Bloomberg News

Deutsche Telekom Profit Tops Estimates on Europe Recovery

May 10, 2012

The Deutsche Telekom AG company logo is seen outside the company's headquarters in Bonn. Photographer: Hannelore Foerster/Bloomberg

The Deutsche Telekom AG company logo is seen outside the company's headquarters in Bonn. Photographer: Hannelore Foerster/Bloomberg

Deutsche Telekom AG (DTE), Europe’s second- largest telephone company, reported earnings that beat analysts’ estimates as a decline in European revenue slowed and the T- Mobile USA unit boosted profitability.

Earnings before interest, taxes, depreciation and amortization excluding some items slipped 0.1 percent to 4.48 billion euros ($5.8 billion) in the first quarter, the Bonn- based company said today. The profit compares with the 4.4 billion-euro average estimate of 21 analysts compiled by Bloomberg. Revenue dropped by a smaller-than-projected 1.1 percent to 14.4 billion euros.

T-Mobile USA, the unit that’s trying to hold onto its subscribers after a botched sale to AT&T Inc. (T:US) last year, increased profit as prepaid clients helped offset the loss of 510,000 contract customers in the quarter. Deutsche Telekom is discussing a merger of the division with MetroPCS Communications Inc. (PCS:US) as it reviews options for the business, people familiar with the matter said.

“The stabilization in the adjusted Ebitda is astounding,” said Wolfgang Specht, an analyst at WestLB AG in Dusseldorf, Germany. “It’s something special when a European operator doesn’t report a decline.”

Cable Rivalry

Deutsche Telekom climbed 3 percent to 8.80 euros in Frankfurt trading, the steepest increase since Jan. 2. It is still down about 21 percent in the past 12 months, compared with a 13 percent decline by the 19-company Bloomberg Europe Telecommunication Services Index.

The operator confirmed its full-year forecasts. As the European debt crisis reduces demand for phone services and cable operators such as Kabel Deutschland Holding AG (KD8) win over fixed- line clients, Chief Executive Officer Rene Obermann is focusing on improving profitability in Germany and seeking revenue from new businesses such as mobile-health services and smart grids.

Deutsche Telekom reported higher revenue for some European countries before currency swings and regulatory effects, including Hungary and Poland, where it also added mobile customers. The revenue decline across the region slowed to 2.6 percent from 3.6 percent in the previous quarter. In the U.S., adjusted Ebitda rose 8 percent to $1.29 billion, while the margin advanced 2.5 percentage points to 25.6 percent.

Telecom Italia, BT

“This was a very satisfying quarter for us,” Obermann said in a statement. “We have made significant progress in many areas.”

Telefonica SA (TEF), France Telecom SA (FTE) and Telecom Italia SpA (TIT), have for the past years been counting on markets such as Latin America and Africa to drive revenue growth. Telecom Italia yesterday reported profit and sales that topped estimates, boosted by growth in Brazil and Argentina.

BT Group Plc (BT/A), the largest U.K. fixed-line operator, today increased its dividend forecast after fourth-quarter operating profit exceeded estimates.

Madrid-based Telefonica, Europe’s biggest phone company, is scheduled to report earnings tomorrow.

Telefonica added 2.9 percent in Madrid, Telecom Italia slipped 0.5 percent in Milan. BT lost 2.6 percent on the London exchange.

Deutsche Telekom, Germany’s former phone monopoly, forecast in February that adjusted Ebitda will drop this year to about 18 billion euros from 18.7 billion euros, while free cash flow, an indicator of future dividend payments, will dip to about 6 billion euros from 6.4 billion euros.

Dividend Pledge

Still, the company maintained its pledge to pay shareholders 70 cents a share for last year, even as Telefonica and France Telecom have announced plans to trim their payouts.

The first-quarter net income was 238 million euros, after 480 million euros last year, Deutsche Telekom said. The result was lowered by about 300 million euros in special effects, including charges related to early retirement plans. It also included depreciation on T-Mobile USA assets, which was suspended last year because of the pending disposal of the unit.

The German company’s efforts to keep costs down suffered a setback as it yielded in the past two weeks to demands for pay increases of 6.5 percent for almost 70,000 employees in the country. Wage talks for workers at the T-Systems corporate- client division will continue.

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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