T-Mobile UK writedown sparks sale rumours

It was German carrier Deutsche Telekom’s turn to report gloomy financials on Thursday, with the firm recording a first quarter loss of €1.12bn compared to a profit of €924m in the same period last year.

Revenues were slightly up at €15.9bn, compared to €14.9bn in the first quarter of 2008, but as explained in the company’s recent profit warning, market pressures and the global credit crunch are taking their toll.

Monthly ARPU (average revenue per customer) in the US fell as a result of lower roaming revenues due to a decrease in consumer travel, while the rollout of the carrier’s 3G network increased expenditure and costs. Polish operation PTC suffered considerably from the sharp decline in its home currency, the Zloty, which fell around 26 per cent year on year against the Euro. And T-Mobile UK recorded a significant drop in revenues of around 21 per cent due to the fall in the value of Sterling.

T-Mobile UK remained a sensitive topic for investors as Deutsche Telekom announced a goodwill write-down amounting to €1.8bn for the carrier, stirring yet more speculation that the firm is looking to offload its UK unit.

Michael Kovacocy, European telecoms analyst and sector strategist at Daiwa Securities, believes consolidation in the UK is not far off. Hhe sees a better fit between 3 UK and T-Mobile, rather than Orange and T-Mobile as some have suggested.

“Put simply, 3’s new push towards cheap/free calling with Skype which places mobile broadband as the central revenue stream may appeal to the very price sensitive, prepaid heavy customer mix on T-Mobile’s books. In addition, as both are big proponents of mobile broadband connectivity in the UK, we see the two companies dovetailing nicely together in driving forward low-cost mobile broadband,” Kovacocy said.

The analyst notes, however, that a tie up with 3 will not remove margin pressure in the market, and will most likely enhance it. “High dealer commissions which plague UK mobile will be unaffected by a reduction in the number of mobile operators, and the intensification of cheap mobile broadband sales and cut-price voice minutes will serve to harm most competitors. We would anticipate an intensification of efforts to lock-in higher value customers on post-paid, especially via SIM-only offers which avoid handset subsidies and allow bigger minute bundles at lower price points,” Kovacocy said.

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