. "As for investments in LTE, you won't see us investing in that in the next couple of years," he said. "In the next couple of years we'll invest about the same as this year, excluding LTE."