Deutsche Telekom CEO Says T-Mobile USA Merger Is Option

Deutsche Telekom AG (DTE) Chief Executive Officer Rene Obermann said a merger of the T-Mobile USA division is an option, while ruling out revisiting a complete sale after its fallout with AT&T Inc. (T) last year.

“We do not exclude any option for the T-Mobile unit in the U.S., also not a merger,” Obermann told shareholers today at an annual meeting in Cologne, Germany. “A complete sale is unlikely. You understand that I can’t say more in public on T- Mobile USA.”

The comments are the clearest yet on Deutsche Telekom’s plan to hold onto the asset -- at least partially -- five months after the $39 billion proposed sale of T-Mobile to AT&T collapsed because of regulatory resistance. Deutsche Telekom is discussing a merger of T-Mobile with MetroPCS Communications Inc. (PCS), with other options including an initial public offering, people familiar with the matter said this month.

“We don’t see any value creation by T-Mobile USA if it stays as a stand-alone company,” said Alexandre Iatrides, an analyst at Oddo & Cie. in Paris. “The alternatives would be a merger or some kind of network-sharing agreement with MetroPCS or Sprint Nextel.”

Deutsche Telekom rose 1.1 percent to 8.80 euros in Frankfurt as of 4:23 p.m., valuing the company at 38 billion euros ($48 billion). Before today, the stock had declined 1.8 percent this year. MetroPCS fell 1.1 percent to $6.36 in New York. Sprint, the third-largest U.S. wireless carrier, added 1.2 percent to $2.49.

Capital Investment

Verizon Wireless and AT&T serve about 60 percent of U.S. wireless subscribers, according to data compiled by Bloomberg. T-Mobile accounts for 9.5 percent, and MetroPCS has 2.7 percent. A combination of T-Mobile and AT&T would have created the largest U.S. mobile-phone operator.

“The failed sale of Deutsche Telekom’s U.S. subsidiary is a harsh setback in the attempt to clean up the pile of broken glass of the failed expansion in foreign countries.”, Klaus Kaldemorgen of DWS Investment GmbH, a unit of Deutsche Bank AG, said at the Deutsche Telekom’s shareholders meeting today in Cologne, Germany.“One cannot discern a plan B for the U.S. business.”

The uncertainty about T-Mobile’s future has affected the unit’s business, Obermann said today.

Job Cuts

“We must find other ways to increase the return on our capital, or to reduce our capital investment,” he said. “Believe me, we are really working very hard on this, but we are not going to make a snapshot.”

In the first quarter, T-Mobile increased profit as prepaid clients helped offset the loss of 510,000 contract customers. T- Mobile has announced at least 2,800 jobs in the past months as it closes some call centers and reorganizes departments across the company.

Deutsche Telekom is considering a stock-swap transaction with MetroPCS Communications that would give the Bonn-based company control over the combined entity, which would be publicly listed, people familiar with the matter said this month.

The German company also has hired bankers, including TAP Advisors LLC, to sell a large portion of its network towers and has said it will spend $4 billion over two years on the construction of an LTE wireless network.

“We are investing in modernizing the networks and are now developing an LTE network,” Obermann said today.

The CEO also wants to boost the German company’s sales in strategic growth areas. Revenue from offerings such as mobile data and services connecting home appliances will rise to 29 billion euros “in the coming years” from 15 billion euros in 2009, the company said.

Deutsche Telekom, with 58.7 billion euros in 2011 revenue, last year lost its position as Europe’s biggest former phone monopoly to Spain’s Telefonica SA. (TEF)

To contact the reporter on this story: Joseph de Weck in Frankfurt at jdeweck@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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