- Carrier adds 363,000 contract mobile subscribers in Germany
- Adjusted earnings at home drop amid price competition
Deutsche Telekom AG reported an increase in third-quarter earnings after the euro’s weakness bolstered revenue in the U.S., while competition with Telefonica SA and spending to upgrade wireless networks weighed on profitability in Germany.
Earnings climbed 13 percent to 5.17 billion euros ($5.6 billion) stripping out interest, taxes, depreciation, amortization and other items, the Bonn-based company said in a statement Thursday. Sales rose 9.3 percent to 17.1 billion euros. Analysts had projected adjusted Ebitda of 5.14 billion euros on sales of 17.3 billion euros, according to data compiled by Bloomberg.
“It’s a slight weakening of the organic growth path, yet I expect Germany to perform better in the fourth quarter,” said Wolfgang Specht, an analyst at Bankhaus Lampe who rates the stock hold.
Deutsche Telekom shares fell 2 percent in Frankfurt at 9:22 a.m., giving the company a market value of 76 billion euros.
Deutsche Telekom competes with Vodafone Group Plc and Telefonica Deutschland Holding AG as it seeks to win over customers to its MagentaOne service -- a package of phone, Internet and television services it rolled out late last year and is also bringing to other European countries. Rivals including United Internet AG and Drillisch AG are putting pressure on wireless bills with their lower-cost offerings.
“While MagentaOne is a great driver of customer retention, it’s not as great for sales,” Alex Wisch, an analyst at Bloomberg Intelligence, said by phone from London. “As a customer, you get better pricing with the bundle, but you’re paying less for each individual product.”
In its home market, Deutsche Telekom is trying to slow the loss of traditional fixed lines and invest in new broadband services to win customers. Deutsche Telekom added 363,000 contract mobile-phone customers in Germany in the three months to September. Sales in Germany rose 0.1 percent to 5.6 billion euros, while adjusted Ebitda fell 2.4 percent to 2.3 billion euros. The company also nearly doubled the number of customers buying its hybrid DSL and LTE broadband service to 109,000.
Ebitda in Germany were weaker partly because of the costs related to upgrading Germany’s fixed lines to IP technology. “These are costs that impact earnings now, but it means a lot of money will be saved later because of greater efficiency,” said Peter Nielsen, a London-based analyst at Kepler Cheuvreux with a buy rating on the stock.
Telefonica Deutschland raised its profit outlook after third-quarter sales and earnings before some costs beat analyst estimates. The company, which owns the O2, e-plus and Base mobile phone brands, said service revenues shrank 0.3 percent, compared to a decline of 0.4 percent at Deutsche Telekom.
Elsewhere in Europe, Deutsche Telekom’s sales and profit shrank, driven by revenue losses in Austria, Greece, the Netherlands and Romania. Adjusted Ebitda increased in Poland, Croatia and the Czech Republic.
T-Mobile US Inc., which is about 66 percent owned by Deutsche Telekom, last week reported profit that missed analysts’ estimates as giveaway promotions like free music streaming and price cuts that helped lure more than 1 million new monthly subscribers put pressure on the bottom line. Deutsche Telekom has in the past sought to sell the unit as it seeks to focus on Europe and markets where it owns more than just mobile-phone assets.
Deutsche Telekom reiterated its forecast for full-year adjusted Ebitda of 18.3 billion euros and free cash flow of about 4.3 billion euros. The forecast doesn’t take into account the dollar’s strength, which increases the value of U.S. sales when converted to euros. Net income rose to 809 million euros in the quarter from 506 million euros a year earlier.
The German carrier is considering a sale of its struggling Dutch mobile-phone unit in a move that could help it raise funds to reduce debt, people familiar with the matter said last month. Adjusted Ebitda of T-Mobile Netherlands fell 22 percent to 125 million euros in the third quarter as the unit lost contract as well as prepaid customers.
“Netherlands is a good example where you just operate in mobile in a very competitive market and the numbers reflect that,” Wisch said. “For Deutsche Telekom, that only increases the pressure to get out of the market.”
Deutsche Telekom is also set to receive a 12 percent stake in BT Group Plc, becoming the U.K. carrier’s biggest shareholder, after selling a wireless venture to BT. The U.K.’s antitrust regulator provisionally approved the deal on Oct. 28.