DT to sell T-Mobile? Come again?

Posted by: Olga Kharif on July 05, 2005

This weekend, several news organizations reported that Deutsche Telekom will sell its U.S. wireless property, T-Mobile USA. Of course, the idea of such a sale has been floated for several years; only, this time, the reports suggested that the sale was imminent, likely to be announced within months.

I think the idea is ridiculous any way you look at it. For starters, today, DT can only hope to sell T-Mobile USA for $20 billion to $30 billion vs. around $31 billion it paid in 2000. A few years from now, though, the property could fetch a lot more.

Here's why: Wireless devices are increasingly turning into mini-computers, and taking on new funcations, such as streaming video, facilitating video conferencing, playing music. As cell phones absorb all the various functions of other consumer electronic devices, we will come to depend on our phones and related services more. My bet is, wireless service's value will increase. And T-Mobile USA might fetch a lot more than $30 billion in a couple of years.

Still, I don't see why DT would want to sell the business, which is highly profitable. When DT just purchased T-Mobile (in 2000, it was called VoiceStream), the U.S. wireless outfit lagged major competitors in image and service. That's no longer the case. Today, various industry surveys place T-Mobile up at the top in terms of service. It's growing its customer base -- including, by the way, celebrities like Paris Hilton -- faster than many of its big rivals. And, the best part is, T-Mobile USA is no longer losing money.

In fact, in 2004, T-Mobile USA outperformed all other T-Mobile companies worldwide, according to DT's 2004 annual report. While DT doesn't break the outfit's financial performance out, T-Mobile USA is highly profitable. So why would DT want to get rid of its golden goose?

Besides, if T-Mobile was up for sale, DT wouldn't have just spent $2.5 billion on expanding T-Mobile's network. In January, T-Mobile USA bought some infrastructure from rival Cingular in California and Nevada. Oh, and also recently, one of T-Mobile's jvs forked over $235 million on a bunch of U.S. wireless licenses.

That undermines the idea that DT would want to sell T-Mobile so it wouldn't have to pay for a network upgrade that would have to be done sooner rather than later. Fact is, such an upgrade wouldn't cost that much. Nowadays, wireless infrastructure doesn't cost that much. We are talking about perhaps less than $1 billion here. Considering how much DT has spent on T-Mobile this year alone already, that's peanuts.

Let's face it, the sale just doesn't make sense.

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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