Deutsche Telekom, Telecom Italia Profits Slide on Woes in Southern Europe
Deutsche Telekom Quarterly Profit Falls 37%
Wolfgang von Brauchitsch/Bloomberg
Excluding T-Mobile USA, Germany now accounts for more than half of the company’s revenue and about two thirds of earnings.
Excluding T-Mobile USA, Germany now accounts for more than half of the company’s revenue and about two thirds of earnings. Photographer: Wolfgang von Brauchitsch/Bloomberg
Deutsche Telekom AG (DTE), Europe’s biggest telephone company, reported a 37 percent decline in first- quarter profit, led by its Greek and Romanian units and as T- Mobile USA lost customers.
Net income fell to 480 million euros ($698 million), missing the 572 million-euro average estimate by analysts. Sales dropped 7.7 percent to 14.6 billion euros, dragged down by eastern Europe and after the Bonn-based company moved its U.K. wireless operations into a venture with France Telecom SA.
Chief Executive Officer Rene Obermann is focusing on improving profitability in the German market after agreeing to sell the U.S. mobile-phone unit to AT&T Inc. for $39 billion in March. T-Mobile USA lost 471,000 contract customers in the quarter, contributing to a 14 percent decline in operating income before depreciation and amortization to $1.19 billion.
“Contract losses in the U.S. were brutal while Germany is looking increasingly healthy,” said Adrian Pehl, an analyst at Equinet AG in Frankfurt with a “buy” recommendation on the stock. “The quarter was definitely no highlight.”
Telecom Italia SpA (TIT) today reported a 8.7 percent drop in quarterly profit, also missing estimates, as sales in its home market receded. The operator is increasingly relying on contributions from its Brazilian and Argentine divisions.
Belgacom Cut
Belgacom SA (BELG), the largest phone company in Belgium, today cut its revenue and earnings forecasts after quarterly sales declined more than estimated.
Belgacom lost as much as 6.3 percent for its biggest fall since July 2008 and traded at 24.91 euros, or 5.5 percent lower, at 12:41 p.m. in Brussels. Deutsche Telekom slipped 0.3 percent to 11.14 euros in Frankfurt. Telecom Italia gained 0.7 percent to 1.01 euros on the Milan exchange.
Before today, Deutsche Telekom has gained 15 percent this year, the second-best performance on the 21-company Bloomberg Europe Telecommunication Services Index, which was little changed. Telecom Italia had gained 3.8 percent.
Earnings before interest, taxes, depreciation and amortization adjusted for some items dropped 8.4 percent to 4.48 billion euros, Deutsche Telekom said. Analysts had predicted 4.55 billion euros in adjusted Ebitda, the average of 18 estimates. Sales trailed the 14.8 billion-euro average estimate.
Business Cycle
“The difficult economic development in south and east Europe is weighing on our late-cyclical business there,” Obermann said on a conference call. “On the other hand we’re struggling with regulatory meddling and special taxes.”
The company confirmed its full-year forecast for about 19.1 billion euros in adjusted Ebitda, with T-Mobile USA contributing about $5.5 billion. The U.S. target is “ambitious,” Obermann said. A goal to earn about half of group revenue in designated growth areas by 2015 won’t be affected by the sale of the U.S. unit, the company said.
The T-Mobile USA sale, pending regulatory approval, is expected to complete in the second quarter of 2012 and will improve Deutsche Telekom earnings by 1.5 billion euros per year, Obermann said. That includes a reduction in interest expenses and an expected $600 million in annual dividend payments from a stake in AT&T the German company will gain, the CEO said.
Obermann is targeting growth in mobile-data traffic and online consumer services as customers cancel fixed lines in favor of smartphones. The U.S. business makes up for about a quarter of the 10 billion-euro revenue target in mobile Internet services, set for 2015, Chief Financial Officer Timotheus Hoettges said on the call. The company “can get close” to its overall growth are targets even without the U.S., Obermann said.
Mobile Data
Deutsche Telekom plans to invest 10 billion euros in its German business through 2012. It aims to connect 150,000 to 200,000 homes to its fiber-optics network this year and “hundreds of thousands” more in 2012, the CEO said.
The German operations increased adjusted Ebitda by 3.7 percent to 2.38 billion euros. Excluding T-Mobile USA, Germany now accounts for more than half of the company’s revenue and about two thirds of earnings.
Germany’s network regulator reduced so-called mobile termination rates last year, limiting income from Deutsche Telekom charging rivals including Vodafone Group Plc (VOD) and Telefonica SA (TEF) to call users of its network.
Deutsche Telekom’s European operations excluding Germany reported a drop in fixed lines of 7.4 percent to 11.1 million lines and a decline in mobile-phone customers by 2.5 percent to 59.3 million users. Greece, where the company controls Hellenic Telecommunications Organization SA (HTO), led declines along with Romania and Hungary. Earnings also fell in Poland and the Netherlands because of spending to attract new customers.
Revenue in the European segment will probably grow again from 2013, Hoettges said, declining to be more specific.
Deutsche Telekom and France Telecom SA (FTE) last month announced plans to save a combined annual 1.3 billion euros by jointly purchasing phones, network equipment, service platforms and other technology infrastructure.
To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net
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