T-Mobile CEO, Deutsche Telekom bicker over finances

The real concern is what happens if Deutsche Telekom drops T-Mobile: Could the U.S. end up with only three national carriers?

T-Mobile CEO John  Legere
Steve Marcus/ Reuters

Outspoken T-Mobile CEO John Legere on Tuesday used Twitter to again slam recent opinions that his company's financial future is unsustainable, given the billions of dollars needed to buy more wireless spectrum to compete with AT&T and Verizon Wireless.

Legere tweeted that one such article in Ars Technica was "total [nonsense]" and another article in Gizmodo was "terrible," even though the origins of T-Mobile's lack of sustainability derived from comments made by Deutsche Telekom CEO Tim Hoettges in an interview with Re/code posted Monday. Deutsche Telekom is the parent company of T-Mobile.

In the Re/code piece, Hoettges was never quoted using the word "unsustainable" to describe T-Mobile. However, the article paraphrased him this way: "Longer term, Hoettges admitted that T-Mobile's current approach is not sustainable ..." Then Hoettges says in quotation marks, "The question is always the economics in the long term ... and earning appropriate money. You have to earn your money back at one point in time."

However one interprets Hoettges' comments, Deustche Telekom owns 72% of T-Mobile and for the past five years has been seeking a buyer for its share. In December, Legere dismissed a Computerworld question during a conference call about Deustche Telekom's role in financial decisions at T-Mobile by saying, "They are an owner. I have a very scalable and funded business, and if they are a shareholder that wants to leave, I'm fine."

The irony of Hoettges' recent comment is that T-Mobile went into the black by more than $200 million in the most recent quarter despite its many costly customer promotions, including a $350 bonus to new customers who switch carriers, noted Roger Entner, an analyst at Recon Analytics. "Legere's offering lower prices than everybody else and then his boss [Hoettges] contradicts him," Entner said. "You can't shovel money out the window and then complain. Legere's the corporate reincarnation of an Internet troll."

What matters most in the way Hoettges and Legere regard each other and their financial decisions is how it will affect the overall U.S. wireless market. Federal Communications Commission officials said they prefer keeping T-Mobile and Sprint separate, despite efforts last year to merge them, in order to have four nationwide carriers in place: Verizon, AT&T, Sprint and T-Mobile.

If Deutsche Telekom gradually sells off shares in coming quarters to rid itself of T-Mobile, maybe the carrier can survive. Still it is unclear how the U.S. can keep four national carriers in place.

“The question remains how Deutsche Telekom will get its huge investment in T-Mobile back” said Jack Gold, an analyst at J. Gold Associates. “If they just drop them, it’s a big loss on the books.”

Hoettges' comments don't suggest that a selloff is more imminent than it has been over the past few years. "I don't think Deustche Telekom will sell off shares, and right now T-Mobile is making a net profit," Entner added. "Only when Deustche Telekom comes to the realization that nobody wants to buy T-Mobile, that will be a really bad sign."

What is most important from Hoettges' remarks is the concentration and wealth that both AT&T and Verizon hold, said Bill Menezes, an analyst at Gartner. "If the FCC's concern is maintaining four national U.S. cellular carriers, Softbank/Sprint is not the only path to which T-Mobile can access the wealth and spectrum it needs to grow and remain competitive," Menezes said. "Even though Deutsche Telekom wants to exit its U.S. market investment at some point, Vodafone, American Movil, Dish Network and others clearly have an interest in the U.S. market and one or both of the assets — wealth or spectrum — that Hoettges has tagged as necessities. Sprint is not the only game to play."

Entner said the next U.S. president will decide whether it is important to hold onto four national carriers or allow for three.

"If a Democrat is elected to the White House, we'll have four or more national carriers, and if it's a Republican, we'll probably see three carriers," Entner said. The next president will choose the next chairman of the FCC, as did President Obama in picking Tom Wheeler as FCC chairman.

Copyright © 2015 IDG Communications, Inc.

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