Deutsche Telekom keeps its US options open

With shares rising on the back of speculation of a T-Mobile/Sprint merger in the US, Deutsche Telekom CFO Tim Hoettges declined to comment on “rumour and speculation” saying only that the company is  “open to all options” and that it is “flexibly positioned.”

Bloomberg reported yesterday that Deutsche Telekom had already held talks with Sprint Nextel regarding the sale of its troubled T-Mobile operation, reporting that the deal would involve the German incumbent taking a major stake in the new, combined entity.

With speculation regarding the possible merger rife, Deutsche Telekom shares closed up 3.95 per cent with Sprint’s up 3.5 per cent. Many observers view the merger of America’s third-and-fourth largest mobile operators as a silver bullet solution to increased pressure from bigger rivals AT&T and Verizon. Others point to the fact that T-Mobile and Sprint run incompatible network technologies (T-Mobile uses GSMA, Sprint CDMA) as a significant stumbling block in the way of finalising a deal. This latter point put paid to merger talk between the pair in both 2008 and 2009.

T-Mobile USA was formed in 2001 when Deutsche Telekom bought operator Voicestream. For some years, it proved to be a good revenue driver for the German telco but heavy customer losses in recent years have put it under massive pressure. While revenues have risen for the first time in six quarters, net losses of high-value contract customers – to the tune of 318,000 – have put a dampener on an increase of 295,000 prepaid users.

Speaking at a press conference in February, Deutsche Telekom CEO Rene Obermann said that churn levels remained too high for T-Mobile, pointing the finger of blame at the poor image of the company’s network and its inability to offer the iPhone. CFO Hoettges, meanwhile, has ruled out any notion of Duetsche Telekom cutting its losses and canning operations there. According to Hoettges, billions of dollars in spectrum investment will be required and that revenue for this will, in part, come from the sale and lease-back of the telco’s 7,000 cellular towers in the second quarter of 2011.