Deutsche Telekom Sales Top Estimates Amid U.S. Writedown

Deutsche Telekom AG CEO Rene Obermann
Rene Obermann, chief executive officer of Deutsche Telekom AG. Photographer: Chris Ratcliffe/Bloomberg

Deutsche Telekom AG reported operating profit and sales that topped analysts’ estimates, while a 7.4 billion-euro ($9.4 billion) writedown on its T-Mobile USA unit sank the German former phone monopoly into its biggest quarterly net loss in a decade.

Adjusted earnings before interest, taxes, depreciation and amortization slipped 2.6 percent to 4.78 billion euros, beating the 4.69 billion-euro average estimate compiled by Bloomberg, as the Bonn-based company slowed a decline in revenue in European markets such as Germany and Hungary. While T-Mobile USA continued to lose contract customers, prepaid cards helped the business exceed profit estimates.

Chief Executive Officer Rene Obermann is trying to halt a decline in voice-call revenue and speed up services like mobile payments and music streaming. His efforts to damp the impact of the debt crisis in Europe through cost reductions may be starting to pay off, while U.S. profit may help his move to narrow T-Mobile USA’s gap with larger carriers after last month’s agreement to merge with MetroPCS Communications Inc.

“They are actively tackling the U.S., and while Europe is very macro-driven, the company is managing the situation well,” said Ulrich Rathe, an analyst at Jefferies International Ltd. who recommends holding Deutsche Telekom shares. “Taking the U.S. writedown is the right thing to do even if it hurts.”

The shares slipped 0.7 percent to close at 8.43 euros on the Frankfurt exchange, after rising as much as 1.9 percent today. They have fallen 4.9 percent this year, compared with a 9.8 percent decline by the 23-company Bloomberg Europe Telecommunication Services Index.

U.S. Writedown

The net loss was 6.9 billion euros, or 1.61 euros a share, compared with a profit of 1.07 billion euros, or 25 cents, a year earlier, Deutsche Telekom said today. Third-quarter revenue slipped 0.1 percent to 14.7 billion euros, beating the 14.6 billion-euro average estimate compiled by Bloomberg.

“This performance is no given in a European environment where all around us we see slumping sales and sometimes drastic dividend cuts,” Obermann said on a conference call.

U.S. Defections

The 7.4 billion-euro after-tax impairment charge to reflect T-Mobile USA’s value was triggered by the MetroPCS transaction, which would create a listed company in which Deutsche Telekom would own a 74 percent stake and give T-Mobile USA greater scale to compete with AT&T Inc., Verizon Wireless and Sprint Nextel Corp.

A decade ago, under former CEO Kai-Uwe Ricke, Deutsche Telekom wrote down the value of the U.S. business and its mobile-phone licenses by 18 billion euros in the third quarter, leading to the biggest full-year loss in Europe’s corporate history at the time.

T-Mobile USA lost 492,000 contract customers, which generally pay higher monthly fees. That compares with losses of 450,000 clients estimated by JPMorgan Chase & Co. and Citigroup Inc. analysts. The U.S. division’s adjusted Ebitda slipped 3 percent to 994 million euros, compared with analyst projections of 961 million euros.

The European unit’s adjusted Ebitda of 1.33 billion euros beat an estimate of 1.26 billion euros as profit in Romania and the Netherlands surged.

Forecasts Confirmed

Everything Everywhere, the U.K. venture shared with France Telecom SA, increased its market share, Chief Financial Officer Timotheus Hoettges said on the call. There is “no debate” about cutting Deutsche Telekom’s 50 percent stake in the wireless carrier ahead of a spectrum auction next year, he said.

In Germany, Deutsche Telekom is battling Vodafone Group Plc for the top spot among wireless companies while trying to keep cable companies such as Liberty Global Inc.’s Unitymedia KabelBW from snatching away its fixed-line customers. German revenue from mobile services fell more slowly than in previous quarters.

Deutsche Telekom confirmed its forecasts and its plan to pay a dividend of 70 cents a share for 2012. The company had pledged shareholders remuneration of 3.4 billion euros a year from 2010 to 2012, including share buybacks totaling as much as 1.2 billion euros over the three years.

France Telecom last month became the latest among Europe’s former phone monopolies to slash its dividend, following similar moves by Telefonica SA and Royal KPN NV. Analysts estimate that Deutsche Telekom will trim its payout to 60 cents for each of 2013 and 2014, according to data compiled by Bloomberg.

Deutsche Telekom has scheduled a two-day event for investors in Bonn starting Dec. 6 to explain its strategic plans, including its finance planning, the deployment of faster networks and the U.S. business.

“We’re the only big telecommunications provider in Europe that has stuck to its dividend promises,” Hoettges said. “Now we’ll weigh how we can make reliable plans for the coming years as well.”

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