Deutsche Telekom Stokes BT Alliance to Jumpstart Europe Fix

  • CEO Hoettges eager to combine forces in challenging market
  • German carrier to look at Vodafone’s Dutch fixed-line business

Deutsche Telekom AG Chief Executive Officer Tim Hoettges, under pressure to turn around the carrier’s European business, is looking to the U.K. and the Netherlands to deliver the first fixes.

Deutsche Telekom has started about 20 joint projects with BT Group Plc, in which it owns a 12 percent stake, and seeks to “intensify” cooperation with the British carrier on everything from procurement and next-generation wireless technologies to its Entertain TV product, Hoettges said Thursday.

“Both companies share the same challenges in their environments and that’s why it helps very much to combine forces,” Hoettges said on a call with reporters after the company reported second-quarter results. In the Netherlands, where Deutsche Telekom has lost more than 1 million mobile subscribers in the past three years, Hoettges has swapped management and will “look at” Vodafone Group Plc’s fixed-line network that’s up for sale.

Hoettges’s comments reflect the growing urgency of the challenge in Europe as Deutsche Telekom increasingly relies on its U.S. mobile-phone unit to drive sales and earnings growth. While competition weighs on prices and customer additions at home, T-Mobile US Inc. continues to shine, raising its forecast for subscriber growth after adding 890,000 users in the second quarter. Closer ties with BT could help Deutsche Telekom cut costs and limit the spending in big initiatives like more robust 5G networks.

“In the end, telecoms is a scale business,” said Erhan Gurses, an analyst at Bloomberg Intelligence. While BT “would be a strong fit,” Deutsche Telekom has to wait for a three-year lock-up period to end in 2019 if it wants to increase its stake beyond 15 percent. Deutsche Telekom sold its wireless venture EE to BT this year.

Shares of Deutsche Telekom fell 0.6 percent to 15.66 euros at 9:18 a.m. in Frankfurt. BT lost 0.1 percent to 399 pence in London.

Board Cooperation

The collaboration is taking place at the very top, through Hoettges’ participation on BT’s board -- a role he sought after Deutsche Telekom obtained a stake in the British carrier with the sale of EE.

"Deutsche Telekom has had an awful lot of experience around convergence, an area where they are ahead of us," BT CEO Gavin Patterson said in an interview. "Tim contributes in every single meeting."

Patterson said he and Hoettges are trying to share best practices as the companies begin to combine forces on areas such as product development. In fields where the two compete -- like global networking services -- Hoettges recuses himself from BT board meetings, Patterson said.

Europe Struggle

Meanwhile, sales and earnings of Deutsche Telekom’s European business are falling as the company loses mobile subscribers in Poland, Hungary and the Czech Republic.

The carrier hired Srini Gopala from his consumer-business director post at India’s Bharti Airtel Ltd. to head the Europe business starting next January to “better focus on marketing and sales,” Hoettges said on a call with analysts. T-Mobile Netherlands remains one of the sore points in Europe as its sales are falling even after adding about 32,000 contract customers last quarter, compared with a loss of 85,000 in the year-earlier period.

While Vodafone’s Dutch business is small with about 123,000 customers, it could be a “good stepping stone” for Deutsche Telekom to add fixed-line services, Gurses said. Deutsche Telekom, which now runs a mobile-only operation in the Netherlands, would probably pay about 100 million euros ($112 million) for the asset based on comparable valuations, he said.

Deutsche Telekom would be ill-advised not to look at Vodafone’s Dutch fixed-line business, Hoettges said on a call with analysts. However, Deutsche Telekom’s focus in the Dutch market is wireless and it’s “too early to say” whether the asset is a strategic fit, he said.

But it’s Germany where Deutsche Telekom makes most of its European revenue -- and sales there fell 3.1 percent to 5.41 billion euros in the latest quarter. The company is trying to win over customers with MagentaOne -- a package of phone, broadband Internet and television services.

Mobile-service sales are a particular worry because they dropped 0.8 percent, and customer gains trailed expectations, raising "slight warning signs" given growing competition from United Internet AG and Drillisch AG, said Paul Marsch, an analyst at Berenberg.

Still, the decline in mobile-service revenue slowed and the company managed to stabilize German fixed-line service sales for the first time in about two decades.

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