T-Mobile owner eyes Sprint takeover after Orange deal

T-Mobile owner Deutsche Telekom is considering a bid for US mobile operator Sprint Nextel just days after announcing a tie-up between its UK arm and France Telecom’s Orange.Sources tell The Daily Telegraph that Deutsche Telekom could make a bid for Sprint, which is valued at USD10.6bn, as early as next week. It is reportedly hiring Deutsche Bank to investigate the possibility of acquiring its US competitor. 

Deutsche Telekom’s US and UK operations have struggled in recent years and a massive writedown against its British business earlier this year led the group to record a USD1.1bn loss for the first quarter of 2009. New CEO Rene Obermann has promised to turn around the two divisions after warning that both are vulnerable in two of the world’s most competitive mobile markets. 

A deal merging Sprint with T-Mobile US would mirror the UK deal in taking Deutsche Telekom from outsider to major player. T-Mobile is currently the fourth-largest operator in both markets, and is seeking to join forces with its third-placed rivals to compete better with the dominant providers. However, while the combined Orange/T-Mobile group will be the UK's biggest provider, acquiring Sprint would provide a total US user base roughly equal to second-placed AT&T, which has more than 78m customers. 

The Telegraph reports that Deutsche Telekom is likely to need to turn to shareholders to finance the deal, including the German government, which holds a 32% stake in the firm. Sprint has USD20bn in outstanding debts, which may reduce the appeal of a deal for investors. 

Deutsche Telekom is also likely to face difficulties integrating its services with Sprint as T-Mobile US runs on the GSM standard, while Sprint operates on iDen and CDMA. However, a merger may become more feasible as next- generation infrastructure is introduced in the US over the next couple of years.