FRANKFURT (Reuters) - Deutsche Telekom has been sounding out
institutional investors on whether to sell off U.S. mobile operator
T-Mobile USA or spend billions of dollars to expand the business,
according to fund managers.
Deutsche Telekom and T-Mobile USA officials declined to comment on what
they called market rumors.
In a series of one-on-ones meetings with major investment funds, Chief
Financial Officer Karl-Gerhard Eick and other executives of Europe's
biggest phone carrier told fund managers a decision would be made by the
end of the year.
But many investors are skeptical a buyer will emerge and question
whether there was a sensible way to spend the $30 billion Deutsche
Telekom could raise in a sale, and hope T-Mobile USA might need less
investment if it goes on its own.
"There were several meetings with Eick in which they were testing what
our reaction would be," said one fund manager at a major German fund who
spoke on the condition of anonymity. The meetings happened around March,
he said.
A fund manager at another major German fund, who also declined to be
named, confirmed that options for the U.S. mobile business were
discussed earlier this year.
"They said there would be a period of uncertainty (until the end of the
year), and that we would have to trust them to make the right decision,"
the second investor added.
One option that Eick presented to investors was to sell the fast-growing
business, bought for $40 billion during the peak of the telecoms bubble,
while it was still on a good run, signing up subscribers fast, and
boosting sales and earnings.
The second scenario was to buy permits for third-generation (3G) mobile
phone services in auctions next year and build a 3G network for such
services as streaming music and video calls. Analysts reckoned costs of
up to $10 billion.
Possible buyers would be Britain's Vodafone Group , the world's biggest
mobile carrier, or cable operators seeking an entry into the mobile
phone market, the investors said.
"Eick was saying half jokingly how he could always call (Vodafone Chief
Executive) Arun Sarin if he wanted to sell," one fund manager said.
But Vodafone, whose U.S. mobile arm, Verizon Wireless, is a joint
venture with Verizon Communications (VZ), has repeatedly dismissed the
notion. "We would not be interested in the T-Mobile USA assets," a
company spokesman said Sunday.
GROWTH ENGINE
"Potential buyers of T-Mobile USA do not seem to be forming a queue,"
analysts at CSFB said in a research note last week. Deutsche Telekom
would have to perform a strategic about-face if it sold the business.
T-Mobile USA has been among the fastest growing U.S. providers in recent
years, with a more than 30 percent rise in customers and core earnings
growth of nearly 50 percent in 2004.
T-Mobile USA had $2.85 billion in revenues and more than 18 million
customers at the end of the first quarter.
Moreover, it was the sole growth motor of the entire Deutsche Telekom
group. With fixed-line revenues in its domestic market and mobile sales
in most of Europe slipping, T-Mobile USA is Chief Executive Kai-Uwe
Ricke's brightest star.
"Ricke can kiss good-bye to his goal to be the fastest-growing European
integrated telecoms operator if he sells T-Mobile USA," said one fund
manager. "There is nothing he could buy that would deliver growth on the
same scale."
After the latest round of consolidation in the U.S. mobile industry,
which had six large players this time last year, the number of national
operators is expected to drop later this year to four from five.
Analysts say T-Mobile, the smallest of the four operators, will have to
prop up spending if it wants to keep pace.
"(It must) either commit to this, or look to divest itself of the asset
at the best price," said Rich Nespola, chief executive at U.S.
consultancy Management Network Group.
Spending includes 3G technology, which mobile operators hope will raise
revenues as it becomes much more than a portable device for phone calls.
"They need 3G because data services are the only path to continue
growing that makes sense," said a fund manager.
After operators spent around 100 billion euros ($121 billion) on 3G
licenses in Europe in 2000, investors fret about a similarly inflated
series of U.S. spectrum auctions next year. But the consolidation has
reduced the number of bidders and might help make the next auction less
expensive.
"It's not really clear what it all will cost," said a fund manager. "In
the worst case, you could look at $10 billion (for spectrum and network
gear). But as things stand now, I'd rather expect $5 billion over three
to five years."
"That's manageable. They can do that, even without (their credit rating)
being cut. To me it looks as if that's what's going to happen."
($1=.8275 Euro)
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