T-Mobile Seeks Polish Takeovers to Quicken Fixed-Line Expansion

Deutsche Telekom AG, which runs the second-largest mobile phone network in Poland, is seeking to buy a fixed-line operator in central Europe’s biggest market this year to speed up growth and diversify revenue.

The German company started building a landline network for business customers in Poland more than a year ago and may purchase a company with “a big scale of operations,” Miroslav Rakowski, chief executive officer of its T-Mobile Polska SA (DTE) unit said. Rakowski wouldn’t name any companies. Possible takeover targets “can be counted on the fingers of one hand” and Netia SA, Poland’s second-largest fixed-line phone company, isn’t one of them, he said.

“I’d be very glad if any decision on a takeover was made this year,” Rakowski said in an interview in his Warsaw office on Oct. 2. “I can’t say what the probability is, but something tells me that the chances are very high.”

Adding a traditional phone-line business to its mobile operations should help Deutsche Telekom reverse a decline in Polish revenue as competition increased and the regulator’s forced phone companies to cut prices. The watchdog is lowering the rates that mobile operators charge each other for calls to their networks, while competition is eroding fixed-line revenue.

GTS Sale

Rakowski declined to comment on whether Deutsche Telekom, Europe’s second-biggest phone company, is interested in GTS Central Europe, a Warsaw-based provider of phone and Internet services to businesses. The operator is competing against U.S.- based Level 3 Communications Inc. (LVLT) to buy GTS in a transaction that may fetch 500 million euros ($681 million), two people familiar with the discussions said on Aug. 9.

GTS, which has 38,000 customers and a network consisting of 26,000 kilometers of fiber, posted sales of 387 million euros and earnings before interest, taxes, depreciation and amortization of 103 million euros for 2012.

“Without a fixed-line business it will be hard for anybody” to halt a revenue decline, Rakowski said. “Operators that will lack this second leg will be losing money.”

T-Mobile Polska expects revenue to rebound in 2015 after falling about 7 percent this year and shrinking “less dramatically” next year, Rakowski said. Expanding a fixed-line network may help the company increase revenue from corporate clients to more than a half of total sales in four years from the current less than 40 percent, he said.

New Frequencies

The company is planning to bid for high-speed mobile Internet frequencies in 800 MHz and 2,600 MHz spectrums, which Poland’s government wants to put up for sale this year, to add to the 1,800 MHz spectrum it won in February.

The terms of the auction require more consultations with potential bidders to ensure its success, he said.

T-Mobile is building a high-speed Internet network to compete with billionaire Zygmunt Solorz-Zak’s Polkomtel Sp. z o.o., the first operator to offer LTE, or long-term evolution, Internet in Poland. P4 Sp. z o.o., the country’s fourth-biggest mobile operator and a co-winner of the February auction, plans to start providing LTE services in November.

Rakowski declined to say when T-Mobile will start offering LTE services in Poland. The company wants its network to cover a “big area” of the country before starting them.

T-Mobile Polska, whose first-half revenue was 3.31 billion zloty, competes with Orange SA (ORA)’s Polish unit and Polkomtel, with sales from mobile services at 3.12 billion zloty and 3.38 billion zloty respectively.

To contact the reporters on this story: Marta Waldoch in Warsaw at mwaldoch@bloomberg.net; Maciej Martewicz in Warsaw at mmartewicz@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; James M. Gomez at jagomez@bloomberg.net

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