Bloomberg News

Deutsche Telekom Predicts Lower Profit After U.S. Writedown

February 24, 2012

(Updates with share trading in fifth paragraph.)

Feb. 23 (Bloomberg) -- Deutsche Telekom AG forecast earnings will fall further this year after posting a 1.34 billion euro ($1.8 billion) quarterly net loss because of writedowns on T-Mobile USA and its Greek business.

Earnings before interest, taxes, depreciation and amortization excluding some items will be about 18 billion euros, or 3.7 percent less than in 2011, Germany’s largest phone company said today. That compares with the 18.5 billion-euro average analyst estimate compiled by Bloomberg. The fourth- quarter net loss was weighed down by about 3.3 billion euros in impairment losses in the U.S. and in Europe.

Deutsche Telekom, which failed to sell its U.S. wireless business to AT&T Inc. last year, is struggling to prop up profit as T-Mobile USA requires additional investments and the company’s eastern European units lose customers. T-Mobile USA ceded 802,000 contract customers in the quarter as rivals started offering Apple Inc.’s iPhone 4S, and the unit will need additional spending of $1.4 billion this year and next before the introduction of faster wireless Internet services, it said.

“They’re a bit more cautious on the outlook, driven largely by the lower expectations in the U.S.,” said Guy Peddy, an analyst at Macquarie in London. “The whole European telco sector is suffering a structural decline in earnings and profitability. Deutsche Telekom’s numbers confirm that trend.”

‘Structural’

Shares of Deutsche Telekom fell as much as 1.1 percent to 8.87 euros and were 0.6 percent lower as of 9:15 a.m. in Frankfurt. The stock had lost about 10 percent in the year before today.

France Telecom SA yesterday became the latest European phone operator to back away from payout projections to conserve cash amid the debt crisis, following Telefonica SA and Telekom Austria AG. Deutsche Telekom confirmed its forecast for a dividend of at least 70 cents a share this year, and predicted free cash flow of about 6 billion euros.

Fourth-quarter adjusted Ebitda climed 1.3 percent to 4.61 billion euros, Deutsche Telekom said. Sales slid 3.7 percent to 14.91 billion euros, trailing the 15 billion-euro analyst estimate. The figures include the contribution of T-Mobile USA. Deutsche Telekom had separated the unit out following the announcement of the AT&T deal last March.

U.S. Spending

The impairment on U.S. and European assets outweighed the breakup fee from AT&T of 2.3 billion euros in cash and wireless spectrum valued at about 900 million euros, the company said. The U.S. impairment is largely the result of having to work with a lower customer base, spokesman Andreas Leigers said.

T-Mobile USA’s adjusted Ebitda will drop to about $4.8 billion this year from $5.3 billion in 2011, the company said. The additional investments will go toward the rolling out of a network based on the long-term evolution technology rivals such as Verizon Wireless have already begun to offer.

Deutsche Telekom and AT&T in December abandoned plans for the $39 billion transaction after facing regulatory opposition in the U.S. The German company had planned to use the sales proceeds to cut debt by 13 billion euros and buy back 5 billion euros worth of its own shares.

--Editors: Kenneth Wong, Kim McLaughlin

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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