Deutsche Telekom is to buy two US mobile networks.
Under terms of the deal, T-Mobile USA will pay $2.5 billion for Cingular’s GSM network in California and Nevada to strengthen its position in the rapidly growing American market. The move terminates a network-sharing joint venture established in 2001, which gave T-Mobile USA access to California and Nevada, and Cingular a gateway into New York.
The two companies will also exchange some spectrum in New York and California. T-Mobile USA will pay Cingular an additional $180 million for spectrum in San Francisco, Sacramento and Las Vegas, with an option to buy more in San Diego and Los Angeles. T-Mobile USA will get $200 million for unwinding the Cingular venture. The transaction is expected to close at the start of 2005.
The deal has been made possible by Cingular’s $41 billion purchase of AT&T Wireless. This acquisition is expected to be approved later this year, and this could have left T-Mobile USA without a network in California, the world’s fifth-largest economy. Building a replacement network would have taken time, cost money, and caused disruption for T-Mobile USA’s client base.
The acquisition now means T-Mobile USA will gain full control of key networks in the US, where only 55% of people have mobile phones, compared with 80% in Europe.
Meanwhile, chief financial officer Karl-Gerhard Eick said Deutsche Telekom will save $1.1 billion in investment through the deal, helping to cushion the overall price. And T-Mobile USA will reap a minimum of $1.2 billion in revenue by selling network capacity to Cingular over four years. That equates to $800 million in earnings before interest, taxes, depreciation and amortization.
Deutsche Telekom gained a foothold in the United States by acquiring VoiceStream (now T-Mobile USA) for $47.2 billion in May 2001. Many investors were appalled at the price, but T-Mobile USA has since become the principal growth driver for Europe’s biggest telecoms carrier.
