There is little apparent love lost between Donald Trump's nascent administration and Germany's political leadership. Peter Navarro, Trump's maverick trade advisor, has just accused Germany of abusing the euro currency to exploit other countries. German Chancellor Angela Merkel has been a refreshingly outspoken critic of Trump's "Muslim" travel ban. But could Trump's telecom policy inadvertently and indirectly give a boost to Germany's broadband market?
Hopes are running high that officials appointed by the new president could unleash a frenzy of deal making in the telecom sector. And a prime takeover target is likely to be mobile operator T-Mobile US, whose controlling shareholder remains Deutsche Telekom AG (NYSE: DT).
The German fixed-line incumbent has already tried selling T-Mobile US Inc. a couple of times -- first to rival AT&T Inc. (NYSE: T) and then to Sprint Corp. (NYSE: S), another mobile competitor -- only to see its efforts thwarted by US regulators opposed to sector consolidation.
Even before Trump took charge, however, T-Mobile's own executives had voiced optimism that a new administration would be more "open" to M&A activity. That confidence seems justified by recent developments, including the appointment as chairman of the Federal Communications Commission (FCC) of Ajit Pai, who is thought to sympathize with telco arguments about the need for consolidation. In a possible sign of investor excitement about a forthcoming deal, T-Mobile's share price has now gained about 23% on the Nasdaq since November 8, when Trump won the presidential election, and is up 3.4% since January 23, when Pai's appointment was announced. (See Pai Opposes Title II, FCC Alums Oppose Pai.)
Prospective T-Mobile suitors could include Sprint, now owned by SoftBank Corp. of Japan, besides cable giants Charter Communications Inc. and Comcast Corp. (Nasdaq: CMCSA, CMCSK), which have made no secret of their desire to enter the US mobile market. Based on its current share price, T-Mobile is worth about $51.3 billion. That means a sale at that level could potentially net Deutsche Telekom as much as $34 billion, given the German operator's 66% ownership stake.
It would be a surprise if Deutsche Telekom were not already considering a T-Mobile divestment. Previously, the only thing standing in the way of a sale has been US competition authorities. The German operator has made light of the failed attempts to land a deal, drawing attention to continued revenue and customer growth at T-Mobile. But the unit has for a while seemed like a peculiar appendage rather than an essential limb. Under its current strategy, Deutsche Telekom is focused on building a pan-European network made up of fixed, mobile and IT assets. Other than as an engine of sales growth, it is hard to see how T-Mobile fits in. (See DT Earnings: US Parties On, Europe Hungover.)
What's more, as Europe's biggest service provider, Deutsche Telekom faces an escalating bill for the network upgrades that will be needed to support new digital services. In Germany, by far its biggest market, it is pouring funds into vectoring, which boosts connection speeds on last-mile copper loops to an upper limit of 100 Mbit/s. But the gigabit revolution now happening in other parts of Europe already makes this technology look antiquated. Even Deutsche Telekom has acknowledged that it will soon have to start thinking about a more dramatic network overhaul. "After 2018 or 2019, we have to discuss what the next step toward more broadband could look like," said Timotheus Höttges, Deutsche Telekom's CEO, during an earnings call in November. (See Germany's Gigabit Lag.)
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