The rumor around the campfire is that Deutsche Telekom, the incumbent telco in Germany and operators of one of the largest wireless operations in Europe and the United States is mulling a sale of T-Mobile USA. Here is the report from Reuters.
The cost of upgrading the T-Mobile USA network to support next generation data technologies is evidently the sticking point for Deutsche Telekom. Unnamed analysts referenced in the Reuters piece indicate that an upgrade to third generation wireless technologies (UMTS, I presume they mean) would cost approximately $10 billion. This price tag sounds a bit high to me.
According to one piece Ive read, Vodafone are not considering making a bid for T-Mobile USA. Vodafone are 45 percent partners in Verizon Wireless. The heartbreak for Vodafone has always been around the issues of brand and technology. On the brand front, Vodafone have worked very hard in their European markets to build a leading telecommunications brand. On the technology front, Verizon Wireless run their network using CDMA, which is not compatible with the GSM network which predominates in Europe. This puts Vodafone in a tough spot, not even able to leverage their US property for the benefit of their European customers roaming in the United States. They must lease roaming capacity from GSM carriers Cingular and T-Mobile USA and cede back significant lucrative roaming revenue to those carriers. Verizon have indicated several times a willingness (nay, enthusiasm) to buy Vodafones stake in Verizon Wireless, and put options have come and gone for Vodafones stake.
It remains to be seen who could make an offer for T-Mobile USA. If the executives and Vodafone truly are not interested, it may not be a carrier, but rather a set of wealthy investors, that make the bid for T-Mobile USA. With Cingulars acquisition of AT&T Wireless and Sprints pending merger with Nextel, the wireless market is well consolidated with four major wireless carriers.
| Carrier |
Market Share
By Revenue |
| Verizon Wireless | 24 percent |
| Cingular + AT&T Wireless | 31 percent |
| Sprint PCS + Nextel | 20 percent |
| T-Mobile USA | 7 percent |
| ALLTEL | 5 percent |
| Cellular One | 2 percent |
| Other | 11 percent |
These unsubstantiated figures come from TNS Telecom 1Q 2004 report linked here. I have modified the numbers in the report to reflect completed and pending acquisitions. Also please note that market shares have shifted since 1Q 2004, with a general recognition that Verizon Wireless have gained market share since the completion of the Cingular acquisition of AT&T Wireless. Here is a Forbes story on that shift. For the record this is market research on the fast and cheap.
When one looks at those numbers, it is difficult to see any room for an outright acquisition based on likely objections to a market that is seen to be too rapidly consolidating.
One possible scenario I would like to posit, as a purely speculative possibility, is that Vodafone would sell their stake in Verizon Wireless and purchase half of T-Mobile USAs infrastructure, creating a GSM infrastructure joint venture. Vodafone and T-Mobile would then effectively become mobile virtual network operators (MVNOs) on the new joint venture network. This would infuse sufficient cash to allow the third generation investments to take place and give Vodafone the freedom to enable roaming and establish their brand in the United States. This could work so long as the immediate technical way forward was agreed and capital investment agreements put in place.
