I'll com­ment on this in detail later … For the moment, I just want to post it and go back to what I was doing before I felt like spit­ting up my lunch.

Deutsche Telekom Pon­ders Sale of T-Mobile USA Unit
July 3, 2005 1:31 p.m. from wsjonline.com

Deutsche Telekom AG is grap­pling with a tough call: whether to sell its T-Mobile USA cell­phone oper­a­tions, a move that could fetch about $30 bil­lion and reshape mobile-phone mar­kets on both sides of the Atlantic.

As the Ger­man telecom­mu­ni­ca­tions giant faces a huge bill to upgrade the U.S. unit to keep pace with rivals, Deutsche Telekom's man­age­ment board has been debat­ing T-Mobile USA's fate, accord­ing to peo­ple close to the mat­ter. The com­pany has told investors recently it expects to make a deci­sion by December.

Choos­ing to sell the divi­sion, how­ever, could prove to be a dif­fi­cult option. The most likely buyer, Voda­fone Group PLC, says it isn't inter­ested even though the world's largest wire­less car­rier has long wanted to con­trol a ser­vice provider in the U.S. So far, Voda­fone just owns a 45% stake in Ver­i­zon Wire­less. Ver­i­zon Com­mu­ni­ca­tions Inc. owns the rest.

Ver­i­zon Wire­less has refused to use Vodafone's brand and uses a dif­fer­ent net­work tech­nol­ogy than Voda­fone, which makes it tricky to roll out ser­vices that work in both the U.S. and Europe. T-Mobile USA, by con­trast, uses the same tech­nol­ogy as Voda­fone. Voda­fone has tried and failed to gain con­trol of a U.S. car­rier. Last year, it lost a bid­ding war for AT&T Wire­less Ser­vices Inc.

Bobby Leach, a spokesman for Voda­fone, New­bury, Eng­land, says a pur­chase of T-Mobile USA isn't in the cards for Voda­fone. "We are not inter­ested in T-Mobile's U.S. assets," Mr. Leach says. "We have made clear our com­mit­ment to the Ver­i­zon Wire­less part­ner­ship." Mr. Leach declined to com­ment further.

Ana­lysts say Voda­fone is likely to be wary of tak­ing on a ser­vice provider that trails far behind the three lead­ers in the U.S. mar­ket and requires con­sid­er­able investment.

Still, some top Deutsche Telekom exec­u­tives have argued the com­pany should sell T-Mobile USA and use the pro­ceeds to make acqui­si­tions in Europe instead of spend­ing as much as $10 bil­lion dur­ing the next few years to build a faster net­work in the U.S. needed by T-Mobile USA to keep pace with rivals offer­ing high-speed wire­less Inter­net access and low-cost voice calls, accord­ing to peo­ple close the sit­u­a­tion. Acqui­si­tions could fill out Deutsche Telekom's fixed-line, mobile, Inter­net and other oper­a­tions across Europe, includ­ing prop­ping up its ail­ing United King­dom unit, they say.

T-Mobile USA's rel­a­tively weak posi­tion in the cut-throat U.S. mar­ket has some investors root­ing for Deutsche Telekom to sell. "From a strate­gic posi­tion, I would rather have them exit the U.S. mar­ket, espe­cially when you are faced with this huge upgrade," said Theo Maas, a fund man­ager with ABN Amro Asset Man­age­ment in Ams­ter­dam. Mr. Maas says he is hold­ing an "over­weight" posi­tion in Deutsche Telekom in the hope that it may sell in the U.S., but he declined to say how many shares ABN holds. ABN Amro doesn't do investment-banking busi­ness for Deutsche Telekom.

Deutsche Telekom exec­u­tives who are inclined to keep T-Mobile stress that it is the company's fastest grow­ing busi­ness, peo­ple close to this group say. If Deutsche Tekekom were to keep T-Mobile USA, based in Seat­tle, the com­pany could skip the upgrade invest­ments and turn the car­rier into a dis­count operator.

Oppo­nents to a sale also say that keep­ing the unit is wise because poten­tial acqui­si­tion tar­gets in Europe are pricey and many are in slow-growing mar­kets, peo­ple close to them say. In addi­tion, these exec­u­tives worry that fol­low­ing a sale of T-Mobile USA, share­hold­ers would pres­sure man­age­ment to return that money to them. Germany's cash-strapped gov­ern­ment is the company's biggest share­holder and it might push man­age­ment to dis­trib­ute the pro­ceeds of a sale, which would be between $25 bil­lion and $30 bil­lion, ana­lysts say.

Deutsche Telekom's share price has lan­guished for years and its rela­tion­ship with investors has often been con­tentious. Deutsche Telekom's shares have fallen about 12% so far this year. On Fri­day, Deutsche Telekom's shares rose 12 euro cents to close at 15.42 in Frank­furt, while the firm's Amer­i­can deposi­tary shares slipped 2 cents to $18.40 on the New York Stock Exchange.

Another option that hasn't gained much atten­tion inside the com­pany is the prospect of sell­ing a minor­ity stake in T-Mobile USA in an ini­tial pub­lic offer­ing to raise money for the upgrade. That sce­nario would let Deutsche Telekom retain con­trol and com­pete in the U.S. But, Deutsche Telekom just went through a messy delist­ing of its T-online sub­sidiary in Ger­many, an expe­ri­ence that could turn it off another sub­sidiary IPO.

Deutsche Telekom acquired T-Mobile USA, then called Voic­es­tream, at the height of the tele­com boom in 2001 for 39 bil­lion (US$47.2 bil­lion). T-Mobile USA's rev­enue leapt 27% to 2.60 bil­lion in the first quar­ter of 2005 from a year ear­lier. That rep­re­sents 18% of Deutsche Telekom's total rev­enue of 14.28 bil­lion dur­ing the quar­ter. Ana­lysts at Credit Suisse First Boston expect T-Mobile USA to gen­er­ate 1.61 bil­lion in cash in 2005.

Mean­while, Deutsche Telekom's Euro­pean cell­phone oper­a­tions have stag­nated. In Ger­many, the firm's biggest Euro­pean mar­ket, T-Mobile's mar­ket share has declined as it focused on try­ing to improve mar­gins. Dur­ing the first quar­ter, earn­ings were flat. In the U.K., enforced price cuts by reg­u­la­tors and mount­ing com­pe­ti­tion on price from a unit of Hutchi­son Wham­poa Ltd., a Hong Kong con­glom­er­ate, as well as other no-frills ser­vice providers is hurt­ing T-Mobile UK.

But, with a mar­ket share of about 10%, T-Mobile USA remains dwarfed by mar­ket lead­ers Ver­i­zon Wire­less and Cin­gu­lar Wire­less. With T-Mobile lack­ing the scale of those rivals, many ana­lysts say Deutsche Telekom will even­tu­ally need to sell.