Deutsche Telekom is not going to make a bid for Sprint Nextel any time soon, according to two separate reports. Both the Financial Times and Reuters, citing anonymous sources, said that the parent company of T-Mobile USA has no immediate plans to acquire Sprint and is holding off on major strategic actions in the U.S. market--for the time being.
The news flies in the face of an article Sunday from the United Kingdom's Telegraph newspaper, which said that Deutsche Telekom was considering a bid for Sprint.
However, it's unclear exactly how things are playing out in the upper echelons of Germany's largest telecom firm. According to the Financial Times, Deutsche Telekom CEO René Obermann has until the middle of next year to change the fortunes of T-Mobile USA, based on pressures from Deutsche Telekom's two largest shareholders, the German government and private equity firm Blackstone, which are prepared to force changes if necessary. However, the Reuters report contradicted the Financial Times' assertions about the level of pressure from shareholders on Deutsche Telekom to turn T-Mobile USA around. The Reuters report said the company had not made any decisions yet about changes to the U.S. business, and would not be doing so in the immediate future.
"For at least one year the development of the U.S. mobile business will be looked at unhurriedly," one source told Reuters, adding that what happened from that point on was uncertain.
"There is no deadline," another source said, referring to the Financial Times report.
Deutsche Telekom recently merged its struggling T-Mobile UK division with France Telecom's Orange UK operations. Following that tie-up, speculation has turned to whether the company will make big changes at T-Mobile USA.
In the second quarter, T-Mobile USA posted lower revenues and weaker subscriber growth. Indeed, the U.S. carrier's postpaid net additions made up only 17 percent of T-Mobile USA's customer growth in the second quarter, compared with 39 percent in the first quarter of 2009 and 80 percent in the second quarter of 2008. T-Mobile USA is hoping a major focus on 3G services and smartphones, with associated high-value data plans, will help it recover its footing. T-Mobile USA accounts for about 26 percent of Deutsche Telekom's group revenue.
"There is a debate about whether T-Mobile USA has a temporary problem--global recession--or a strategic one: that it is simply too small to achieve the necessary economies of scale to be profitable," one person familiar with Deutsche Telekom's shareholders told the Financial Times. "Obermann and [T-Mobile USA CEO Robert] Dotson say it is temporary and that a big push into 3G will make it go away. Berlin and Blackstone are skeptical but prepared to go along."
According to the Financial Times report, some options that Deutsche Telekom has for revitalizing T-Mobile USA would be to refocus the carrier's operations on prepaid services, or to acquire Sprint or a flat-rate carrier like Leap Wireless or MetroPCS.
A T-Mobile USA spokeswoman declined to comment, noting that the company does not comment on rumors or speculation
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