T-Mobile USA Boosts Investment After Failed Takeover by AT&T

Deutsche Telekom Bets $1.4 Billion More on U.S.
The logo of Deutsche Telekom AG is seen in Berlin. Photographer: Michele Tantussi/Bloomberg

After spending the past year trying to salvage the doomed $39 billion sale of T-Mobile USA, parent Deutsche Telekom AG will increase network investments to make the wireless operator competitive again before a potential exit.

Deutsche Telekom budgeted an additional $1.4 billion spending over two years on networks to win back clients demanding faster access to multimedia content. T-Mobile USA lost 1.65 million contract subscribers in 2011, half of that in the final quarter alone when Verizon Wireless and AT&T Inc. started carrying Apple Inc.’s iPhone 4S.

T-Mobile’s plan to introduce next year high-speed wireless data transfers based on the long-term evolution technology already offered by rivals is “not purely” aimed at making the company more attractive to potential buyers, Deutsche Telekom Chief Executive Officer Rene Obermann said today. The unit, the fourth-largest U.S. wireless operator, generated 25 percent of Bonn-based Deutsche Telekom’s revenue last year.

“We are currently under pressure on the customer side, nonetheless let’s not forget it’s a valuable asset,” Obermann said in an interview with Bloomberg TV’s Maryam Nemazee. “We will make the company more competitive, and therefore we’re planning to make an additional investment into the network technology and at the same time we look for structural options.”

‘Reposition the Brand’

Investments on upgrades of T-Mobile USA’s network will be boosted to a total of $4 billion in the two years through 2013 and will be funded out of the unit’s cash flow, Obermann told a press conference in Bonn today. The move, which still leaves T-Mobile two years behind larger rivals Verizon and AT&T in LTE, will let the carrier offer higher-speed service as demand for smartphones and tablets increases.

“The $4 billion go-it-alone investment plan is an extremely strong one that can reposition the brand and the business,” Neville Ray, T-Mobile USA’s chief technology officer, said in an interview.

The plan may involve the U.S. unit accessing capital markets for financing, Philipp Humm, head of T-Mobile USA, said in a press conference. He said the company is interested in purchasing more spectrum.

“We are not at this point in time tapping independently into the U.S. capital markets,” Humm said. “We are interested in taking steps in that direction.”

Frequencies Needed

T-Mobile needs access to more wireless frequencies to roll out faster networks and cope with increasing data flow to and from mobile devices, Obermann said. T-Mobile yesterday asked the Federal Communications Commission to block bids totaling more than $3 billion by Verizon to buy such airwaves, saying the purchases “pose a clear threat to competition.” Obermann declined to say whether Deutsche Telekom would buy the spectrum itself if given the chance.

T-Mobile USA, which generated sales of $20.6 billion, will continue to compete as a low-price provider, Obermann said. It will also seek more cooperation with sales partners and virtual network providers and add about 1,000 people to boost sales to corporate customers.

“If you let the network bleed out you can’t really hope to make money,” said Jochen Reichert, an analyst at Warburg Research in Hamburg who recommends buying Deutsche Telekom shares. “They have the choice to remain as a standalone carrier or eventually sell the business again, but in either case they need to build up competitiveness.”

‘Self-Funding Platform’

Deutsche Telekom and AT&T in December gave up their agreement to sell T-Mobile USA to the U.S. carrier for $39 billion after deciding regulatory resistance was insurmountable. Deutsche Telekom said today it incurred an impairment loss of 2.3 billion euros on T-Mobile USA in the final quarter. The German company received a breakup fee from AT&T of 2.3 billion euros in cash and wireless spectrum valued at about 900 million euros.

“In the long run we’re also looking at structural options to mitigate” the relative lack of scale of the business, including a “self-funding platform,” Obermann said in the interview. “That goal has not changed.”

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