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Deutsche Telekom: The fact that Buffett is joining the US subsidiary is three times good news

While most wireless stocks tread on the spot, one stock is rising almost continuously: T-Mobile US. The Deutsche Telekom subsidiary has been on the road to success for years. Warren Buffett noticed that too. His holding, Berkshire Hathaway, is investing more than a quarter of a billion in the company. This is also great news for the Bonn company.

The new T-Mobile boss is convincing

A new era began for T-Mobile in 2020, in several ways: The merger with Sprint was finally wrapped up, the COVID-19 pandemic has raised the importance of connectivity to a new level and Mike Sievert has one new boss took over the scepter.

Sievert follows in the big footsteps of John Legere, who celebrated huge successes with his unconventional manner and the notorious uncarrier strategy. Many investors wondered whether the double upheaval will really succeed. Ultimately, the management is faced with the great challenge of intelligently merging two nationwide networks and at the same time not slacking off in terms of customer acquisition and retention.

Sievert would probably hardly have any success just by copying the previous recipe. He has to find his own style and set his own accents. But that is exactly what he seems to have succeeded in last quarter. The Berkshire analysts are known to attach great importance to strong management combined with a corporate culture.

It is also clear that Buffett's people have almost unlimited resources to flip every stone before they hit the buy button. That they have now done exactly that gives us the information that they trust Sievert to play in the Champions League of corporate managers now and in the future. If you are right, then the triumphant advance of the share should continue and shareholders at Buffett's side should earn good returns.

Chart created with YCharts - Percentage development of the four major wireless companies in the USA since November 2015

The 5G strategy is working

Of course, good management also includes a good product. Apparently, the Berkshire analysts believe here too that T-Mobile can still exploit great potential. After the US subsidiary has so far largely limited itself to the business with smartphones and mobile tariffs, it is now looking for new sources of income. Buffett and his folks may be enjoying the push toward digital payments and cloud gaming.

The latter in particular would benefit from fast 5G networks. Technology chief Neville Ray said in 2019, “Mobile game streaming is the future and has the potential to unlock console-quality games anywhere. For my part, I want to be at the forefront of this revolution and drive it forward. "

At the same time, the parent company Magenta Gaming is on the other side of the Atlantic. It is foreseeable that this platform will be rolled out internationally in the medium term, opening up great opportunities for both of them.

In line with this, T-Mobile believes it has an advantage over the competition in the USA when it comes to 5G capacities. Neville Ray again: “T-Mobile has more mid-band spectrum than anyone else. We are the only ones building a transforming 5G network based on dedicated radio frequencies. ”5G will soon be accessible to around 100 million people in the USA and further expansion should proceed rapidly.

That can only be good for Telekom

The exact reasons why Berkshire Hathaway struck T-Mobile in the past quarter are not known. Nevertheless, it can be said with reasonable certainty that the holding company has great confidence in the new management, sees T-Mobile on its way to becoming the market leader and is convinced that 5G will accelerate business development.

T-Mobile is not yet a dividend payer, so that Telekom, as the main shareholder, cannot participate directly in the success. But that's not a problem. Ultimately, the most important thing is that the fully consolidated participation strengthens the balance sheet. And that is ensured by the price gains. As long as T-Mobile creates as much value as in recent years, Telekom drives better with it.

In the medium to long term, the capacity for distributions will therefore be all the higher. If Telekom then has greater financial needs, it will certainly be able to get the subsidiary to start giving something back.

The post Deutsche Telekom: The fact that Buffett is joining the US subsidiary is triple good news appeared first on The Motley Fool Germany.

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Ralf Anders does not own any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway B shares and recommends the following options: long January 2021 $ 200 call on Berkshire Hathaway (B shares), short January 2021 $ 200 put on Berkshire Hathaway (B shares), and short December 2020 $ 210 call on Berkshire Hathaway (B shares). The Motley Fool recommends T-Mobile US.

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