Deutsche Telekom Says T-Mobile US Can Survive on Its Own

Deutsche Telekom AG’s Timotheus Hoettges, who helped engineer the merger of its T-Mobile US Inc. with rival MetroPCS Communications Inc. two years ago, said a recovering outlook in the U.S. means the business can go it alone, at least for now.

“We have a standalone position which is good and which we’re building out,” Hoettges, the former Deutsche Telekom head of finance who is into his third month as chief executive officer, said at an earnings press conference in Bonn today. “You can’t build your planning on a potential transaction. It’s really difficult to judge.”

The 51-year-old told a supervisory board meeting yesterday that regulatory hurdles in the U.S. could hurt the chances of a sale of T-Mobile, currently the target of a potential bid from Japan’s SoftBank Corp., two people with direct knowledge of the matter said. Hoettges is now taking a long-term view in the U.S., focusing on holding onto newly acquired customers and turning T-Mobile’s pay-as-you-go clients into more profitable monthly subscribers, they said, asking not to be identified because the meeting was private.

SoftBank shares rose 4.9 percent in Tokyo, the biggest gain since Feb. 10, as concern eases over the potential impact of a takeover of T-Mobile on the Japanese company’s debt. Sprint Corp., the U.S. carrier controlled by SoftBank, dropped 2.6 percent to $8.88 in New York, while T-Mobile lost 1.6 percent to $31.31.

‘Preferred Option’

Deutsche Telekom, which today cut its forecast for cash generation because of increased spending in the U.S., fell 3.6 percent to 11.76 euros on the Frankfurt exchange.

“I don’t want to insist on consolidation, but I don’t want to rule it out,” Hoettges said at the press conference. “We have to see how we grow the value of the company with the money that investors have entrusted to us.”

While selling its 67 percent holding in the fourth-largest U.S. wireless operator to SoftBank remains the preferred option, Bonn-based Deutsche Telekom is open to alternatives, said the people. Options include selling a part of the stake on the market, they said.

Hiroe Kotera, a spokeswoman for Tokyo-based SoftBank, declined to comment on the company’s interest in T-Mobile. Hoettges told reporters today that he didn’t state his position on a potential sale of T-Mobile US at the board meeting.

No Timetable

Deutsche Telekom could sell some of its T-Mobile shares after a lockup expires in November, although that option isn’t preferred because it would mean missing out on a premium from a straight sale, the people said. Hoettges wasn’t more specific about the timetable of a potential sale of the T-Mobile stake, which has a market value of about $17 billion, the people said.

“While Softbank is unlikely to be successful in its pursuit of T-Mobile, we think a successful acquisition could lift the firm’s presence in the U.S. and generate synergy benefits,” Hideaki Tanaka, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo, said today in a note.

Hoettges also told the board yesterday that he plans to argue to U.S. regulators that if industry consolidation isn’t possible, smaller carriers like T-Mobile should be enabled to acquire enough spectrum in the next auctions to help them compete more effectively, the people said.

Cash Flow

Deutsche Telekom’s free cash flow will increase “slightly” in 2015 after reaching 4.2 billion euros ($5.8 billion) in 2014, it said. The company earlier projected 2015 free cash flow, which is cash its business brings in minus capital expenditures, of about 6 billion euros.

T-Mobile, the smallest among the four nationwide U.S. wireless providers, has attracted the interest of SoftBank CEO Masayoshi Son, who aims to combine it with Sprint to challenge market leaders Verizon Wireless and AT&T Inc., people familiar with the matter have said. Consolidation has been viewed with little enthusiasm by U.S. watchdogs concerned about rising prices.

“At the moment we have no problem at all to be competitive and to grow,” Hoettges said today. “But longer term, if there is consolidation we would be receptive to it because we believe that we can bring more pressure on AT&T and Verizon with an attacker that is bigger and has advantages of scale.”

Washington Visit

Son plans to host a presentation in Washington next week to discuss “the state of America’s wireless communications industry and the competitive global landscape.” By getting bigger in the U.S. market, Sprint could offer “aggressive discounts and services,” Son said last month.

Deutsche Telekom is trying to avoid a repeat of the 2011 botched sale of T-Mobile to AT&T, a deal that was opposed by the U.S. government. Since then, T-Mobile, based in Bellevue, Washington, became the first carrier to introduce quicker phone upgrades, payment financing, free international roaming and a $450 credit program for customers that switch service. The moves helped T-Mobile gain 2.1 million monthly customers in the past three quarters, a reversal of its 2012 performance.

In the past two months, each of the bigger rivals -- Verizon Wireless, AT&T and Sprint -- has introduced new plans in response to T-Mobile.