Telecom Takeover

In Bid for T-Mobile USA, Billionaire Who Shook Up France's Mobile Market Turns Sights to United States

35848645 Xavier Niel
Xavier Niel, chief executive of Iliad, the French business bidding for T-Mobile USA.
  • Why it matters

    Why it matters

    Xavier Niel’s bid for T-Mobile USA could inject fresh energy and capital into a sluggish market dominated by Verizon Wireless and AT&T.

  • Facts

    Facts

    • Mr. Niel is bidding $15 billion for 56.6 percent of T-Mobile USA.
    • T-Mobile is the fourth largest mobile phone operator in the United States after Verizon, AT&T and Sprint.
    • Deutsche Telekom failed to sell T-Mobile to AT&T in 2011.
  • Audio

    Audio

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For almost two decades, Xavier Niel, an entrepreneur and leading counter-culture billionaire, has shaken up France’s staid mobile phone and Internet service market with relentless doses of ever-lower prices and generous customer service.

This week, Mr. Niel moved to apply his aggressive, low-cost strategy to what is becoming an increasingly borderless battle for the world’s mobile carriers, bidding $15 billion for 56.6 percent of T-Mobile USA, the struggling subsidiary owned by Deutsche Telekom.

Not only does Mr. Niel’s offer for T-Mobile USA, the No. 4 operator in the United States, have the potential to inject fresh energy and capital into a largely moribund market dominated by industry leaders Verizon Wireless and AT&T.

The purchase, if it is accepted by the German telecom company’s shareholders and survives political scrutiny in the United States, could harken a new round in a global scramble for wireless networks, the main way most people around the world now access the Internet.

The offer by Mr. Niel’s Paris-based Iliad holding company is vying with a reportedly $32 billion bid for T-Mobile USA from Sprint, the third-largest U.S. operator. While the Sprint bid —which would reduce the number of U.S. operators to three – faces potential antitrust hurdles, the French offer is seen as having a better chance of succeeding.

Investors, a day after Deutsche Telekom revealed Mr. Niel’s bid, appeared to agree. Shares of Iliad traded electronically in the United States rose 8 percent on Friday morning in Europe to $291.75.

Torsten Gerpott, a professor of management at the University of Duisburg, said U.S. regulators will be reluctant to scuttle Iliad’s bid for T-Mobile USA, fearing that such a rejection could worsen Washington’s already fragile relationship with France.

“Political relations between the United States and Europe are strained at the moment by the whole data security debate,’’ Mr. Gerpott said in an interview. “I seriously doubt that the United States will interfere … so as not to negatively affect relations further.”

“ Iliad doesn’t know the American market; the company has no political ties and no relations with the United States.”

Analyst in Paris

T Mobile has struggled in the United States, where larger rivals Verizon Wireless and AT&T have benefitted from closer relationships to domestic smartphone makers Apple and Google, which owns the Android operating system.

In 2012, T-Mobile USA had a $7.3 billion loss, after a $4.7 billion loss in 2011.

Last year, T-Mobil USA eked out a $35 million profit, but the difficulties led to the departure of Deutsche Telekom’s chief executive, Rene Obermann, who couldn’t overcome regulatory objections to AT&T’s plan in 2011 to buy T-Mobile U.S.A. for $39 billion.

Mr. Obermann was replaced with his former chief financial officer, Timotheus Höttges, who has pledged to continue austerity efforts and find a solution for the U.S. business. In the second quarter, T-Mobile USA reported a profit of $391 million, its first quarterly profit since the end of 2012.

Mr. Niel’s bid to enter the U.S. mobile operator market is the latest, most high-profile example of the increasing global competition to stitch together worldwide carrier networks – with the potential to erase stagnant national oligopolies of three to four carriers.

In Europe, the Mexican billionaire, Carlos Slim Helu, over the last two years has bought stakes in the Dutch operator, Royal KPN, and in Telekom Austria. In Germany, Spanish operator Telefonica is buying the fourth-largest operator, E-Plus, from KPN to combine it with its own No. 3 German carrier, O2 Germany.

In the United States, Softbank, a Japanese bank, last year spent $22 billion to buy Sprint, the third-largest operator. Sprint has reportedly bid $32 billion for T-Mobile, which neither Sprint nor Deutsche Telekom have publicly confirmed.

 

T Mobile Sprint Reuters
In the U.S., T-Mobile and Sprint were looking moving towards a merger but a bid by Iliad may push the deal off course. Source: Reuters

 

Deutsche Telekom entered the U.S. carrier market in 2000 when it bought Seattle carrier Voicestream for €51 billion.

But in France, competition came earlier to the telecom market courtesy of Mr. Niel, a 46-year-old high school graduate from a working-class Paris suburb who favors jeans, loafers and open-collar shirts. A counter-culture hero to many, Mr. Niel is prone to railing bluntly against the country’s political-corporate elite.

In 1993 when he was 25 years old, Mr. Niel set up France’s first Internet service provider, WorldNet, which he sold seven years later for $50 million. Two years after the sale, his second ISP, Free, sold the world’s first triple-play package of phone, television and Internet service for a third less than rivals.

The competitors, France Telecom, SFR and Bouyges Telecom, ultimately copied Mr. Niel’s marketing approach and matched his prices. Three years later, the first U.S. operators began selling triple-play packages to American consumers.

Mr. Niel’s strategy with Free, industry analysts said, is a harbinger of what he would attempt in the United States, offering innovation, convenience and lower prices in a market where two operators – Verizon Wireless and AT&T – control seven in 10 mobile users.

In France, Free has steadily raised pressure on its larger rivals by adding a Blu-ray disc player, a digital recorder and unlimited domestic mobile calls to Free’s monthly triple-play package. In 2012, Mr. Niel obtained a mobile phone license, the fourth sold by the French government in an effort to stimulate competition in the market.

Over the last two years, Mr. Niel’s Free Mobile has kept up the competitive pressure, offering no-strings-attached SIM-card only offers, and unlimited calls, texting and broadband for about €20 a month, less than half what his bigger rivals were charging.

But analysts are divided over whether Mr. Niel, if given the chance, can replicate his French success in the United States, the world’s largest mobile phone market in sales.

“Iliad doesn’t know the American market; the company has no political ties and no relations with the United States,’’ said one industry analyst at a Paris bank who declined to be named for fear of upsetting Mr. Niel. “It is a very different market from the French one.

“T-Mobile USA is not a start-up. Mr. Niel is a start-up kind of guy and he only entered the French telecommunications market two years ago,’’ the analyst said. “T-Mobile USA is an established company. He will find it challenging.”

 

 

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