T-Mobile's Ugly Future

Telecom & Wireless

Published: January 20, 2015 6:44 am

Deutsche Telekom’s chief executive, Timotheus Höttges, has a dim view of T-Mobile USA Inc. (NASDAQ: TMUS), a company his company controls. No wonder, T-Mobile lost $94 million on revenue of $7.4 billion. The revenue is not nearly enough to make it a major player in the American market.

Because Deutsche Telekom owns two-thirds of T-Mobile’s shares, the U.S. company’s fate is completely with the German parent, which does not expect T-Mobile to ever compete with its larger rivals.

In an interview posted at tech site re/code:

Longer term, Hoettges admitted that T-Mobile’s current approach is not sustainable, especially given the need to invest between $4 billion and $5 billion each year just to keep up.

He hints that Deutsche Telekom does not believe T-Mobile is worth owning:

“The question is always the economics in the long term … and earning appropriate money,” Hoettges said. “You have to earn your money back at one point in time.”

So what happens to T-Mobile, since AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) continue to dwarf it and will keep it unprofitable? One possibility is a merger, although the government effectively has blocked a combination with Sprint Corp. (NYSE: S). The other is to try to dump it. Given T-Mobile’s results, that is unlikely, even if Deutsche Telekom sold its shares in a public offering. Investors do not want to own a company abandoned by its parent because of the cost of it remaining competitive.

T-Mobile continues to boast about its subscriber additions, and the growth is impressive. However, it is not impressive enough to overcome the costs of maintaining a multibillion infrastructure, which it has no chance to improve much without the investment of its parent.

T-Mobile eventually will be orphaned without any relationship to keep it viable. At that point, all that will be left is to decide what happens to its assets, if they are even worth an investment.

ALSO READ: The Bullish and Bearish Case for Verizon in 2015

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