Deutsche Telekom Earnings Advance Supported by T-Mobile

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Deutsche Telekom AG, Europe’s biggest phone company, reported a 13 percent advance in first-quarter revenue as a weaker euro boosted profit at its U.S. business.

Sales climbed to 16.84 billion euros ($19 billion), the Bonn-based company said Wednesday. Earnings rose 11 percent to 4.57 billion euros stripping out interest, taxes, depreciation, amortization and some other items. Analysts had projected Ebitda of 4.52 billion euros on sales of 16.58 billion euros.

Chief Executive Officer Timotheus Hoettges has promised to return more cash to shareholders as sales of mobile Internet contracts accumulate. The pledge relies heavily on T-Mobile US Inc. after Hoettges turned down takeover bids for the unit last year. T-Mobile, with almost 57 million subscribers at the end of March, last month increased its forecast as it sought to surpass Sprint Corp. to become the third-largest U.S. carrier.

The shares fell 0.8 percent in Frankfurt trading at 9:09 a.m. to 16.47 euros, trimming this year’s advance to 24 percent, compared with a 18 percent increase in the Bloomberg Europe Telecommunications Services Index.

“They continue to have a good and pretty strong performance,” Alexandre Iatrides, an analyst at Oddo & Cie, said by phone from Paris. “They are in a good phase.”

Cash Flow

While Deutsche Telekom is one of few European carriers that managed to increase sales last year, the company has missed its cash flow targets as it plowed more money into networks to keep rivals at bay.

Investments in Germany resulted in a 0.9 percent decline of adjusted Ebitda in the country to 2.2 billion euros, Deutsche Telekom said. The drop “reflects increased costs incurred as a result of the IP migration and the efforts to maintain service quality,” the carrier said.

Deutsche Telekom confirmed its forecast for full-year adjusted Ebitda of 18.3 billion euros and free cash flow of about 4.3 billion euros. Taking into account the dollar’s strength, which increases the value of U.S. sales when converted to euros, adjusted Ebitda could reach 19.3 billion euros, the company said.

The euro tumbled 18 percent to average $1.13 in the first quarter, down from $1.37 a year earlier, according to data compiled by Bloomberg.

First-quarter net income was 787 million euros, compared with 1.8 billion euros a year earlier, when profit was boosted by the sale of the Scout24 Web portal.

Spectrum Auction

In its home market, Deutsche Telekom is aiming to secure wireless licenses in the first spectrum auction in five years, scheduled by the local network regulator to start May 27. German transport and Internet Minister Alexander Dobrindt has estimated the sale would cost carriers at least 1 billion euros.

In addition, the government plans to reinvest the proceeds into the country’s networks via subsidies to local communities. That’s likely to benefit Deutsche Telekom as it’s the largest builder of digital infrastructure in Germany.

During the quarter, Deutsche Telekom agreed to sell its half stake in a U.K. wireless venture with Orange SA to BT Group Plc. As the German carrier consolidates its position in eastern Europe, it is bidding for additional airwaves in Poland. Deutsche Telekom has also offered about 900 million euros to buy out its Slovakian business from the local government, according to people familiar with the matter.

(Updates with shares trading in fourth paragraph.)
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