Parent May Be Weighing T-Mobile Sale

Deutsche Telekom has been sounding out institutional investors on whether to sell U.S. mobile operator T-Mobile USA or spend billions of dollars to expand the business, fund managers say.

Deutsche Telekom and T-Mobile USA executives declined to comment on what they called market rumors.

In meetings with managers of major investment funds, Chief Financial Officer Karl-Gerhard Eick and other executives of Europe’s biggest phone carrier reportedly said a decision would be made by the end of the year.

But many investors are skeptical a buyer will emerge and question how the company would replace T-Mobile USA as its fastest-growing unit.

“There were several meetings with Eick in which they were testing what our reaction would be,” said one manager at a major German fund who spoke on the condition of anonymity. The meetings happened in about March, he said.

A manager at another major German fund, who also declined to be named, confirmed that options for the U.S. mobile business were discussed this year.

One option that Eick presented to investors was to sell the fast-growing business -- bought for $40 billion during the peak of the telecom bubble -- while it was still on a good run, signing up subscribers fast and boosting sales and earnings.

The company also could buy permits for third-generation mobile phone services in auctions next year and build a network for such services as streaming music and video calls. Analysts see costs of as much as $10 billion.

Possible buyers would be Britain’s Vodafone Group, the world’s biggest mobile carrier, or cable operators seeking an entry into the mobile phone market, the investors said.

But Vodafone, whose U.S. mobile arm, Verizon Wireless, is a joint venture with Verizon Communications, has repeatedly dismissed the notion. “We would not be interested in the T-Mobile USA assets,” a company spokesman said Sunday.

“Potential buyers of T-Mobile USA do not seem to be forming a queue,” analysts at Credit Suisse First Boston said in a research note last week.

Deutsche Telekom would have to perform a strategic about-face if it sold the business. T-Mobile USA has been among the fastest-growing U.S. providers in recent years, with a more than 30% rise in customers and core earnings growth of nearly 50% in 2004.

T-Mobile USA had $2.85 billion in revenue and more than 18 million customers at the end of the first quarter.

Moreover, it was the sole growth motor of the entire Deutsche Telekom group. With mobile sales in most of Europe slipping, T-Mobile USA is Chief Executive Kai-Uwe Ricke’s brightest star.

“Ricke can kiss goodbye to his goal to be the fastest-growing European integrated telecom operator if he sells T-Mobile USA,” one fund manager said. “There is nothing he could buy that would deliver growth on the same scale.”

After the latest round of consolidation in the U.S. mobile industry, which had six large players this time last year, the number of national operators is expected to drop later this year to four from five.

Analysts say T-Mobile, the smallest of the four operators, will have to prop up spending if it wants to keep pace.

The company must “either commit to this or look to divest itself of the asset at the best price,” said Rich Nespola, CEO of Management Network Group, a consulting firm based in Overland Park, Kan.