DT's Hoettges: T-Mobile's current growth rate is financially unsustainable long term

T-Mobile US (NYSE:TMUS) was thwarted in its efforts to merge last year with Sprint (NYSE: S), but the carrier still needs greater scale in the long term despite all of its recent growth, according to Timotheus Hoettges, CEO of T-Mobile parent Deutsche Telekom. Hoettges also said in the long term T-Mobile's blistering growth is unsustainable from a financial perspective.

"I was intrigued by the idea of having a combination with Sprint and being the 'super-maverick' in the market," Hoettges told Re/code in an interview. "I hope that the political environment will change at one point in time."

Last May Hoettges first floated the idea of a combined T-Mobile/Sprint being a "super maverick" that could truly shake up the market dominated by AT&T Mobility (NYSE: T) and Verizon Wireless (NYSE: VZ). However, last summer Sprint parent SoftBank and DT abandoned the merger plans when it became clear that U.S. regulators would not approve such a deal.

As before, Hoettges thinks that Verizon and AT&T still have too much power and spectrum, something that will likely be exacerbated once the ongoing AWS-3 spectrum auction ends. Analysts think Verizon and AT&T will have spent anywhere from $15 billion to $20 billion each on airwaves in the auction.

"I'm worried about what has happened with this midband (AWS-3) auction," Hoettges said, adding that it is likely going to widen the gulf between AT&T and Verizon and T-Mobile and Sprint.

For all of 2014, T-Mobile is projecting that it added 8.3 million total customers, which would represent an 89 percent jump from 2013. The company said it added 2.1 million total net wireless customers in the fourth quarter alone. T-Mobile has done that through a range of programs, including paying off customers' Early Termination Fees if they switch and trade in their phones, a music promotion that exempts many music streaming services from counting toward customers' data buckets, and several family plan promotions.

Having built out its LTE network from zero coverage to 265 million POPs in two years, T-Mobile had to add more customers to justify those expenditures, Hoettges explained. "We have done what we had to do," he said. "We had built an infrastructure and this infrastructure had to get utilized and we did that with very aggressive promotions."

Hoettges applauded T-Mobile CEO John Legere, but acknowledged that his brash style would be out of place in DT's home market of Germany. "His management style will never be adaptable to Germany," Hoettges said. Yet he noted that Legere's desire to beat up the competition and get ahead are fitting with DT's overall culture.

"I like people being disruptive… I like people who are brave," Hoettges said. "He is very much fitting to our DNA, how we want to be, even if he is very American in his approach."

However, Hoettges also admitted that T-Mobile's runaway growth is not sustainable, which may be why DT has consistently entertained ideas about selling T-Mobile.

Hoettges said T-Mobile needs to invest between $4 billion and $5 billion each year just to remain competitive with Verizon and AT&T. "The question is always the economics in the long term … and earning appropriate money," Hoettges said. "You have to earn your money back at one point in time."

T-Mobile CFO Braxton Carter also said as much at an investor conference in December. Carter said that it is "hard to imagine that the level of growth we have this year is truly sustainable given the competitive dynamics."

For more:
- see this Re/code article

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