Deutsche Telekom Tackles Its 'US Problem'

German telecom giant Deutsche Telekom has agreed to sell mobile network operator T-Mobile USA to AT&Tfor $39 billion, paving the way for a partial exit from a market which had turned into a headache for the Bonn-based group.

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After a short period of high profitability, T-Mobile USA struggled to compete with larger carriers.

A falling subscriber base and high capital investment requirements to keep up with the speed of larger competitors were among the biggest problems for T-Mobile USA.

HSBC raised Deutsche Telekom to “overweight” from “underweight” and increased its target price to 14 euros from 9 euros following the news.

HSBC said in a note the deal was “finally an appealing solution to Deutsche Telecom’s “US problem” which promises a new focus on fixing underperforming Europe.”

Deutsche Telekom shares were sharply higher on the news, trading almost 14 percent higher at 09:05 CET, just after the German market opened.

Under the agreement, AT&T , the second-largest wireless carrier in the US, will pay $25 billion in cash and the remainder in stock. Deutsche Telekom will in turn receive an 8 percent stake in AT&T and a seat on the supervisory board.

Deutsche Telekom Deutsche Telecom plans to use the funds to reduce net debt by 13 billion euros and buy back shares worth billion euros after the deal closes.

AT&T and Deutsche Telekom plan to close the transaction in the first half of 2012.

CNBC - Ctia Wireless 2011- The Wireless Connection
CNBC - Ctia Wireless 2011- The Wireless Connection

“We keep on benefiting from the upside of the US market. At the same time we are creating a stronger balance sheet which enables us to implement our innovation strategy in Europe”, Deutsche Telekom CEO René Obermann said in a statement issues on Sunday evening.

A New Mobile Giant

The sale of T-Mobile USA – the fourth-largest mobile operator in the US - to AT&T – the second-biggest - would create the biggest mobile company in the US and is expected to come under though scrutiny by regulators.

Both the Department of Justice and the Federal Communications Commission have to approve the deal.

AT&T and T-Mobile USA combined would have more than 120 million subscribers.

“This transaction represents a major commitment to strengthen and expand critical infrastructure for our nation’s future,” said Randall Stephenson, AT&T Chairman and CEO. “It will improve network quality, and it will bring advanced LTE capabilities to more than 294 million people."