Deutsche Telekom to Buy U.S. Mobile Networks
May 25, 2004
Deutsche Telekom, Europe's largest phone company, said it would buy Cingular's networks in California and Nevada to strengthen its position in the rapidly growing American market. The acquisition will end an agreement with Cingular which allowed both companies to use the other's networks.
"We are certain that this investment will accelerate the long-term profitable growth of our U.S. mobile business," Deutsche Telekom CEO Kai-Uwe Ricke said.
Deutsche Telekom said the deal was made possible by Cingular's impending purchase of AT&T Wireless which will increase the company's nationwide network capacity. Telekom will pay Cingular $2.3 billion (€1.9 billion) and will subtract $200 million for ending the network-sharing venture. The payments will be made in early 2005. The Bonn-based Telekom expects to earn "at least $1.2 billion" from Cingular over the next four years as it continues the network for its California and Nevada mobile traffic.
Telekom said it will also spend $180 million for the wireless spectrum to increase its capacities in various American cities.
No more debt reduction?
The purchases end a phase of thrifty cost-cutting for the German company and the Cingular deal will be the largest acquisition under Ricke's stewardship since he took over in 2002. His savings measures have allowed the firm to lower its debt levels from €60 billion to around €44 billion. Chief Financial Officer Karl-Gerhard Eick said he didn't expect the new acquisitions to hurt Deutsche Telekom's credit rating.
"They need access to these areas because the U.S. is what's driving growth," Friedrich Diel, a fund manager at Frankfurt Trust Investment in Frankfurt, told Bloomberg News. "The investment makes sense."
Deutsche Telekom began delving into the American market in 2001 when it took over VoiceStream Wireless for $35 billion. Its U.S. operations have since become Telekom's fastest-growing unit. The company has pegged its hopes on the potential for further expansion, saying that whereas 80 percent of the population in Europe already has mobile phones, only 55 percent in the United States does.
Telekom said it expected its number of U.S. customers to increase to 16 million by the end of the year from 14.3 million currently. In ten years it hopes to double that figure to around 35 million customers.