T-Mobile’s Troubled Future

T-Mobile, the fourth-largest wireless company in the United States, needs a buyer, not a partner. However, the chances that a buyer will materialized are unlikely, and even parent Deutsche Telekom admits it. DT’s CEO Rene Obermann said at a shareholders meeting, “Of course we continue to look for a long-term solution to improve earnings in our U.S. business. However, a complete sale like the one to AT&T is considered unlikely.”

DT lost $39 billion when federal officials killed a deal for AT&T (NYSE: T) to buy T-Mobile. The German company stepped away with a $4 billion break-up fee. That is not nearly enough to maintain and build the infrastructure T-Mobile needs to compete in new 4G technology. T-Mobile also has nothing close to the marketing money AT&T and Verizon Wireless have. Neither does T-Mobile have the Apple (NASDAQ: AAPL) iPhone — the greatest customer magnet in the industry.

DT has access to capital to pump billions of dollars into T-Mobile, but it will not. T-Mobile has only 35 million subscribers. Fourth place in the market is not attractive, especially when even the third place company — Sprint-Nextel (NYSE: S) — is struggling with losses and subscriber attrition. AT&T and Verizon (NYSE: VZ) are too big and have too much market share to be challenged. And the wireless subscriber level in the U.S. is nearly 300 million. In other words, without a growing pie, the battle is over market share.

There is often speculation that Sprint and T-Mobile might combine. Yet, two weak companies cannot make a strong one. Sprint is also saddled with debt, and the infrastructures of the firms are not compatible.

T-Mobile has been orphaned by its own parent, and no company will risk picking it up.

Douglas A. McIntyre