Deutsche Telekom lifted its full-year guidance after reporting growth in sales and earnings across the business for its third quarter, but shares were down in Frankfurt following news it would cut dividends because of its costly outlay in the German 5G spectrum auction earlier this year.

The German incumbent said it was planning to pay a dividend of €0.60 ($0.67) per share, down from €0.70 ($0.78) last year, regardless of whether a planned merger between its T-Mobile US business and Sprint goes ahead. The long-mooted tie-up was conditionally approved by the US Federal Communications Commission this week but still faces opposition from some states.

Shares opened 1% down in Frankfurt despite a 4.8% increase in sales at Deutsche Telekom, to around €20 billion ($22 billion), and healthy growth in profits compared with the year-earlier quarter. Adjusted earnings (before interest, tax, depreciation and amortization after leases (EBITDA AL) -- a measure of profitability) rose 5.4%, to about €6.5 billion ($7.2 billion). Net profit was up 23%, to roughly €1.4 billion ($1.6 billion), although it grew just 7.5% on a like-for-like basis.

Deutsche Telekom said it would now aim for €24.1 billion ($26.7 billion) in adjusted EBITDA AL this year, up from earlier guidance of €23.9 billion ($26.5 billion). It continues to guide for a "slight increase" in revenues.

As always, numbers were boosted by the strong performance of T-Mobile US, which is still growing its customer base much faster than bigger mobile rivals AT&T and Verizon. Gaining 1.7 million subscribers in the recent third quarter, T-Mobile finished September with 84.2 million in total and managed to record stable customer spending of about $46.2 per subscriber each month.

Maintaining this performance will be difficult after a merger with Sprint, which has continued to struggle in the US mobile market despite turnaround efforts. The companies have justified their plans on competition and 5G grounds, arguing they will be in a stronger position to fight rivals and speed up 5G rollout as a combined entity.

In the meantime, Deutsche Telekom said it would spend €12.9 billion ($14.3 billion) in capital expenditure this year, up from a previous target of €12.7 billion ($14.1 billion), because of its efforts to quickly expand 5G coverage in the US. The increase is not expected to have an impact on free cash flow, with Deutsche Telekom still expecting €6.7 billion ($7.4 billion) for the full year.

Outside the US, there was sales growth in Germany and at the European business, which serves numerous countries in central and eastern Europe, thanks to an increase in customer numbers and rising enthusiasm for "converged" products that bundle broadband, mobile and TV services in a single bill.

"Deutsche Telekom is really powering ahead," said Timotheus Höttges, Deutsche Telekom's CEO, in a statement accompanying the results. "Earnings increased in all areas of the group in the first nine months of this year -- with some of that growth in the double digits. At the same time, we are investing record amounts."

Nearly one quarter of German broadband customers are now using the operator's MagentaEINS convergence offering, up from 21% a year ago, while the share of mobile customers on those products has risen from 47% to 55% over the same period.

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Competition is likely to intensify in coming months following the acquisition of Unitymedia, one of Germany's biggest cable operators, by Vodafone, Deutsche Telekom's main telecom rival.

With Unitymedia, Vodafone reckons it will be able to market a high-speed "gigabit" service to around 25 million German homes by the end of 2022. CEO Nick Read believes Deutsche Telekom's expansion plans will give it "full-fiber" access to just 8 million homes by the same date.

Cable companies, moreover, have continued to eat into Deutsche Telekom's market share. While cable numbers for the recent third quarter are not yet fully available, the German incumbent's share of the broadband market had fallen from 47% at the end of 2009 to 39% by the second quarter of 2019, although there have recently been signs of improvement.

Höttges blamed a decision to cut the dividend on "unexpectedly high costs for the mobile spectrum auction in Germany, partly as a result of the artificial spectrum shortage." Deutsche Telekom, which spent €2.2 billion ($2.4 billion) on new licenses, criticized a regulatory decision to reserve 100MHz of important "midband" spectrum for local rather than traditional telecom usage.

At the same time, the company's net debt had spiraled to €78.8 billion ($87.3 billion) at the end of September, from €55.5 billion ($61.5 billion) a year earlier. Its net-debt-to-EBITDA ratio rose from 2.4 to 2.8 over the same period, putting Deutsche Telekom just outside its comfort zone of 2.25 to 2.75.

T-Systems, the operator's IT business, remains a further source of concern, with third-quarter revenues down 5.5%, to around €1.7 billion ($1.9 billion), due to a decline in traditional business. Deutsche Telekom, nevertheless, said turnaround efforts were going well and pointed to stable EBITDA of €144 million ($160 million).

Profitability at the group was boosted partly by a reduction in headcount, which has fallen nearly 2% this year so far, to 211,884 employees at the end of September.

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— Iain Morris, International Editor, Light Reading