Deutsche Telekom Exec: T-Mobile USA Under Pressure

Deutsche Telekom is not sugar coating the condition of its subsidiary, T-Mobile USA.

In a statement filed with the Federal Communications Commission, a Deutsche Telekom executive painted an unflattering picture of the nation’s fourth-largest mobile operator.  

Thorsten Langheim, Deutsche Telekoms SVP of Mergers and Acquisitions, said T-Mobile USA has been struggling to compete with its larger rivals, such as AT&T and Verizon Wireless, and other competitors that are aggressively growing their wireless operations, such as MetroPCS and Leap, which offers services under the Cricket brand.

T-Mobile has been struggling to remain a strong competitor in the wireless marketplace,” Langheim wrote in a declaration that was filed with the FCC as part of AT&Ts formal request for permission to acquire T-Mobile USA from Deutsche Telekom for $39 billion in cash and stock. Despite marketing efforts to improve its standing, T-Mobile USA has steadily lost market share both nationally and across major markets over the past two years.”

T-Mobile USA, the nations fourth-largest mobile operator behind Verizon Wireless, AT&T and Sprint Nextel, served 33.73 million subscribers at the end of the fourth quarter after its customer base shrank by 23,000. The company lost 318,000 customers on contract in the quarter as 2.5 percent of its contract subscribers ditched the mobile operator.

T-Mobile USA stated at the time that its HSPA+ network reached around 200 million people and delivered 4G speeds. But Langheim said T-Mobile USA needs to deploy Long Term Evolution technology to compete in the long term. The problem is the mobile operator doesnt have a clear path to build a fourth-generation mobile network based on LTE and faces spectrum constraints in a number of important local markets,” he said.  

Bellevue, Wash.-based T-Mobile has explored its options to obtain new spectrum, but the company does not anticipate that regulators will hold an auction soon enough to meet the operators needs, Langheim noted. And Deutsche Telekom would have to invest big money to keep T-Mobile USA competitive.  But thats not a priority for the German-based telecom behemoth.  Deutsche Telekom Chief Executive Rene Obermann has said T-Mobile USA needs to find a way to fund itself in the future. T-Mobile USA incurred $2.8 billion last year in capital expenditures.

T-Mobile USA has explored options to fund itself, such as partnerships, joint ventures and asset sales, but Langheim said the alternatives generally were not feasible and could not provide as much in terms of synergies and consumer benefits as the transaction with AT&T.”

The T-Mobile USA sale will slash Deutsche Telekoms debt and improve its credit profile, Langheim said.

AT&T has agreed to pay Deutsche Telekom $25 billion in cash and $14 billion in AT&T shares for T-Mobile USA.

Deutsche Telekom anticipates having an 8 percent stake in AT&T and using the cash from the merger to reduce its debt by 13 billion euros, Langheim said.

These material improvements in Deutsche Telekoms balance sheet resulting from the proposed transaction will accelerate Deutsche Telekoms ability to transform the company by modernizing and upgrading its networks in Deutsche Telekoms core businesses in Europe,” Langheim said.

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