Deutsche Telekom needs a Plan C

It’s the Christmas present that neither Deutsche Telekom nor AT&T wanted and one that has surprised very few. Industry rumor mills about this outcome had circulated for months and had rapidly eroded any lingering confidence about the successful closure of this deal.

 

There are very few occasions when you are forced to walk away from the table with $4 billion in your pocket and still feel like you’ve just been short-changed, but that’s what the collapse of the sale of T-Mobile USA will feel like to Deutsche Telekom. Having frequently -and very publicly- reiterated the absence of a Plan B, the break-up fee will be small consolation as it is forced carve out a third path, or Plan C.

 

After the dust settles, Telekom’s senior management will need to revisit the strategic plan outlined by T-Mobile USA CEO Philipp Humm in January 2011 to instill a feisty challenger mentality within the company. This is a big blow, but it is not a knock-out punch. DT must now look more closely to the lessons it can learn from the subsidiaries spread across its European heartland. The role of the challenger operator is one that has been played with distinction on its doorstep – it must take note.

 

CEO Rene Obermann had looked like a magician when pulling off the proposed $39 billion deal of the decade in March, but not even he had enough tricks up his sleeve to convince the US regulatory authorities to allow what would have been a sector-defining deal to pass.

 

In the short term, the management will have to focus on how to shore up its stuttering US business, but a longer-term strategy must be carved out as quickly as possible. The subsidiary, which contributes a sizeable percentage of group revenue and ebitda, has been in limbo for nearly a year now. Investors will undoubtedly be seeking swift clarification of its revised strategy and evidence that DT can press ahead with meeting its financial targets. Deutsche Telekom now faces the prospect of waging a battle on two fronts. The need to steer a course through increasingly competitive mobile markets and to invest billions in deploying next generation networks is as relevant in Europe as it is in the US.