Deutsche Telekom Eyes Majority Stake of T-Mobile

By Mike Harrington

May 24, 2021

Deutsche Telekom is committed to securing majority ownership U.S. wireless carrier T-Mobile, according to the German company’s chief executive officer, Tim Hoettges. Speaking on May 20th at Deutsche Telekom’s Capital Markets Days event, Hoettdges said, “We are clearly willing to get the majority in the timeframe that we have laid out.” He said that the transaction would happen by the time that the proxy voting rights Deutsche Telecom holds expire in 2024. The company has been reported to be in talks about a potential offer for SoftBank Group’s 8.5 percent stake in T-Mobile. Combined with Deutsche Telecom’s 43 percent stake in T-Mobile, the Softbank holding would give the German company majority ownership.

Also speaking during Capital Markets Days, T-Mobile CEO Mike Sievert said, “What we’ve seen from both Verizon and AT&T over the past two, three, four months, and certainly this last week with AT&T, is a journey towards both of our major scaled competitors realizing that T-Mobile’s strategy of being a pure-play mobile internet company is the right one. All content and entertainment of all kinds are leaving their prior linear forms and going digital. The internet itself is going mobile, and T-Mobile, years ago, established itself as a pure-play mobile internet company and sought the best assets, which it won big-time with the acquisition of Sprint’s 2.5 GHz bounty.”

Deutsche Telekom’s stake was diluted to 43 percent after Bellevue, Washington-based T-Mobile took over its smaller U.S. rival Sprint, but under a shareholder agreement it can vote former Sprint owner Softbank Group’s remaining 8.5 percent stake, thereby assuring overall control. Hoettges has said he expects T-Mobile to return capital to investors via a share buyback. With its share of the proceeds, Deutsche Telekom would be able to raise its stake, in part by exercising a call option struck with Softbank.

Among the big three telecom carriers, T-Mobile expects to cover 200 million people with 2.5 GHz spectrum by the end of this year; it already covers 140 million. Verizon aims to cover 100 million people with C-band frequencies within a year and 250 million by 2024. Meanwhile, according to various news reports, AT&T is said still to be poised to be third in a three-way race to 5G, while T-Mobile has a stronger spectrum position and a big head start on deployment. Verizon is said to be years ahead in small cell deployment and densification.

The key message of Capital Markets Days was, “We accelerate our growth,” according to the Deutsch Telekom release. The company announced its targets for the period to 2024. Adjusted EBITDA AL is to achieve an average annual growth rate of 3-5 percent, revenue of 1 to 2 percent. Free cash flow AL is to reach more than 18 billion euros by 2024. “We step up our efforts,” said Hoettges. “We want to outperform the strong development of the last few years and lead the group into the future with sustainable growth.”

At the event, Deutsche Telekom identified five key action areas for the coming years and defined targets for them:

Turning customers into fans: Deutsche Telekom wants to be a leader in terms of customer experience – in mobile communications, in the fixed network and in convergent product packages. Superior networks and best-in-class service are the building blocks for this. With this approach, the group wants to increase the number of households using product packages that combine fixed network and mobile communications in Germany, the European segment and the Netherlands to over 10 million. In the United States, T-Mobile is set to continue industry-leading customer growth.
Lead in B2B in Europe: Deutsche Telekom wants to be the leading digital enabler in the B2B market with integrated software-based solutions. On this basis, revenue with business customers in the Germany and Europe operating segments is to rise by an average annual growth rate of around 2 percent to 2024. In the United States, T-Mobile wants to double its share of the business customer market.
A new level of sustainability: The group tightened its climate targets back in April. Deutsche Telekom will become climate-neutral with its own emissions as early as 2025. As of 2040, 10 years earlier than the original target, this will apply to the entire value chain. The compensation for board of management members already contains components based on targets such as reducing energy consumption and emissions. In the future, this is also to be the case for management levels below the board of management.
Number one in fiber and 5G: Deutsche Telekom invests massively in the network build-out. The percentage of customers in Germany who can book a pure fiber line (FTTH) from Deutsche Telekom is to increase from the current level of around 5 percent to more than 60 percent by 2030. To this end, the build-out will be continuously driven forward. From 2024, more than 2.5 million FTTH lines are to be added per year. The 5G mobile communications standard is to cover 97 percent of the population in Germany by 2024.
We continue to drive digitization: Deutsche Telekom will continue to digitize its business at all levels. This will fundamentally transform areas such as network technology, IT, and operations, increase agility and productivity, and cut costs. We expect 30 percent of purchases by customers in Germany to go via our electronic channels by 2024. In addition to the operational action areas, Deutsche Telekom continues its active, value-driven portfolio management as in previous years. In light of this, the group regularly assesses its investments for possibilities to further increase their value – currently with a focus on T-Mobile Netherlands and the tower portfolio. In both cases, without preconceived views as to an outcome and with no time pressure.

Mike Harrington is a contributing editor.