Summary
A sale of T-Mobile's UK operation would not be easy. The UK market is well served and there are no obvious buyers. The fixed incumbent BT, which divested its mobile business, might be interested but has its own financial and business problems to cope with. A merger with one of the existing operators might make more sense, with 3 being the most obvious candidate. Alternatively under new management T-Mobile could find ways to reverse its loss of market share. The broader question is whether DT has sufficient resources to pursue its U.S. strategy while reversng its decline in the U.K.
Analysis
T-Mobile U.K. has been doing badly in relative terms (loss of market share and absolute decline in customers during 2008and an anticipated writedown of around 1.8 billion pounds) that go beyond the obvious excuses of a poor U.K. economy and the substantial decline of the pound against the euro (and dollar). The two major shareholders in its parent Deutsche Telekom (DT), namely the German government with 32% and Blackstone with 4.5 % are both dissatisfied about the decline of DT's share price, which today is around 9 euros compared to 14, the price at which Blackstone bought in during 2006. Blackstone’s own shares are currently only worth about 1/3 of their value of $31 at the launch of its much publicized IPO in 2007. T-Mobile U.K’s alternatives would seem to be: 1. Take initiatives under a new management team to improve its performance; 2. Sell the business to a third party (but could DT get an acceptable price?), which might be another U.K. mobile operator (3 is the acquirer most talked about and is in the process of combining its 3G access network with T-Mobile's, but lacks a 2G network of its own, however whether it has the cash to take on T-Mobile is another matter), or the fixed incumbent BT (which had to sell its mobile operation (now the Telefonica owned O2) and would like to become a significant mobile player, but has business problems of its own to contend with in its Global Services business), or an ambitious foreign dark horse, such as China Mobile or a cash-rich Middle Eastern operator prepared to invest in a developed market. In Europe T-Mobile has been pursuing regional goals as do Vodafone and France Telecom (Orange), but its holdings outside Germany are focused on Eastern and South East Europe, with the exception of the Netherlands. So DT does not have major investments in Western Europe outside the U.K., and could argue that a successful sale of its U.K. assets would not have any significant adverse effects regionally and would free resources to reinforce its initiatives in the U.S. where it is striving to catch up to its large rivals, most notably AT&T and Verizon Wireless.
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
