So it is time to play guess the buyer for T-Mobile in the UK, now that its parent Deutsche Telekom is under extreme shareholder pressure to do better. In the run up to its results it admitted that the UK, as well as the US and Poland are all points of financial embarrassment around the globe, resulting in the knee jerk shareholder reaction to sell off the trouble spots.
The US is too strategic and Poland wouldn’t fetch enough money, so the UK, where the company sits fourth in a five player operator league table, should get the vote.
T-Mobile is expected to make write downs of over £1.6 billion for T-Mobile UK and analysts reckon that it is worth £3.2 billion if sold. It is more likely that T-Mobile will just end up with £3.2 billion of someone else’s shares (problems) in some kind of merger, given that no-one is buying anything right now for cash.
Virtually everyone has been mentioned as a partner, so far 3, BT and Orange are all in the frame, and Virgin, because its service sits on top of the T-Mobile network, will also be hugely affected and might even bid. Even BSkyB has been mentioned as a possible bidder, but BSkyB’s parent News Corp has had the opportunity to get into mobile networks before and turned it down, so we don’t attach too much credibility to that idea.
The effect on any existing customers of T-Mobile (and Virgin) may be minimal, especially if it ends up merged with 3, because both have a similar attitude these days to low priced voice and flat rate broadband packages. The tasty exclusive with the G1 Android handset would come with any deal that is struck.
Because it is starting to share a network with 3, there is talk of a merger. 3 is cash strapped and trying to grow as fast as it can. But it has plenty of network resource, perhaps too much. 3 began its service in the UK only after acquiring a 3G license, so has no history of GSM customers, and while T-Mobile would give it that, we’re not so sure that the effort of merging and streamlining the two networks is a job that 3 wants right now, and with T-Mobile being the bigger partner, it might feel more like a talkeover. 3 is also getting closer and closer to profit in the UK and has very aggressive pricing for acquiring all manner of new customers, especially in mobile broadband.
Two large shareholders – the German Government (32%) and private equity group Blackstone (4.5%) are both dissatisfied about the decline of DT’s share price ‘ and have been grumbling publicly about the state of the parent company Deutsche Telekom, and have called for its sale in leaks to German newspapers, which is where the story originally emerged a day or so ago and has since been picked up by the Telegraph and the Financial Times in the UK.
There are also links with Orange for T-Mobile, which sold its Netherlands subsidiary to T-Mobile in 2007 year in a swap where Orange acquired the German company’s Ya ISP in Spain as a partial swap, with Deutsche Telekom acquiring Orange Netherlands for the ISP and €1.3 billion. The deal was done at the time in preference to a Vodafone deal for Ya, because Vodafone is seen as the slightly larger arch rival of both Orange and T-Mobile across Europe. Also T-Mobile and Orange spectrum are right next to each other’s in the UK and that might yield extra benefits when it comes to merging networks.
Reversing that deal in the Netherlands might also be attractive to T-Mobile, but it would still leave too many big problems for the company around the globe ‘ and the US operation is likely to soak up a huge amount of cash going forwards, but T-Mobile has tried to sell that in the past and received just derisory offers.
So we think that the UK operation may well go on the block and while BT would love to buy its own cellular operation again, it is currently very cosy with Vodafone (which is the underlying network on BT’s cellular service) and BT has so many other problems, the terms would have to be extremely advantageous. Which leaves the smart money on a merger with 3, with Orange as a rich outsider. We also have to remember that Vodafone and Telefonica are the biggest European mobile operators, who both operate in the UK and if they don’t like any potential outcome, either could also step in.