Deutsche Telekom strengthens integrated enterprise play with GTS buy

Deutsche Telekom is buying GTS Central Europe for €546 million ($733.6 million) in a move that will provide the German operator with a ready-made fixed-line infrastructure in Central and Eastern Europe.

The German operator said the deal will enhance its ability to offer integrated fixed and mobile services to enterprise users in countries where it has previously relied on a mobile infrastructure. The company added that its existing mobile-centric national companies in the Czech Republic and Poland will benefit most from the added fixed-line infrastructure from GTS.

"We are investing against the trend," DT CFO Timotheus Höttges said in a statement. "GTS is a further element for developing our integrated market position comprising mobile and fixed-line network services. Strengthening our position with business customers is also a core element of our strategy."

GTS operates an extensive network and data centre infrastructure in Central and Eastern Europe, as well as a portfolio of services focused on business customers. In 2012, the company reported revenue of €347 million and EBITDA of €87 million pro-forma excluding the Slovak assets, which Deutsche Telekom said will be retained by the sellers as part of the transaction.

"The acquisition makes perfect sense within Deutsche Telekom's strategy of repositioning in Eastern Europe for when the economic recovery begins, as well as growing in integrated offerings where it only has mobile-phone services," Heike Pauls, an analyst at Commerzbank, told Bloomberg.

Deutsche Telekom is acquiring GTS from a consortium of international private equity firms, including Columbia Capital, HarbourVest Partners, Innova Capital and M/C Partners.

Nonetheless, despite Höttges' assertion that the move is "against the trend," Deutsche Telekom is in fact following a similar strategy to several operators pursuing a convergence path, including Vodafone Group, Orange and Telekom Austria. Vodafone, for example, recently acquired Kabel Deutschland in Deutsche Telekom's own backyard, although the cable operator sells TV, telephony and broadband services to consumers rather than to business users.

For more:
- see this Deutsche Telekom release
- see this Bloomberg article

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