Deutsche Telekom Talks Breakup Fee, Silent on “Plan B” For US Branch

In light of the collapse of its failed T-Mobile USA deal with AT&T, Deutsche Telekom isn’t offering any details on howit plans on moving forward with its US branch. However, Chief Executive Rene Obermann did speak to reporters on a conference call discussing the need for more spectrum:

“In the long term, we need more spectrum and network capacity. We are working on that. But we will not speculate about any inorganic steps or deals,” Deutsche Telekom Chief Executive Rene Obermann told reporters during a conference call.

Deutsche Telekom went all in with AT&T and now that it is walking away with a $4 billion dollar break up fee, a lot of time has been lost and DT will either have to reinvest in the market or discover another way to exit the US market. In the meantime, Deutsche Telekom missed out on potential spectrum sales and partners as Verizon gobbled up compatible spectrum from Time Warner Cable, Comcast and Bright House Networks.

As part of the breakup fee, Deutsche Telekom will receive mobile spectrum in 12 of the top 20 cities (Los Angeles, Dallas, Houston, Atlanta, Washington, Boston, San Francisco, Phoenix, San Diego, Denver, Baltimore and Seattle) adding up to 128 markets in total as well getting as a new seven-year roaming agreement with AT&T that will include access to 3G/4G WCDMA. This new roaming agreement will increase T-Mobile’s population coverage from 230 million potential customers to a new total of 280 million. As a result, T-Mobile’s coverage will be extended in a number of areas where it did not previously have its own high-speed network or access to any roaming agreements.

That spectrum will help T-Mobile in the short-term, but Deutsche Telekom agrees it is putting a band-aid on a broken leg.

“In the long term, we have disadvantages in scale and spectrum. In the coming months, we will think about how to have LTE (wireless network technology) offers despite scarce spectrum,” Obermann said.

Deutsche Telekom’s own press statement released yesterday indicates the $3 billion cash portion of the breakup will go directly to reducing their net debt.

Reuters, Deutsche Telekom



Deutsche Telekom press release:

AT&T and Deutsche Telekom terminate agreement on the sale of T-Mobile USA

  • Deutsche Telekom receives record high break-up fee
  • AT&T will pay Deutsche Telekom USD 3 billion in cash
  • T-Mobile USA will receive a large package of Advanced Wireless Solutions (AWS) spectrum and long-term national UMTS roaming agreement
  • Deutsche Telekom’s guidance and planned dividend policy remain unchanged


U.S. telecommunications company AT&T Inc. and Deutsche Telekom have terminated the agreement on the sale of T-Mobile USA to AT&T. As a result, AT&T will pay Deutsche Telekom the break-up fee agreed in the contract signed by both companies dated March 20, 2011. This is one of the highest payments ever agreed between two companies for the termination of a purchase agreement. It includes a cash payment of USD 3 billion to Deutsche Telekom, which is expected to be made by the end of this year. In addition, it contains a large package of mobile communications spectrum and a long-term agreement on UMTS roaming within the U.S. for T-Mobile USA. Both companies are in agreement that the broad opposition by the U.S. Department of Justice (DoJ) and the U.S. telecommunications regulator (FCC) is making it increasingly unlikely that the transaction will close. Both companies are of the opinion that important arguments in support of the transaction have been ignored, such as the significant improvement in high-speed mobile network coverage for the U.S. market, as well as the positive employment effects. In addition there was no indication that either authority would move away from it’s non-supportive stance in return for concessions from the parties in terms of the scope and structure of the transaction.

As part of the break-up fee, T-Mobile USA will receive a large package of AWS mobile spectrum in 128 Cellular Market Areas (CMAs), including 12 of the top 20 markets (Los Angeles, Dallas, Houston, Atlanta, Washington, Boston, San Francisco, Phoenix, San Diego, Denver, Baltimore and Seattle).

The UMTS roaming agreement for the U.S. in T-Mobile USA’s favor has a term of over seven years and will allow the company to improve its footprint significantly among the U.S. population and offer its customers better broadband coverage for mobile communications services in the future. Population coverage will increase from 230 million potential customers at present to 280 million. As a result of the agreement with AT&T, coverage will be extended to many regions of the U.S. in which T-Mobile USA previously had neither its own high-speed mobile communications network nor the associated roaming agreements.

The termination of the agreement means Deutsche Telekom will go back to reporting T-Mobile USA as continuing operations in future. Deutsche Telekom’s guidance for the 2011 financial year remains unchanged as a result of this development, with adjusted EBITDA of around EUR 19.1 billion expected. At EUR 6.5 billion, free cash flow is forecasted to remain at the prior-year level or increase slightly. The guidance includes the T-Mobile USA contribution based on the average exchange rate in 2010 of USD 1.33 per euro. The free cash flow forecast does not include the settlement payment of EUR 0.4 billion relating to PTC in Poland or the cash payment of USD 3 billion from the break-up fee to be paid by AT&T.

Deutsche Telekom’s dividend policy also remains unchanged. The annual dividend payments are subject to the necessary board resolutions and other legal requirements.

Even following the termination of the agreement with AT&T, Deutsche Telekom expects to remain within the communicated ranges for certain financial performance indicators used to assess the financial performance of the company. These are as follows: The ratio of net debt to adjusted EBITDA of the Group is to be between 2 and 2.5, the equity ratio is to be between 25 percent and 35 percent, gearing (ratio of net debt to shareholders’ equity) between 0.8 and 1.2, and liquidity reserves is to cover maturities of at least the next 24 months.

The cash component of the break-up fee directly reduces Deutsche Telekom’s net debt, thereby by strengthening the financial performance indicators affecting the company’s rating.

Deutsche Telekom would like to express its gratitude to AT&T and to Randall Stephenson and his team for the positive cooperation over the past few months. Our working relationship was characterized by fairness and respect at all times.


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