T-Mobile US set to take part in US merger talks, says Deutsche Telekom

Key Points
  • T-Mobile US will very likely be part of merger talks in the U.S., its parent Deutsche Telekom said.
  • T-Mobile US was the main driver behind the German telecoms operator's better than expected 7.5 percent rise in profit.
Timotheus Hoettges, CEO of German telecommunications giant Deutsche Telekom, arrives for his company's annual press conference to present the 2015 business report on February 25, 2016 in Bonn, western Germany.
Marius Becker | AFP | Getty Images

T-Mobile US will very likely be part of merger talks in the United States and its strong position there should give it time to find the best fit, its parent Deutsche Telekom said on Thursday.

"Purely theoretically, we can see several advantages to consolidation and convergence," Deutsche Telekom Chief Executive Tim Hoettges told reporters after its first-quarter results.

"The strong position we have established for ourselves gives us the time and space to evaluate all options together with colleagues in the U.S.," Hoettges said.

T-Mobile US, which is 64 percent controlled by Deutsche Telekom, was the main driver behind the German telecoms operator's better than expected 7.5 percent rise in core profit.

Major U.S. operators Verizon and AT&T have been struggling to fend off smaller rivals T-Mobile US and Sprint in a maturing market for U.S. wireless services.

Last month, T-Mobile US reported a 2.7 percent rise in post-paid customers to 35.3 million, continuing the steady increase in its subscriber base over the past four years.

Verizon, however, lost 307,000 retail post-paid customers or those who pay a monthly bill, in the first three months of 2017, the first quarter it has ever lost subscribers. AT&T lost 191,000 post-paid subscribers.

Unlimited data plans are among the latest incentives, one of many T-Mobile US initiatives shaking up the U.S. wireless market. In February, Verizon followed suit to offer an unlimited data plan for the first time in over five years.

"T-Mobile US continues to grow at breakneck speed," wrote Bernstein analyst Dhananjay Mirchandani, reiterating a "market perform" rating. "Leading indicators remain strong."

Quiet period over

The U.S. Federal Communications Commission barred merger talks among telecommunications companies for more than a year as it conducted a $19.8 billion auction of airwaves from broadcasters for wireless use.

Companies taking part in the auction had been restrained by a quiet period that ended last month.

Reuters reported in February that Sprint's controlling shareholder, SoftBank, was positioning itself for deal talks with Deutsche Telekom once the auction was out of the way.

An earlier attempt by Sprint to buy T-Mobile US on the summer 2014 stalled on regulatory objections but there is hope that President Donald Trump's new administration will be more accommodating towards major telecoms merger deals.

Deutsche Telekom's adjusted earnings before interest, tax, depreciation and amortization (EBITDA) excluding special items rose to 5.55 billion euros ($6 billion), above the average estimate of 5.48 billion euros in a Reuters poll.

Revenue rose 5.8 percent to 18.65 billion euros, in line with expectations. In Germany, mobile revenues, excluding the impact of new rules on roaming and termination rates, rose 1.4 percent, underpinning overall sales growth in Germany of 0.2 percent to 5.4 billion euros.

Net profit was hit by a 700 million euro writedown on Deutsche Telekom's 12 percent stake in BT. Shares in BT lost more than 10 percent during the first quarter as a result of an accounting scandal at its Italian unit.

Deutsche Telekom received its 12 percent stake in BT in exchange for its stake in British mobile operator EE last year, and has already written down 3 billion euros of its initial value of 7.4 billion.

Deutsche Telekom confirmed its 2017 outlook for adjusted EBITDA of around 22.2 billion euros and free cash flow of 5.5 billion euros.

Shares in Deutsche Telekom were up 0.1 percent on Thursday, recovering from earlier losses to outperform the German blue chip index slightly.