Deutsche Telekom: Victim of a Change of Course

Deutsche Telekom is the first firm to feel the strict anti-trust regulation of the U.S. government; therefore, the firm continues to remain a niche supplier.

U.S. President Barack Obama had once promised to bring an end to the laissez-faire of his predecessor, George W. Bush; however, in anti-trust questions, the government shied away from interventions. One did not want to be considered all too regulation-happy. Several mergers between airlines like that between United Airlines and Continental were sanctioned, although the providers systematically pushed through higher prices.

Now Deutsche Telekom has apparently become the first victim of a change of course. The U.S. Justice Department has reportedly announced that they will raise an objection to the planned sale of the American mobile telephone branch of T-Mobile to its competitor AT&T. “The combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for their mobile wireless services,” said Deputy Attorney General Jim Cole. AT&T is behind Vodaphone, ranking number two in the U.S. mobile communications market, T-Mobile is at number four. The combined companies would have become top of the sector. The merger would have brought Telekom proceeds of $39 billion (€27 billion).

Impact on Consumers Debatable

But in light of roughly 300 million American cellular communications users who often complain about poor service and high prices in the market divided among two large and two smaller players, the course of action is popular. “This announcement is something for consumers to celebrate,” said consumer advocate Paul [sic] Desai. AT&T and Vodaphone would otherwise split 90 percent of the market between them. AT&T argues on the other hand, for example, that the coalition would make better access to faster data transfer possible for many customers. Given its own lobbying in Washington, AT&T apparently had so little doubt in the approval that it entered into an expensive deal in case of failure. Three billion dollars in cash and a further $3 billion in access to its own network could be brokered by Telekom CEO René Obermann in case the agreement fails. The expensive clause also means that AT&T will do its utmost to salvage the merger. The initial situation looks different for Telekom, however, because there are alternatives. Sprint-Nextel, the number three, could, for example, have designs on T-Mobile.

U.S. Customers Run Away from T-Mobile

T-Mobile is only a niche supplier in the U.S., which falters in network coverage and data transfer. Its bargaining position with manufacturers of cellphones is also weak. It is as yet unclear whether the firm will be able to offer the newest iPhone in the U.S. this fall, as all its competitors are doing. Because of that, customers are also running from T-Mobile. In 2010, the provider lost 56,000 of its nearly 34 million users.

This year that number totals almost 150,000 so far. To compensate for its weakness in network coverage, T-Mobile had to lure with low prices — which now ironically serves as an argument against the merger. “It has also been an important source of price competition in the industry,” thus said a spokesperson for the U.S. Justice Department.

For Telekom this means that there is no money to be earned for many years. It is questionable whether T-Mobile can hang on for an eternally long legal procedure. In the past, even mere threats of anti-trust objections led to an end for planned mergers.