T-Mobile US/Altice tie-up provides attractive exit option for Deutsche Telecom, sources say
Altice’s [AMS:ATCT] entry into the US cable market presents Deutsche Telekom [ETR:DTE] with a highly attractive exit option for T-Mobile US in the medium to long term, three sources familiar with the situation said.
Altice’s purchase of Suddenlink Communications in May and CableVision [NYSE:CVC] earlier this month has sparked market chatter about an eventual tie-up between these assets and DT-controlled T-Mobile US, the sources said.
Such a combination is seen as preferable to those explored last year, they added. French operator Iliad [EPA:ILD] offered USD 15bn in cash for 56.6% of T-Mobile US in July 2014. Dish [NASDAQ:DISH], Cox Communications and Charter Communications [NASDAQ:CHTR] were also rumoured to be considering investing in the asset.
A deal between US wireless provider Sprint [NYSE:S] and T-Mobile US has long been speculated about, but mobile-mobile deals can be ruled out for antitrust reasons for the time being, it was said separately.
DT is still viewed as a seller but is seen as being potentially demanding on price, one of the sources familiar said. Approaches last year undervalued the company, and since then the US unit's performance has improved to the extent that it has overtaken Sprint to become the third-largest US carrier, the source added.
However, DT will need to invest heavily in the business, starting with spectrum licences in an upcoming auction. It is also exposed to risks associated with being a mobile-only business in an increasingly converged market, this source and another source familiar said.
Altice’s presence in the US immediately makes it a more attractive buyer than Iliad, which does not own any US assets. Altice would place a higher value on T-Mobile US than Iliad due to the synergies it would derive, the three sources said. It was also said to be less likely to be put off by high valuations and more able to justify costly purchases.
The company has a history of tying up cable and mobile business and extracting value from the combinations, as it did with SFR-Numericable, it was said.
The fit between CableVision, Suddenlink and T-Mobile US would allow for greater synergies than T-Mobile US/Dish, the three sources said.
Fixed and mobile services make a natural bundle, while Dish’s satellite offering would fit less well with T-Mobile’s, it was said.
Altice’s additional expected cable acquisitions in the US will further facilitate a deal, the three sources said. The company is expected to broaden its cable coverage before looking for wireless assets, they said. Cox Communications, for example, would help Altice achieve nationwide coverage.
Nationwide coverage should be achieved before Altice makes a wireless acquisition, it was said.
Altice CEO, Dexter Goei, said Altice will take a break from large-scale acquisitions to focus on cutting costs and integrating its newly purchased assets, according to a newswire report. But if Cox Communications was for sale, or under threat from another bidder, Altice would make an exception, it was said.
Meanwhile, Deutsche Telekom is making smaller changes to tidy up its European business. For example, the company is still working on making its IT services division, T-Systems, more efficient, one of the sources said. It is not seen as a perfect fit with the rest of DT, but a sale is not imminent, the source said.
DT’s Dutch and Austrian assets could also be divested as part of the tidy-up, an analyst said. Liberty Global is a potential buyer of T-Mobile Netherlands, according to reports.
Altice and DT both declined to comment.