Deutsche Telekom AG, reporting its first increase in quarterly revenue and U.S. mobile-phone contracts in three years, set aside 500 million euros ($667 million) to challenge Verizon Wireless and AT&T Inc. The stock rose the most in more than two years.
Second-quarter sales climbed 5.4 percent to 15.2 billion euros ($20.3 billion), beating the 14.6 billion-euro average estimate among analysts. The T-Mobile US Inc. unit added 688,000 contract users. That marked the first expansion since the second quarter of 2010, and compares with 551,000 additions AT&T reported for the same period. The U.S. accounts for about a quarter of Bonn-based Deutsche Telekom’s revenue.
Germany’s biggest phone company completed a merger of T-Mobile US with MetroPCS Communications Inc. in May, freeing management time to tackle its shrinking European business. In Germany, where Deutsche Telekom added 434,000 contract wireless clients, consolidation has picked up, with Vodafone Group Plc offering to buy the country’s largest cable operator and Telefonica SA and Royal KPN NV trying to combine their wireless assets in the past two months.
“I’m far from getting carried away just because we have had a few good months for a change,” Chief Executive Officer Rene Obermann said during a conference call. “We will keep our feet on the ground and won’t become presumptuous or even arrogant. There is so much work to do.”
Deutsche Telekom climbed 7.7 percent to 9.75 euros in Frankfurt, the biggest one-day jump since March 2011. That takes the stock’s gain to 13 percent this year, valuing the company at 43.4 billion euros.
T-Mobile US, which is 74 percent owned by Deutsche Telekom, rose 4.1 percent to $25 at the close in New York.
Deutsche Telekom cut its full-year forecast for free cash flow by 500 million euros to about 4.5 billion euros, reflecting the U.S. spending to increase handset sales. In the second half, T-Mobile US plans to add between 500,000 and 700,000 contracts, which generate more revenue than pay-as-you-go customers, taking the total projected additions this year to as many as 1.2 million.
Including prepaid users, T-Mobile US added 1.1 million net customers during the quarter, it said in a statement. Of the 4.3 million smartphones sold in the period, about 800,000 to 900,000 were Apple Inc.’s iPhones, Obermann said. T-Mobile US reported a second-quarter net loss.
Adding new customers will make T-Mobile US more attractive for a potential sale in the future, said Wolfgang Specht, an analyst at Bankhaus Lampe who recommends holding Deutsche Telekom shares.
While the MetroPCS agreement prevents Deutsche Telekom from selling the shares on the stock market for 18 months, the German carrier has said it can choose to divest the business to a third party before that lockup period expires.
In July, AT&T agreed to buy MetroPCS rival Leap Wireless International Inc., which like MetroPCS provides pay-as-you-go subscriptions. T-Mobile US CEO John Legere said in a conference call today that his company had “no interest” in acquiring Leap.
“We’ve said all along we’ll acquire Leap’s customers the old-fashioned way,” he said.
Full-year earnings before interest, taxes, depreciation and amortization will be about 17.5 billion euros, Deutsche Telekom said today. That’s up from an earlier forecast for 17.4 billion euros, and now takes into account 600 million euros of contribution from MetroPCS, as well as the 500 million-euro extra marketing spending.
Second-quarter adjusted Ebitda dropped 6 percent to 4.42 billion euros, compared with the 4.41 billion-euro average estimate by analysts. Net income climbed 10 percent to 530 million euros from a year earlier.
Deutsche Telekom is the last of Europe’s major carriers to report earnings. Vodafone, Telefonica and BT Group Plc beat sales estimates, a goodwill writedown sank Telecom Italia SpA into a net loss, and Orange SA disclosed a 2 billion-euro tax bill that the French carrier said it would appeal.
With earnings by the region’s carriers under pressure, operators from EE -- the U.K. venture of Deutsche Telekom and Orange -- and Vivendi SA’s SFR to Telecom Italia and Spain’s Yoigo are considering partnerships or share sales.
Germany’s former phone monopoly is 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.
Government instability in Italy and Spain is threatening to end a lull in the European debt crisis and derail a nascent recovery. Deutsche Telekom’s revenue fell 10 percent in Greece, 9.3 percent in the Czech Republic, and 4.6 percent in Romania in the second quarter, the company said. Hungary was a bright spot, with sales increasing by 16 percent.
Obermann will be replaced by Finance Chief Timotheus Hoettges at the end of the year as he joins Dutch cable operator Ziggo NV as CEO.