Deutsche Telekom Increasingly Relies on U.S. to Drive Earnings

  • Second-quarter Ebitda rises to 5.46 billion euros on U.S. gain
  • T-Mobile US winning users with promotions, marketing campaigns

Deutsche Telekom AG further increased its dependence on the U.S. mobile-phone unit that’s driving sales and earnings amid weaker business in Germany and other European markets.

Earnings rose 8.6 percent to 5.46 billion euros ($6.1 billion) stripping out interest, taxes, depreciation, amortization and other items, on "rapid" customer growth in the U.S., the company said Thursday. Analysts had predicted 5.45 billion euros. Sales climbed 2.2 percent to 17.8 billion euros. The estimate was 18 billion euros.

While competition from Vodafone Group Plc and Telefonica SA weighs on prices and customer additions in Germany, the U.S. arm T-Mobile US Inc. is gaining ground -- the unit raised its full-year forecast for subscriber growth last month after adding 890,000 users in the second quarter. U.S. chief John Legere has used social-media marketing and free video-streaming promotions like Binge On to lure subscribers from rivals without squeezing the bottom line.

“There was a small group Ebitda beat overall, but it was driven out of the U.S.,” Paul Marsch, an analyst at Berenberg, said by phone. “There’s no problem with increasing reliance on the U.S. as the business is doing extremely well and it’s being run extremely well.”

Shares of Deutsche Telekom were little changed at 15.64 euros at 9:20 a.m. in Frankfurt.

In Germany, Deutsche Telekom seeks to win over customers for MagentaOne -- a package of phone, broadband Internet and television services. Rivals including United Internet AG and Drillisch AG are adding broadband customers and putting pressure on wireless bills with lower-cost offerings.

While sales in the U.S. increased 13 percent to more than $9 billion, revenue in Deutsche Telekom’s home market Germany fell 3.1 percent to 5.41 billion euros. Mobile service revenue declined 0.8 percent as roaming rates dropped and the carrier offered discounts. Deutsche Telekom added 578,000 fiber-optic lines in Germany, about half of which were for branded customers, and half for its wholesale business.

The 156,000 mobile contract additions in Germany from the previous quarter were less than expected and raise "slight warning signs" given growing competition from United Internet and Drillisch, Marsch said. Still, the decline in mobile service revenue slowed and the company managed to stabilize German fixed-line service revenues for the first time in about two decades.

The Bonn-based carrier also seeks to raise efficiency at its eastern European units and in the Netherlands, where it has reshuffled management to turn around the ailing mobile-only unit.

Sales and earnings of its European business fell as the company lost mobile subscribers in Poland, Hungary and the Czech Republic. T-Mobile Netherlands added 32,000 contract customers in the second quarter, compared with a loss of 85,000 in the same period last year.

Deutsche Telekom owns about 65 percent in T-Mobile US, according to data compiled by Bloomberg.

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