Business Watch


And the Deutsche Telekom chief executive signalled he is still on the look-out for acquisitions in mobile.

Speaking for the first time in Britain since he was promoted to the helm at T-Mobile’s German parent company, Obermann said that UK regulator Ofcom should allow the number of UK network owners to fall below the current five.

Despite various rumours of rivals eyeing up 3, consolidation among mobile networks has yet to happen in the UK, or in most other European countries, putting the continent far behind the US and much of Asia.

Obermann insisted he has no immediate bid plans at present, but consolidation was inevitable as the industry sought to cut costs and cope with fierce competition.

“There may be further future opportunities in mobile,” he said. “But we will pursue them only if they meet strict financial criteria and they make strategic sense. In the long run I believe mobile will be driven more and more by scale – national and international.”

Standing in the way of that, however, are some of Europe’s regulators, he said, pointing to the regulatory struggle over his company’s last major deal.

Last year Deutsche Telekom announced the £885 million acquisition of Austria’s Tele.ring. It was the fourth largest of five operators, in a market of just 18 million, with T-Mobile’s existing business in second place. “To me that was a completely logical and sensible move and yet it took nine months to get it through,” he said.

“All the regulators should have an interest in securing very strong, high-quality, fast-access networks, be it in mobile or fixed-line, because that is what makes Europe more competitive globally.”

The regulators must have been listening, because since Obermann spoke last week, Dutch regulators waved through Deutsche Telekom’s rumoured £883 million offer for France Telecom’s operations in the Netherlands.

Orange Netherlands is the fourth largest mobile operator in the market, with 1.9 million customers and 600,000 broadband users. T-Mobile’s Dutch business already has 2.5 million customers.

Nevertheless, a big merger, such as Vodafone or T-Mobile trying to buy 3 UK, would trigger a lengthy competition test by regulators. That is because mobile licences were awarded on the basis that no operator could own more than one 2G and one 3G licence. “Regulators should accept there is a need to make more efficient use of capital, for both economic and ecological reasons,” said Obermann, referring to the environmental impact of mobile masts.

Analysts estimate that Deutsche Telekom could spend up to £13.5 billion expanding in mobile and stay within its financial targets, although it could spend a lot more if it bought a profitable network.

But Obermann is unlikely to follow the lead of Vodafone chief Arun Sarin, who has spent billions scooping up assets in emerging markets such as India. Instead, he is keen to expand in “adjacent territories”, which could mean further moves into central Europe.

Of even more interest to him, however, is “intra-country consolidation”, because, he says, “you can easily integrate and leverage the scale benefits” of handset and infrastructure procurement and network management.

He reckons prices would come down for consumers too, at the same time as allowing Europe to compete better with other economies. “If you think how fragmented the European market is, compared with the US, which has four networks, there are about 25 to 30 operators in Europe and 70 or so individual networks.”

But before you expect T-Mobile to start launching bids for its rivals left, right and centre, I should point out that Obermann also said “consolidation” did not have to mean “merger”. It could also mean changing licence terms to allow 3G licence holders, such as T-Mobile UK, to carry calls made on 2G phones over their 3G network, and vice versa.

Such an approach, which is barred under the terms of the 3G licences awarded in 2000, would allow networks to slash running costs. Sarin has called for similar changes in the past.

Meanwhile, Obermann signalled a fresh assault on staff costs. He warned that the company’s domestic fixed-line phone business would continue to see revenue fall, saying: “We have no choice but to get our efficiency up, get our costs down.”

As many T-Mobile staff will know to their frustration, Deutsche Telekom shares have underperformed the FTSE European telecoms index by almost 30 per cent over the past three years, partly because investors think its cost base is too high.

While rivals BT and O2 parent Telefónica have been thriving, Deutsche Telekom has put out two profit warnings in the past year.

Obermann’s predecessor, Kai-Uwe Ricke, cut 32,000 jobs in Germany, mainly in fixed-line. My guess is it will not be the last round of cuts.