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Deutsche Telekom willing to keep stake in T-Mobile-Sprint tie-up

By Nicola Leske and Harro Ten Wolde

BANGALORE/FRANKFURT, May 29, (Reuters) - Germany’s Deutsche Telekom AG is willing to keep a minority stake in a deal to sell T-Mobile US Inc to Japan’s Softbank Corp, but other details such as price and financing remain to be worked out, according to sources familiar with the situation.

Softbank owns a majority of Sprint Corp S.N, the third largest U.S. wireless carrier. Deutsche Telekom owns 67 percent of T-Mobile, which has a market value of $27.6 billion and is the fourth-largest U.S. wireless carrier.

Earlier on Thursday, Kyodo news agency reported that Deutsche Telekom had agreed to a Softbank plan to buy T-Mobile.

But sources familiar with the talks told Reuters that while the two sides are keen to get a deal done, a transaction was complicated, including the issue of getting regulatory approval - it would reduce the number of major U.S. mobile competitors to three from four. The sources said no decision was imminent.

Representatives for Deutsche Telekom and Sprint declined to comment. T-Mobile US was not immediately available for comment.

Softbank Chairman Masayoshi Son has long been eager to buy T-Mobile to merge it with Sprint, so that the new company can better compete with market leaders AT&T Inc T.N and Verizon Communications VZ.N. Son has said that AT&T and Verizon have a virtual oligopoly, leading to slower broadband speeds for consumers. He has said a Sprint-T-Mobile combination would create a player with enough money to make massive network upgrades and shake up the market with new services.

Two weeks ago, Deutsche Telekom Chief Executive Timotheus Hoettges said he was open to any consolidation in the U.S. telecoms market. An exit from the U.S. would allow the German group to invest more in upgrading its network in its home market, as well as beef up its operations across Eastern Europe.

But the U.S. Federal Communications Commission chairman and the U.S. Justice Department chief have repeatedly raised concerns about such a tie-up, including the risk that it could lead to higher prices for consumers. U.S. regulators previously rejected AT&T's $39 billion takeover bid for T-Mobile US in 2011.

As a break-up fee from the failed deal, AT&T gave T-Mobile a chunk of cash and mobile spectrum, which rejuvenated T-Mobile and allowed it to start winning customers again. Regulators say T-Mobile's recent success shows that the market can sustain four companies.

DEAL TERMS

Sources familiar with the Softbank-Deutsche Telekom talks said any deal would depend on whether they can persuade regulators to change their minds.

The two sides have been chipping away at other issues.

One possibility is for Deutsche Telekom to retain a roughly 15 percent in T-Mobile US as part of a deal, the sources said. That would help reduce the size of the equity check that Sprint has to write for T-Mobile US, while giving Deutsche Telekom the chance to benefit from potential synergies from the merger, they said.

Deutsche Telekom may also be more accommodating with Softbank regarding a break-up fee than it was with AT&T, the sources said. That is because T-Mobile is likely to be the surviving brand and its CEO, John Legere, is likely to lead the new combined company, thus avoiding a loss of subscribers and momentum it had to contend with during the drawn out regulatory process with AT&T, two of the sources said.

Earlier this month, a source told Reuters that Sprint was also meeting with banks to work out funding for its bid for smaller rival T-Mobile US, carrying an estimated $50 billion price tag.

One event that will drive a decision is the looming spectrum auction in the United States, which is expected to happen in the first half of 2015, one source familiar with Deutsche Telekom's thinking said.

The auction offers carriers a chance to buy access to airwaves that are valued for their strength and reach. But the rules for the sale are dependent on the current competitive landscape, and if Sprint and T-Mobile were to combine, the FCC would have to rework them.

Deutsche Telekom shares were down 0.3 percent, while T-Mobile US shares were up 0.7 percent and Sprint's shares gained 1.7 percent.

(Additional reporting by Sruthi Ramakrishnan in Bangalore, Peter Maushagen and Christoph Steitz in Frankfurt, Leila Abboud in Paris and Soyoung Kim in New York; Editing by Sophie Walker and Grant McCool)

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