AT&T said on Monday it had dropped its $39 billion (25 billion pound) bid for T-Mobile USA, bowing to fierce regulatory opposition and leaving both companies scrambling for alternatives.
There has been mounting speculation that Deutsche Telekom may be forced to sell assets, such as UK mobile company Everything Everywhere, to slash its burgeoning cost base.
Deutsche Telekom shares were down 1.5 percent at 8.79 euros at 9:08 a.m. (British time), the biggest decliner in a 0.4 percent stronger Germany's blue-chip DAX index <.GDAXI> as investors feared the company had to start again with its problem child.
For Deutsche Telekom, the collapse of the deal leaves it with one more subscriber-losing business as it confronts the fallout from Europe's debt crisis, Silvia Quandt analyst Jacques Abramowicz said.
T-Mobile USA, a growth engine in its early days but now a run-down asset, is badly lacking in the spectrum it needs to build a network capable of handling the vast data volumes that U.S. consumers and businesses use on smartphones.
With the spectrum we're getting (in the breakup package), we have a better chance of expanding the network in many markets. That is not a final solution. In the long term, we need more spectrum and network capacity. We are working on that. But we will not speculate about any inorganic steps or deals, Deutsche Telekom Chief Executive Rene Obermann told reporters.
Bleeding money and losing customers, T-Mobile USA ranks fourth among U.S. carriers behind AT&T, Verizon
Obermann said he had secured a $6 billion break-up package, including about $3 billion in cash, which will be paid in the coming days. He added the company's dividend policy would remain unchanged.
CATALYST FOR UK SALE
Analysts have said a collapse of the deal could also be a catalyst for the sale of its stake in Britain's biggest mobile company Everything Everywhere, unless it manages to clinch a deal with another U.S. operator, none of which are anywhere near as good a fit as AT&T.
One imaginable option would be a network partnership with Clearwire
Alternatively, he said he could imagine a sale of T-Mobile USA to a financial investor.
Analysts at Espirito Santo said they saw a merger with Sprint as the only long-term solution, which would likely involve Deutsche Telekom contributing all of T-Mobile USA in exchange for a 20-40 percent stake in the merged entitity.
That would mean that Deutsche Telekom gets no cash but still has to invest in spectrum and wireless network technology at the new company.
Adding to its woes, Deutsche Telekom missed out on spectrum sales in the United States while it was busy negotiating the T-Mobile mega-merger, leaving it even more vulnerable.
Wireless carriers like AT&T, Verizon Wireless and Vodafone Group Plc
The spectrum held by Leap
(Reporting by Maria Sheahan; Editing by Erica Billingham and Mike Nesbit)