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Deutsche Telekom Earnings Top Estimates on Germany

Deutsche Telekom Earnings Top Estimates on German Wireless
A cyclist passes a Deutsche Telekom AG store in Frankfurt. Photographer: Ralph Orlowski/Bloomberg

Deutsche Telekom AG, Germany’s largest phone company, reported first-quarter profit before some items that beat analysts’ estimates after slowing a decline in mobile revenue at home and halting an exodus of U.S. customers.

Earnings before interest, taxes, depreciation and amortization adjusted for some items fell 4.3 percent to 4.29 billion euros ($5.6 billion), compared with the 4.24 billion-euro average estimate among analysts compiled by Bloomberg. In the U.S., wireless customers, including pay-as-you-go users, rose for the first time in 15 quarters, the Bonn-based company said today.

Deutsche Telekom completed a deal to merge its T-Mobile US unit with MetroPCS Communications Inc. last week, freeing management capacity to focus on reviving its business in Europe. Rivals in Germany, including Royal KPN NV’s E-Plus unit and Telefonica Deutschland Holding AG, posted a drop in average revenue per wireless customer for the quarter as carriers vied for clients by offering cheaper voice and data packages.

“After the numbers we have seen we were expecting revenue to be fairly light,” said Paul Marsch, a London-based analyst at Berenberg Bank who recommends investors hold shares of the company. “Deutsche Telekom seems to have fared better than its peers in Germany.”

Spain, Austria

First-quarter revenue slid 4.5 percent to 13.8 billion euros, Deutsche Telekom said, in line with projections. Telefonica SA, which competes with Deutsche Telekom in markets including Germany, the U.K. and the Czech Republic, today reported earnings and sales that missed estimates.

Deutsche Telekom shares rose 1.9 percent to 9.30 euros at 9:08 a.m. in Frankfurt. Telefonica fell 1.9 percent in Madrid. Telekom Austria AG climbed 3.6 percent in Vienna after profit beat estimates.

The decline in Deutsche Telekom’s German mobile service revenue slowed to 0.1 percent from 2.2 percent in the previous quarter, excluding a reduction in mobile termination rates imposed by the country’s network regulator. The company plans to return to growth on that basis over the course of the year, spokesman Andreas Leigers said.

Germany’s former phone monopoly is also preparing to speed up its fixed-line Internet to fend off cable providers in its home market while trying to limit the damage from the economic crisis on its European operations.

‘Major Issues’

The company confirmed its full-year forecasts, targeting adjusted Ebitda of 17.4 billion euros plus contribution from MetroPCS over the remainder of 2013 and free cash flow of about 5 billion euros.

“We have resolved some major issues,” Chief Executive Officer Rene Obermann said in the statement. “The biggest of those were our customer figures in the United States.”

In the U.S., T-Mobile last month said that the pace of subscriber defections slowed to 199,000 in the first quarter from 515,000 in the previous three months.

John Legere, who runs the enlarged U.S. unit, has scrapped long-term phone contracts and device subsidies in an effort to turn the operator into a stronger rival to AT&T Inc. and Verizon Wireless. T-Mobile US sold 500,000 iPhones in the first four weeks of offering the Apple Inc. device in the U.S.

Obermann, who is set to be replaced by Chief Financial Officer Timotheus Hoettges at the end of the year, in December announced plans to trim the carrier’s dividend to allow it to spend almost 30 billion euros on its networks through 2015.

Vectoring Technology

Deutsche Telekom won preliminary approval from Germany’s network watchdog in April for a plan to accelerate its digital subscriber line, or DSL, grid using so-called vectoring technology. On May 2, the company announced a deal with Telefonica Deutschland that would let the smaller provider use those lines, helping to spread the rollout’s cost.

The European Commission last week lowered its forecasts for the euro area, projecting that eight of the 17 economies in the currency bloc will contract this year. Deutsche Telekom offers phone and Internet connections in markets stretching from Greece via Austria to the Netherlands.

“It’s not a grand turnaround yet,” said Wolfgang Specht, an analyst at Bankhaus Lampe KG in Dusseldorf who has a sell recommendation on the operator. “They cannot let their guard down in Germany as people still keep switching to smaller packages.”

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