T-Mobile UK: D Telekom seeks asset swap as against sale

As Europe's major mobile operators refuse to comment on any formal interest in acquiring T-Mobile UK, the owner of this troubled company, Deutsche Telekom (DT), has wrong-footed potential bidders by leaking information that a swap for a comparable mobile operator in central or eastern Europe is now the preferred route.

Insiders claim DT's CEO, René Obermann, is keen to avoid a sale of its UK subsidiary, given the doubts that this would spark over the company's ambitions to remain a global player. Early speculation has placed Vodafone Turkey as a possible candidate, albeit that Vodafone has invested heavily and failed to achieve a satisfactory return in this country. However, such a move would nicely complement Greece's OTE, which DT acquired recently.

While O2 Telefonica and Vodafone are reported as being keen to negotiate with DT--with FT Orange slipping off the leader board, analysts are beginning to question the value of what T-Mobile UK has to offer. While the company has around 16 million customers, it is largely made up of an unstable base of prepaid consumers who can switch carriers easily to chase the cheapest or best value plans. T-Mobile also generates around 45 per cent of its cash flow from its MNVO deal with Virgin Mobile, a deal that could easily evaporate if a new owner ruffled Virgin's sensitive feathers.

However, a merger with its network sharing partner in the UK, 3UK, has apparently been squashed by DT. Perhaps the logical sense of this deal stumbled when DT indicated that it was looking for a minimum of €3 billion for its UK subsidiary.

One suggestion for the intense interest by O2, Vodafone and Orange in bidding for T-Mobile UK is to spoil the ambitions of the others. This could lead to the winner overpaying while the losers then complain bitterly to the regulator in an effort to confuse and delay the acquisition. The ‘losers' could then attack the unsettled T-Mobile subscriber base with attractive offers and packages.

For more on this story:
The Guardian and Financial Times

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