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German incumbent reportedly working on deal that would give it control of the combined company.
Instead of looking for a way out of the U.S., Deutsche Telekom is now keen to strengthen its hand by merging its T-Mobile US unit with Sprint, and taking managerial control of the combined company.
German news outlet Handelsblatt (subscription required) cited sources on Tuesday close to Deutsche Telekom’s management board and supervisory board who claimed that it is working on an all-stock transaction.
T-Mobile is also said to be sounding out the U.S. government to determine whether it would object to a tie-up.
Formal talks between U.S. telcos have been forbidden for the past several months under the rules of the recently-concluded 600-MHz spectrum auction. That embargo was lifted at the end of April.
Sprint also held merger talks with T-Mobile in 2014, but strong opposition from the Federal Communications Commission (FCC) and the Department of Justice (DoJ) led to those talks being broken off again.
However, there is a general sense that the government led by president Trump will take a softer stance on consolidation.
Bloomberg reported in May that representatives from Sprint parent Softbank had informal contact with counterparts at Deutsche Telekom, and held preliminary deal talks.
Softbank CEO Masayoshi Son has gone on record as saying that while he believes Sprint can succeed as a standalone company, he is also open to striking a deal. Deutsche Telekom CEO Tim Höttges has said he sees several advantages to consolidation in the U.S.
However, until now it was unclear whether Deutsche Telekom wanted to stay in the U.S. or cash out. Based on this week’s Handelsblatt report, it appears that the German incumbent is keen to scale up in order to mount a bigger challenge to market leaders AT&T and Verizon.
It is also worth considering that Deutsche Telekom might want to hang onto T-Mobile US for the simple fact that it is currently the biggest single driver of group revenue and earnings, offsetting lacklustre performances at its European operating units.
In the most recent quarter, T-Mobile US generated revenue of €8.98 billion and adjusted EBITDA of €2.39 billion. Revenue and adjusted EBITDA in Germany came in at €5.40 billion and €2.07 billion respectively.
