Phone
Deutsche Telekom has retained JPMorgan Chase & Co. to also review options such as a possible joint venture for its T-Mobile UK unit, said the people, who declined to be identified because the talks are confidential. The unit may fetch more than 3 billion pounds ($5 billion), the people said.
“Exiting the U.K. wouldnt be a great loss for T-Mobile,” said Joris Franssen, who helps manage about 400 million euros ($562 million) at Kempen Capital Management in Amsterdam, including Deutsche Telekom and Vodafone stock.
Selling the U.K. unit would give Bonn, Germany-based Deutsche Telekom an exit from a market that has five mobile- phone operators and is more competitive than Italy with four and France with three. The unit, the U.K.s fourth-largest, had the biggest drop in subscribers of Deutsche Telekoms 16 wireless divisions last quarter. The company in May reported a loss after a writedown at the U.K. mobile-phone unit of 1.8 billion euros.
For Vodafone, Telefonica SA, France Telecom SA and Hutchison Whampoa Ltd., which operate mobile-phone services in the U.K., taking over or partnering with T-Mobile would remove a rival, allowing them to boost margins and earnings.
“Fewer players in the market often means more stable pricing, which will make the business more profitable,” said Franssen.
Profit Squeeze
France Telecom spokeswoman Beatrice Mandine and Guy Middleton, a spokesman for Hutchisons local mobile-phone unit 3 U.K., didnt return calls seeking comment. Simon Gordon, a spokesman for Vodafone, Silke Armann, a T-Mobile spokeswoman, Andreas Fuchs, a spokesman for Deutsche Telekom, and Miguel Angel Garzon, a Telefonica spokesman, all declined to comment.
Phone companies are looking to save costs as earnings decline because clients are spending less amid the economic slowdown. Vodafone, Deutsche Telekom, Royal KPN NV and Mobistar SA said in May that the recession was eroding profit as consumers and businesses cut back on mobile-phone use.
Deutsche Telekom, Europes second-biggest phone company by market value, said May 9 its cutting costs on employees, marketing and advertising in the U.K. as it seeks to boost profitability there amid “a difficult business environment.”
Vodafone Interest
Subscribers to its U.K. services fell 2.6 percent in the year to March 31. The unit was one of only two among Deutsche Telekoms mobile divisions to post a decline in subscribers, it said in its first-quarter presentation.
Vodafone, the worlds largest mobile-phone company, is considering a bid for T-Mobile UK, a person familiar with the situation said yesterday. Newbury, England-based Vodafone may make an offer or form a joint venture, said the person, who asked not to be identified because the discussions are private.
Vodafone fell 0.3 percent to 117.25 pence as of 9:50 a.m. in London. Deutsche Telekom rose 0.6 percent to 8.46 euros in Frankfurt.
Deutsche Telekoms T-Mobile UK has an enterprise value of about $4.2 billion to $5.6 billion, the Financial Times reported yesterday. The unit had a goodwill asset value of 2.07 billion euros, according to Deutsche Telekoms 2008 annual report, down from 2.7 billion euros a year earlier. T-Mobile UK had sales of 4 billion euros last year.
More Subscribers
An acquisition of Deutsche Telekoms U.K. operations, including connections for Virgin Mobile subscribers, would boost Vodafones users to more than 35 million, or about 50 percent of the market. Vodafone had 18.7 million U.K. mobile customers at the end of March, it said May 19, while Deutsche Telekom had 16.7 million, according to its Web site.
Paris-based France Telecoms Orange has about 18.6 million mobile-phone U.K. customers. It lags behind O2, owned by Spains Telefonica, which has a 27 percent market share, and Vodafone.
On May 26, France Telecom Chief Executive Officer Didier Lombard said the company doesnt have plans for any major acquisitions in the foreseeable future. The company said it will conserve its cash to maintain its credit rating.