Deutsche Telekom reveals spending plans for AT&T cash

Plans are already in place at Deutsche Telekom to invest the windfall from its sale of T-Mobile USA to AT&T ,and it will be growth segments such as mobile Internet, the connected home and cloud services that will receive the investment, not new geographical markets.



Deutsche Telekom CEO Rene Obermann has made it clear that creating a presence in emerging markets outside of Europe is not part of the company's strategy going forward. He also played down the prospect of doing big deals in Western Europe, telling the Financial Times, "We have no multibillion acquisitions on the agenda."

The $39 billion deal with AT&T will see DT received $25 billion in cash with the remainder being made up of AT&T shares. An additional €5 billion ($7.1 billion) of the cash payment will be used to buy back more shares but that will still release around $18 billion which the company will use to reinforce its Europe-only development strategy.

That strategy, which was outlined to analysts and shareholders last week at the company's annual general meetings, includes a near doubling of revenue and aggressive growth targets across five main areas: mobile Internet, connected home, online consumer services, T-Systems external services such as Cloud, and Intelligent Networks, which includes services targeted at key verticals such as energy, health, media and automotive. Collectively, DT believes these could generate revenues in the region of €24 billion by 2015, with mobile Internet leading the way with an individual target of €10 billion.

The company recognizes that to achieve this will require significant change and some acquisitions for missing expertise.

Addressing shareholders Obermann said: "We are already facing the next massive task of transforming and innovating our company. We are evolving the traditional Telekom--which is still heavily regulated and too immobile in structural terms--into what we call a 'telco plus.' That means we are building the networks of the future and are complementing our traditional line business with cloud and Internet-based services."

In addition to continued investments in upgrades to its mobile and fixed networks to deliver faster broadband services, DT is looking at ways to bring new services to market much faster. Obermann admitted that "it still takes far too long to turn good ideas into marketable products."  This is a problem common to all mobile operators and Europe's operators are looking at new ways to shake things up. Orange Vallee, a form of internal skunk works at Orange, is one such example but DT doesn't appear to be looking for anything that disruptive and is instead putting its focus on partnerships.

Obermann confirmed:  "We need partnerships and one or two specific additions to our portfolio." What those are is not yet clear but cloud and mobile Internet expertise is high on the agenda and DT may follow the lead set by Verizon which completed the $1.4 billion purchase of cloud specialist Terremark last month.

The deal with AT&T still requires FCC and US Department of Justice approval. However, should that not be forthcoming, AT&T has promised DT a break-up fee worth $6 billion, Deutsche Telekom confirmed Friday. This includes about $2 billion worth of spectrum and a roaming agreement valued at roughly $1 billion.

For more:
- see this Financial Times article
- see this Reuters article
- see this Deutsche Telekom release
- see this Deutsche Telekom presentation

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