After AT&T deal, Deutsche Telekom to refocus on Europe

The sale of T-Mobile USA should not have been a surprise to the industry; what jolted everyone was that AT&T was the company making the acquisition.

While this move, if approved by the US authorities, will enable Deutsche Telekom (DT) to use the $39 billion to pay off some of its massive debt, one of the main questions it leave the company regarding its mobile strategy in Europe.

Thomas Wehmeier, an analyst at Informa Telecoms & Media, said that the sale to AT&T made significantly more sense than other options that were being considered.

"They've now become a much more focused company when compared with their peers across Europe - they're very much now only about Europe," he told FierceWireless:Europe. "DT still has a diversified portfolio, with its strength in Germany and via subsidiaries in Croatia, Hungary and Slovakia. It also has interesting growth opportunities though its indirect investment in Greece, Poland, Romania, Macedonia and Montenegro."

Wehmeier also speculated that DT will now look to work more closely with these indirect partners where it has non-controlling shareholdings, and potentially increase the level of investment if allowed by local regulators. He also thought that the company might look to expand further into other Eastern European countries, including Bulgaria and Hungary.

However, the 8 per cent holding that DT will now have in AT&T--assuming the deal is finalised--is not without significance. Recent moves to build alliances between the larger operators are a trend that many observers believe will gain strength. DT and France Telecom have discussed continent-wide networking sharing deals in Europe, while Vodafone and Verizon Wireless have announced plans to merge their enterprise sales units, and sort out wider areas of closer co-operation.

While Telefonica continues to tread its own path, the DT/AT&T deal could spur this global player into rethinking its strategy for building closer alliances, although it has already forged a relationship with China Unicom.

While funds from the sale of T-Mobile USA will help DT to reduce its debt by €13 billion, and satisfy its largest shareholder, the German government, the Informa analyst believes DT will use the funds to provide the massive investment required across its European operations, both fixed and wireless.

"These will cost tens of billions of Euros," said Wehmeier, "and I don't expect to see them investing heavily outside of its existing footprint.

What must also be remembered with this strategic decision to sell of its US subsidiary, seen as a retrenchment by some, is that almost 80 per cent of DT's revenue comes from Europe, and it's here that they now plan to build and grow their core businesses.

Complete Fierce coverage of AT&T/T-Mobile:
--AT&T to buy T-Mobile USA for $39B
--Will regulators approve the AT&T/T-Mobile USA deal?
--AT&T/T-Mobile merger scrambles long-term handset picture
--What happens to Sprint, Clearwire and LightSquared? AT&T + T-Mobile USA ramifications
--Is acquiring T-Mobile USA the answer to AT&T's data demands?
--AT&T, T-Mobile USA merger as much about HSPA as it is about LTE

For more:
- see this Bloomberg article
- see this WSJ article (sub. req.)

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