Deutsche Telekom Said to Weigh Sale of IT Outsourcing Business

Stefan Nicola and Manuel Baigorri (Bloomberg) -- Deutsche Telekom AG is considering selling part of its T-Systems unit in a move that could see the German phone company shed a legacy IT business, according to people familiar with the matter.

Deutsche Telekom’s management is considering a sale of the outsourcing business of T-Systems’ information technology division, which services computer systems for corporate clients, because of poor operating performance, said the people, who declined to be identified because the discussions are private. The Bonn, Germany-based carrier hasn’t made a final decision and may still decide against a sale, they said.

A representative for Deutsche Telekom declined to comment.

The unit has come under significant pressure as an increasing number of services and products move into the cloud where they’re available for customers at a lower cost. That’s hurting margins and stifling growth at T-Systems, whose first-quarter sales fell 8.3 percent from a year earlier to 1.7 billion euros ($1.9 billion). The entire T-Systems business had about 43,000 employees at the end of last year, according to Deutsche Telekom’s annual report.

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Deutsche Telekom Chief Executive Officer Tim Hoettges said this week it “annoys” him that T-Systems failed to report a positive cash contribution, “ruining” its results for 2016. While he praised the T-Systems leadership for cutting costs and introducing new products, “we still have not achieved what we set out to do,” he said Wednesday at the company’s shareholder meeting in Cologne.

Deutsche Telekom isn’t the only phone company contending with challenges from big cloud-services providers like Amazon.com and Microsoft Corp. BT Group Plc is restructuring its global services division after a January profit warning that sent the stock reeling. CEO Gavin Patterson said last month that the company may dispose of one or two units outside the U.K.

Asset sales may help raise cash for future spectrum auctions in Europe and the U.S., while also reducing the company’s debt of about 50 billion euros. Deutsche Telekom is aiming to sell a 49 percent stake of its 5 billion-euro Deutsche Funkturm tower business by year end, German magazine WirtschaftsWoche reported Friday.

See also: IBM, Microsoft Tap New European Markets With Cloud Data Centers