AT&T has withdrawn its bid for T-Mobile USA, following opposition from the Department of Justice and FCC. The company was apparently unable to save the bid by selling off parts of T-Mobile USA or making other concessions. Deutsche Telekom will now receive the agreed break-up fee of USD 3 billion, of which three-quarters in cash and the rest in spectrum. The two also agreed a roaming pact for 3G, helping T-Mobile expand its coverage. DT maintained its targets for this year for EBITDA, cash flow and debt. The extra cash it receives from PTC (in Poland, EUR 400 million) and AT&T (USD 3 billion) will be used for paying off debt.
AT&T on the other hand hasn't resolved its spectrum shortage, while rival Verizon Wireless has been busy buying up frequencies in deals with cable operators. A number of cable operators, assuming the deals receive regulatory approval, are selling spectrum worth in total USD 4 billion to Verizon, dropping their own plans to roll out mobile networks. This means AT&T will have to go in search of alternatives, which could mean a range of deals, from takeovers to network sharing, as well as different forms of offloading, such as Wi-Fi and femtocells.
As for T-Mobile USA, the question is whether the new spectrum and roaming deal can keep the company going over the long term. It is still a mobile-only provider, while the market is going in the direction of total communications and quad-play offerings. It also a weak number four on the market, far behind the leaders Verizon Wireless and AT&T Mobility. Dish Network recently expressed interest in working with the company, so a merger or takeover could still be the saving of T-Mobile USA.
Finally, there's the question of whether Deutsche Telekom is done with its restructuring. It has stuck to its targets and its debt is going down, but the economic crisis could still require more debt reduction. DT targets net debt at 2.0-2.5 times EBITDA. Its net debt is currently EUR 43.4 billion, but including off balance sheet items, this rises to EUR 58 billion and the ratio to 3.2 (source: Moody’s). Only the incumbents in Portugal and Italy are worse off. In this light, the USD 3 billion from AT&T is relatively little. DT's broad cooperation with France Telecom is a positive and could even lead to the sale of Everything Everywhere, their British mobile joint venture. Still, negative factors are more predominant now, especially the economic situation and the growing competition from cable on the German market. Conclusion: it can't be ruled that Deutsche Telekom may put more assets up for sale in the coming period.
