Deutsche Telekom CEO Says It’s Time for Europe Phone Mergers

Europe’s phone companies must seize the moment to consolidate if they want to stand up to international competition, Deutsche Telekom AG Chief Executive Officer Rene Obermann said.

“Now is the right time” for consolidation, Obermann said in an interview yesterday in Dusseldorf, Germany. “You have to think in terms of 10-, 15-, 20-year periods.”

European phone companies became affordable takeover targets for overseas investors as share prices tumbled last year, prompted by regulatory price cuts and limp economic growth. Carlos Slim’s America Movil SAB this year sought to buy Royal KPN NV, an effort which failed last month after the former Dutch phone monopoly called the offer too low.

Deutsche Telekom, Europe’s second-largest phone company, is “too small in the long run for competing internationally,” Obermann said following a speech. The Bonn-based carrier, which also has operations across eastern Europe and in the U.S., is valued at 51.7 billion euros ($70.3 billion). AT&T Inc., based in Dallas, is worth $187 billion by market value.

Obermann said Deutsche Telekom’s cooperation with Orange SA on purchasing and network use in some markets is “a start” and could act as a model for other European companies. He declined to say how their partnership may evolve. The German carrier and its Paris-based counterpart co-own EE, the largest wireless operator in the U.K.

European Deals

Deutsche Telekom shares fell less than 1 percent to 11.61 euros at 10:55 a.m. in Frankfurt. The 24-company Bloomberg Europe Telecommunication Services Index rose 0.3 percent.

Neelie Kroes, the commissioner in charge of the European Union’s digital agenda, is working to make the region’s phone markets more unified. She said last month those plans may ultimately lead to industry consolidation across the bloc.

There have been 161 deals targeting European telecommunications and cable companies announced or completed already this year, according to data compiled by Bloomberg. Liberty Global Plc, according to the data the most acquisitive of the companies, had the largest purchase, buying Virgin Media Inc for about $16 billion. Vodafone Group Plc, the second-largest mobile operator, acquired Kabel Deutschland Holding AG for 7.5 billion euros. Last month, KPN shareholders approved the 8.55 billion-euro sale of its German business to Telefonica SA to create the country’s largest wireless carrier by customers.

Outside Interest

European phone companies are attractive targets for outsiders, as seen with Liberty Global’s interest in the region. Hutchison Whampoa Ltd. -- the biggest Asian investor in Europe’s wireless industry -- this year completed a deal to add Orange assets to its Austrian unit. The Hong Kong-based company later agreed to buy Telefonica’s Irish assets. AT&T is eyeing a takeover of Newbury, England-based Vodafone, people familiar with the plans said last month.

The deals come as Europe’s presence in the telecommunications hardware market has diminished. Microsoft Corp. is buying the mobile-phone business of former phone-making giant Nokia Oyj, based in Espoo, Finland. And equipment makers Ericsson AB and Alcatel-Lucent SA are feeling growing pressure from Chinese manufacturers.

Deutsche Telekom bolstered its eastern European network this month, agreeing to buy GTS Central Europe for 546 million euros. Reviving plans to sell its T-Mobile US Inc. unit could enable it to play a larger role in European consolidation.

Obermann confirmed he’ll take over as CEO of Utrecht, Netherlands-based cable provider Ziggo NV on Jan. 1. Billionaire John Malone’s Liberty Global, which has a 29 percent stake in Ziggo, remains interested in buying the Dutch provider even after an August takeover offer was rejected, Chief Financial Officer Charles Bracken said last week.

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