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Who could take T-Mobile UK off Deutsche Telekom's hands?
Published: 5 May, 2009
Tags >> UK | T-Mobile
Acquisition rumors are mounting around T-Mobile, after its UK and US arms dragged parent Deutsche Telekom into a shock profit warning last month.
Most immediately, the speculation centers on the UK division, which saw revenues fall 21% year-on-year in the first quarter, with a 3% decline in its customer base and margins that are well below those of market leaders O2 and Vodafone. This will force its German parent to take a huge writedown of £1.6bn ($2.4bn) this week, prompting reports that major shareholder, US private equity group Blackstone, is pushing for a sale.
Analysts estimate that the unit would be worth about £3.2bn ($4.8bn), and possible buyers could include any of the big three cellcos - O2, Vodafone and Orange - or even cellphone retailer Carphone Warehouse, which is in expansion mode and has a growing MVNO business; or TV/broadband player BSkyB; or incumbent BT looking to re-enter mobility. With Hutchison apparently looking to put its 3 UK arm up for sale, there has also been talk of the UK's fourth and fifth cellcos merging to achieve the scale necessary to keep up with the larger operators.
None of these options is an obvious win though. 3 is the most logical since the two operators are already combining their 3G networks. 3 is seeing improving performance (and so might be a more attractive target for one of the larger players than T-Mobile), but parent Hutchison might lack the cash to pay an acceptable price for T-Mobile UK. Most of the possible candidates have their own financial or business model challenges and the trend for new mobile entrants is towards MVNO deals rather than takeovers of underperforming cellcos. Of course, there is always the 'dark horse' option of a bid from one of the rapidly expanding Africa/Middle East operators, like Orascom, or even China Mobile.
For DT, there is a sense to selling off the UK arm. It is not trying to be a pan-Europe player like Vodafone, and most of its activities are concentrated in central Europe, looking east, leaving the UK as an outpost. The proceeds of a sale could help it inject more resource into the US arm, which also had a poor quarter, but has traditionally been a strong cash cow and should have growth ahead, given its current expansion of its 3G network.
This has not stopped persistent rumors that DT will try to offload the US arm too, but as in the UK, identifying a buyer is the problem. Verizon and AT&T would run up against antitrust problems, and while Sprint is the most rumored, this would bring yet another incompatible network into the troubled cellco's plans, and risk falling foul of the motto that two stones tied together still don't float. Despite the possible synergies between T-Mobile's 3G and Wi-Fi activities and Sprint's Clearwire venture, this combination still looks hugely risky and may leave T-Mobile USA marooned - unless, as in the UK, a dark horse emerges from outside north America, which in itself would raise clearance problems.
Whatever the future of T-Mobile UK, its parent is in the process of installing a new management team, and once this has been achieved, it should be clearer whether those new executives' remit is to turn the operator around or sell it off.
