Infrastructure ownership, and the opportunities and risks of digitalization, were big themes in Deutsche Telekom’s Capital Markets Day last week, in which CEO Timotheus Höttges spent about nine hours on stage to present the virtual, two-day event. And he revealed that DT might be keen to take back full control of T-Mobile USA.
“I’m optimistic about the opportunities around digitization,” he said, while acknowledging a dilemma over infrastructure strategies, especially for the European tower portfolio, at a time when most of DT’s peers are busy carving out, or selling off, towers in order to unlock shareholder value and cash. “We are, in principle, an infrastructure company, and therefore we should own the network. We are not a service provider,” said Höttges.”The majority of our infrastructure should be under our control.”
But like Telefónica (see separate item), he increasingly wants to adopt a ‘smart capex’ approach that involves investment partnerships for expensive infrastructure, rather than having to own every element. “Our logical step is then to say, here are others who have the same issue of utilization of the infrastructure, there are others who have good technologies in areas where we have weaknesses. Let’s partner, let’s create a win-win.”
He added: “Our network guys, our technology people, they love to own it 100%. They love to control the whole value chain, but that is not how the world is developing and therefore we have changed this paradigm successfully. And I think there’s more to come.”
CFO Christian Illek was more decisive about infrastructure, at least on the passive side, and wants to carve out “all” the European sites as he eyes the recent rise in valuations for infrastructure stocks in general, and for towercos like Cellnex in particular.
He said DT was “figuring out our options” and reports indicate the company is considering complete sale or the sale of a minority stake; or conversely, the purchase of a stake in a tower company to add bulk to DT’s own operations. These are largely housed in GD Towers, the centralized group infrastructure vehicle that holds DT’s assets in Germany, Austria and The Netherlands (the latter soon to be moved to a venture with Cellnex). Assets in the Czech Republic and Slovakia are next on the list.
Illek said DT’s towers were a “kingmaker” asset, which would make any purchaser “the leading player in Europe”, and of course, Europe’s largest towerco, Cellnex, was referenced as a potential beneficiary. DT and Cellnex already have a joint venture in The Netherlands, and the Spanish towerco is an anchor investor in DT Capital Partners’ ed Digital Infrastructure Vehicle. In FY20, GD Towers reported a 4.7% increase in revenue to €989m. It currently controls 42,600 tower and rooftop sites.
DT confirmed that it may look for a new partner, or a divestment, for T‑Mobile Netherlands ahead of January 2022, when a three-year clause expires that prevents DT or Tele2 (which owns 25% of the operating company) from selling their stake. Tele2 has repeatedly said it will sell its stake when allowed but it seems that DT is unlikely to buy its current partner out, but may in fact look to reduce its holding. In the meantime, moves to make it more asset-light, as seen in the Cellnex tie-up, could make it more attractive to a future investor.
When it comes to another T-Mobile, the disruptive force in the USA, DT may be seeking closer, not looser, ties. “Yes, we want to secure the majority in T-Mobile,” said Höttges at the event, although he did not give a date when DT would exercise its call options on further shares of the US company, which expire in June 2024.
Currently, DT holds 43% of TMO following its merger with Sprint, though it has effective control through a voting rights agreement with Softbank of Japan, Sprint’s former owner. Last June, DT secured the option to take over the majority of TMO shares in negotiations with Softbank.
TMO USA and its parent recently teamed up to offer transatlantic services to multinational enterprises as part of TMO’s bid to double its enterprise market share in its home market. Mike Sievert, TMO’s CEO, told the Capital Markets Day that the DT partnership “affords us a unique opportunity to capture transatlantic synergies by leveraging the assets of DT and T‑Mobile to offer solutions to global companies.”