Deutsche Telekom fuels further T-Mobile US sale speculation

Deutsche Telekom stoked the rumour mill over a sale of T-Mobile US by shifting control of the US mobile operator to a non-domestic holding company based in the Netherlands.

The German incumbent moved control of its 67 per cent stake in T-Mobile US to the Dutch holding company on Wednesday, Reuters reported, citing a disclosure by the operator to US regulators.

Deutsche Telekom played down the significance of the move, telling the news agency that the transfer of the stake in T-Mobile USA, which is the fourth-largest US operator, was part of an internal restructure.

Nonetheless, rumours that Deutsche Telekom is seeking to sell its US business are rife, and a sale of T-Mobile USA would certainly bring the German incumbent some much-needed cash, and allow it to focus on grappling with increased competition in its domestic and European markets.

In Germany, a proposed €8.55 billion Telefónica Deutschland acquisition of rival operator E-Plus from Netherlands incumbent KPN would see Deutsche Telekom deposed as market leader by customers, and could spark what Orange CEO Stephane Richard called an "M&A earthquake" in Europe.

News on Friday that Deutsche Telekom and Orange have stalled plans to float their UK joint venture EE also led some to surmise that the German incumbent might be reluctant to reduce the scale of its global business too quickly through a sale of both US and UK operations.

Despite overturning a loss of €5.9 billion in the first nine months of 2012 with a €1.6 billion profit in the same period, Deutsche Telekom's free cash flow fell 30.4 per cent to €3.8 billion year-on-year in the first nine months of 2013. The figure in the third quarter fell 39.1 per cent year-on-year to €1.4 billion.

Deutsche Telekom may even have a US buyer in its sights. Indeed, US operator Sprint is reported to be close to making an offer for T-Mobile USA that could see $31 billion being paid to T-Mobile and another $20 billion being used for refinancing existing T-Mobile debt.

However, a Sprint acquisition of T-Mobile would likely face regulatory hurdles because it would reduce the number of nationwide Tier 1 operators from four to three. The US Department of Justice blocked AT&T's proposed 2011 acquisition of T-Mobile USA, arguing US consumers would be hurt by moving from four national operators to three.

Neither Sprint nor T-Mobile USA has confirmed that a deal is in the works.

T-Mobile USA is in a stronger position today, meaning any deal could attract greater scrutiny. Net additions of 11.7 million in the first nine months of 2013 took the operator's total customer base to 45 million. A merger with MetroPCS completed in the second quarter provided 8.9 million of the net adds, with the remainder generated organically.

T-Mobile USA has also begun deploying LTE, with a network covering 202 million people at end September.

For more:
- see this Reuters article
- see this Deutsche Telekom earnings release
- see this AT&T release

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