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The German mobile challenger Drillisch would sacrifice dividends for 5G bid

FRANKFURT (Reuters) – the Internet-billionaire Ralph Dommermuth said on Thursday he wanted to seize the opportunity to be Germany’s fourth mobile phone operator, but was prepared to walk away if the cost seems too high.

FILE PHOTO: United Internet CEO Ralph Dommermuth attends a press conference a joint initiative for encrypted email with Deutsche Telekom in Berlin August 9, 2013. REUTERS/Thomas Peter

The 55-year-old tycoon who owns 40 percent of United Internet, 1&1 and Drillisch unit, where the three existing operators in a 5G spectrum auction bids so far have topped 1 billion euros ($1.1 billion).

The prospect that Drillisch might abandon his lucrative existence as an asset-light virtual mobile operator has spooked some investors, sending shares in both companies, with more than a third over the past 12 months.

Revenue and earnings outlook short of expectations of the market, as well as guidance that Drillisch would slash its dividend as it prevails in the 5G auction, sent its shares down by a whopping 14.5 percent at their lowest point since July of 2016 on Thursday.

Dommermuth, in an interview said that he had his eye on the long-term efficiency of the building and owning a network instead of renting – if Drillisch does now. Axing the dividend was to ensure that the money back that ambition, ” he said.

“There is a difference between a renter and an owner,” he told Reuters.

“If I were a tenant, I can pay the rent each month. If I were an owner, I have to invest. If I invest, I can borrow, but I also need my own money.”

Drillisch would propose a dividend of 5 euro cents should buy 5G spectrum. If you are unable to do this, it would pay 1.80 euro, 20 cents less than last year. United Internet, which owns 73 percent of the Drillisch, there would be a comparable binary proposal.

Axing the Drillisch dividend would save 310 million euros, analysts at Citi said in a note that the described movement as a reset that may clear the deck, but not the uncertainty.

Drillisch earlier forecast that sales would increase by 4 percent this year, while the earnings before interest, taxes, depreciation, amortisation and impairment profit would have been 10 percent, short of expectations of the market.

AUCTION POKER

Drillisch is vying with Deutsche Telekom, Vodafone and Telefonica Deutschland in the 5G auction, the proceeds from which analysts expect 3 billion euros or more.

Deutsche Telekom CEO Tim Hoettges warned Thursday that the auction costs could spiral because, in his opinion, the network regulator had not made enough spectrum available.

“We do not know how the frequency auction will end. That is the reason why we say that we only want to pay a statutory minimum dividend, if we are able to acquire spectrum and build its own network,” said Dommermuth.

Drillisch row to 2.8 billion euro in the bank the funding for the support of 5G ambitions.

Dommermuth also has a fallback option in the form of guaranteed access to 30% of Telefonica network capacity, a remedy required by European Union regulators to the approval of the Spanish-owned operator of 2014 the acquisition of E-Plus.

This can be extended to 10 years and would apply to national roaming under 5G, said Dommermuth.

“We will only bid if it makes sense for us,” he said. “We are not under pressure to do something.”

Reporting by Douglas Busvine; Editing by Kirsten Donovan

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