TEXT-Fitch says Deutsche Telekom results add to U.S. market share concern
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TEXT-Fitch says Deutsche Telekom results add to U.S. market share concern

www.reuters.com   | 24.02.2012.

(The following statement was released by the rating agency)
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Feb 24 - Rising customer defections from Deutsche Telekom's T-Mobile USA arm reinforce our concerns about the division's low market share and underline the importance of a successful Long-Term Evolution (LTE) network rollout following the collapse of its planned sale to AT&T. Deutsche Telekom's results show the T-Mobile USA unit lost around 1.65 million contract customers in 2011, with nearly half of the defections coming in the final quarter of the year. While this acceleration was partly due to the launch of the iPhone 4S by rival networks, we believe the trend will not be easy to reverse. Reasonably strong growth in prepay customers helped limit the net drop in total customers to 549,000, but will do less to compensate for lost contract revenue, as average revenue per prepay user is less than half the equivalent figure for contract customers. This falling market share increases the unit's sub-scale disadvantage and weighs on margins due to the need to keep up with larger rivals in terms of network coverage, retail outlets and marketing. It also highlights the importance of a migration to LTE technology to prevent it falling behind peers. Planning for the now-abandoned takeover by AT&T effectively prevented management from making any significant strategic decisions for almost a year. The spectrum and cash T-Mobile USA received in fees from AT&T will help the group launch an LTE service next year, however we believe it could benefit from more spectrum if it wants to catch up with rivals. T-Mobile USA will be able to deploy 20Mhz of bandwidth in about half its markets, but the rest will be over 10Mhz, which may ultimately result in lower download speeds. Verizon Wireless will be able to deploy everywhere with at least 20Mhz. Refarming spectrum to LTE from T-Mobile's 2G and 3G networks also entails risk and will need to be handled cautiously. With LTE services beginning to be offered from 2013, T-Mobile USA will remain behind larger rivals such as Verizon Wireless. The launch of LTE also implies the need for higher handset subsidies, which can squeeze margins, especially for the iPhone. Because of its smaller size, T-Mobile USA would find it harder than rivals to absorb that margin dilution. Fitch affirmed Deutsche Telekom's IDR at 'BBB+' in December and revised its outlook to stable from positive following the termination of the AT&T deal. (Caryn Trokie, New York Ratings Unit)



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