OREANDA-NEWS. October 12, 2012. The merger of T-Mobile USA and MetroPCS aims to position T-Mobile as the most important challenger on the US market. Tim Hottges explains the benefits of the deal and why Deutsche Telekom has to adjust its figures by up to seven or eight billion euros.

Mr Hottges, are you currently experiencing an emotional rollercoaster on the US market?

Tim Hottges: Every big deal has its emotions because there are risks and opportunities. Of course I feel that, too. We can take a big step forward on the US market thanks to our merger with MetroPCS.

Why does the transaction with MetroPCS make sense?

Tim Hottges: T-Mobile USA will receive more than nine million additional customers, as well as valuable spectrum. We will be able to offer a better quality of network in many urban areas. The deal also gives a huge boost to our expansion of the LTE network, and we will get much more traffic on our network as a result of the increase in customers. All this means that this merger will bring huge cost synergies. If you valued those cost synergies as if they were already now in force they would have a cash value of six to seven billion dollars: And that’s without including revenue synergies.

But the companies use different technologies. Doesn’t that create problems?

Tim Hottges: On the contrary. Once the transaction is complete we will bring MetroPCS customers into the T-Mobile USA network very quickly. Every Metro customer who changes their cell phone – which is around 60 percent of customers per year – will receive a device that operates on the T-Mobile network. That brings the customer immediate advantages, for example, when they travel abroad. Unlike the situation when Sprint and Nextel merged in the USA a few years ago, our customers will have benefits instead of restrictions. Sprint could no longer provide some of the services that Nextel customers had received before the merger. This will not be the experience for Metro customers on the T-Mobile network. The Metro network will quickly become obsolete and communications sites will be dismantled, which all brings huge savings. The company can then reuse the spectrum that is freed up – for the expansion of the LTE.

What are the benefits for Deutsche Telekom?

Tim Hottges: After the transaction, we will own 74 percent of an extremely promising company on the US market. The opportunities for growth and synergies are enormous. We also preserve a great deal of liquidity throughout the entire transaction, because we can bring an increase in capital against contributions in kind to T-Mobile in this way.

But some sources suggest that Deutsche Telekom faces losses into the billions this year because of this deal?

Tim Hottges: The Board of Management and the Supervisory Board approved the transaction because it offers an extremely solid increase in value and makes good business sense. We’re developing T-Mobile USA further and taking on the market leaders. Paradoxically, we have to make an adjustment to our figures for the third quarter of 2012, in line with the statutory requirements of the International Financial Reporting Standards (IFRS). We had already estimated this to be in the region of seven to eight billion euros when we announced the transaction.

That’s a huge amount…

Tim Hottges: … but this effect is just an accounting practice. No money actually changes hands. Furthermore, the IFRS rules ignore the logic of the transaction. Together, our business will significantly increase in value thanks to synergies and an improved market presence. However, the IFRS accounting practices are based on the price of MetroPCS shares before the announcement of the transaction. The bigger, stronger, merged company is therefore valued on the basis of the share price of the smaller company, without taking into account the benefits of the transaction.

Is that difficult to explain to the average person?

Tim Hottges: We have a great opportunity to massively increase the value of our business. That is true, regardless of statutory accounting practices. So be it: When this transaction is complete, Deutsche Telekom will be able to draw on extremely high hidden reserves.

And if Sprint now throws a spanner in the works by making a counter offer?

Tim Hottges: We maintain that our offer is very attractive. That’s how things stand right now.