T-Mobile International AG CEO Hamid Akhavan said phone assets in emerging markets such as India and Latin America are overvalued as rivals including Vodafone Group Plc expand outside of Europe.
„A couple of years ago, valuations were at a depressed level but now they are a little bit inflated,” Akhavan, who heads the unit of Deutsche Telekom AG, said in an interview. „I can't say any of these deals will put more pressure on Deutsche Telekom or T-Mobile to be more active. We're not in expansion competition with our peers.” Deutsche Telekom CEO Rene Obermann is under pressure to find growth as sales of traditional phone services in Germany slipped for four years. Transactions in the past week, including India's Hutchison Essar Ltd. and Greece's TIM Hellas Telecommunications SA, underscore a dearth of growth opportunities in Europe's $140 billion mobile-phone market.
„If T-Mobile wants to be a leading international mobile operator, they need an international global portfolio strategy,” said Martin Gutberlet, an analyst at researcher Gartner Inc., in Barcelona. „Vodafone showed that it has a global M&A strategy with the Indian purchase.” In an interview at the 3GSM World Congress in Barcelona, Akhavan didn't comment on possible acquisitions as Deutsche Telekom, Europe's largest phone company, works on a strategy that will be discussed by its supervisory board this month. The most recent wireless asset acquired by the Bonn-based company was smaller Austrian rival Tele.Ring Telekom Service GmbH when Kai-Uwe Ricke was at the helm at Deutsche Telekom. Ricke was ousted in November.
Vodafone, the world's largest wireless company and a T-Mobile rival in markets including Germany and the UK, this week agreed to buy control of Hutchison Essar for $11.1 billion to add a network in the world's fastest-growing major mobile-phone market. Egyptian billionaire Naguib Sawiris last week agreed to acquire Greece's TIM Hellas in a deal valuing the Greek company at €3.4 billion ($4.5 billion). Telefonica SA, Spain's largest phone company, said this week it held „exploratory talks” to buy a stake in the largest shareholder of Telecom Italia SpA. In 1999, Deutsche Telekom, led by Ron Sommer at the time, unsuccessfully tried to buy the Italian phone company. Telefonica last year completed its purchase of O2 Plc, the UK mobile-phone company Deutsche Telekom had tried to buy through a partnership with Dutch operator Royal KPN NV.
Deutsche Telekom, which has wireless operations in 11 European countries as well as the US, may look at „consolidating” operators in western Europe to reduce competition and costs, Gartner's Gutberlet said. Almost everyone in the region has a handset. Cutting costs is necessary for T-Mobile, which in November reported a second consecutive quarterly decline in operating profit as customers additions in Germany and the UK, its two largest markets in Europe, missed estimates. Under the „Save for Growth” program, T-Mobile cut costs by more than €1.6 billion last year, exceeding the company's target for €1 billion, Akhavan said. T-Mobile Germany, which with 31 million customers is the company's largest market by customers, reported a Q4 sales decline of 8.1%, according to preliminary numbers released last month. The decline will continue in 2007 because of price cuts by discounters such as KPN's E-Plus unit and fee reductions enforced by regulators, Akhavan said.
„2007 will not be a year of growth in Germany,” he said. „2007 will be a year to make additional investments into existing base, develop the brand for T-Mobile, to position ourselves more attractive towards the younger segment.” T-Mobile International expects revenue from data services such as e-mail and music downloads to increase about 50% this year from €1 billion last year, Akhavan said. Deutsche Telekom on January 28 cut its forecast for 2007 adjusted earnings before interest, tax, depreciation and amortization by as much as €1.2 billion to €19 billion as competition intensifies and the dollar's decline against the euro erodes US revenue. T-Mobile Germany and T-Mobile USA each accounts for €200 million of the cut. T-Mobile USA, the fourth-largest wireless operator in the country, plans to spend €2.1 billion on a high-speed network that allows services such as video and game downloads. The unit has been adding fewer customers than rivals Cingular Wireless LLC and Verizon Wireless, partly because of a lack of wireless spectrum.
The first phase of the network in New York is already completed, said Neville Ray, who is responsible for engineering at T-Mobile USA, yesterday. T-Mobile USA plans to start service towards the end of 2007, Akhavan said in the interview. The company said in October that service start would start as early as the summer. The US unit had 25 million subscribers at the end of 2006 and targets to boost the count to as many as 40 million by 2015. „There are still a few years of growth left in the United States for the existing services,” he said. „We've already begun investing in applications in new trends such as social networking MySpace and new products. We're not going to rely on just subscriber growth forever.” In Europe, T-Mobile will consider offering so-called bundled fixed-line and wireless packages in markets outside of Germany, where parent Deutsche Telekom is offering such services. In the UK, NTL Inc. already offers combined TV, Internet and phone services. „We'll be opportunistic and look at each market where we don't have landline and see if it makes sense for us to bundle or resale part of the landline services,” Akhavan said. „It's not guaranteed or obvious that fixed-mobile convergence is the recipe for success.” (Bloomberg)