Brutal Q2 for Deutsche Telekom

Deutsche Telekom AG (NYSE: DT) continued to feel the full force of the economic pressures in Europe and fierce competition in the U.S. during the second quarter as it reported a decline in revenues and profits, a similar story to the first three months of the year. (See Deutsche Telekom Shrinks in Q1.)

Group revenues of €14.48 billion (US$20.6 billion) were down 6.8 percent compared with a year ago, while net profit fell 26.7 percent to €348 million ($495 million).

Even without T-Mobile USA, regarded as a discontinued operation since its sale was agreed, revenues were down 3.3 percent year-on-year to €10.97 billion ($15.6 billion) as sales declined across Europe, where DT operates in 14 markets (including Germany). (See AT&T to Buy T-Mobile USA for $39B.)

Poland was the only one of its significant markets to report revenue growth and even then that was by just 0.4 percent to €453 million ($644 million). Despite the numbers, DT's management believes it is seeing improving trends across Central and Eastern Europe, where it has 10.93 million fixed-line customers (including 4.5 million broadband users) and 59.5 million mobile customers.

In the carrier's domestic market, where it has 24 million fixed and 34.5 million mobile customers, revenues fell 3.4 percent to €6 billion ($8.5 billion), partly due to the impact of reduced mobile termination charges. DT noted that it now has 1.3 million customers for its IPTV service, called Entertain, and that mobile Internet service revenues increased by more than 30 percent to €409 million ($582 million). Of its 24 million domestic fixed-line customers, more than half (12.15 million) have broadband connections. Of those broadband customers, 454,000 are connected to the VDSL service enabled by its fiber-to-the-curb rollout.

The notable growth business within the DT group was T-Systems International GmbH , which reported a 1.5 percent increase in revenues to €2.3 billion ($3.3 million) and continued to sign new deals. DT has high hopes for T-Systems in the cloud services market. (See DT's Cloudy Silver Lining.)

T-Mobile US Inc. 's revenues fell by 16.2 percent to €3.51 billion, though this decline was accentuated by shifts in the dollar-to-euro exchange rate. In dollars, revenues fell 5.1 percent to $5.05 billion.

T-Mobile USA has 33.59 million customers, 50,000 fewer than in the previous quarter, but it lost 281,000 valuable contract customers during the three months to the end of June and gained 231,000 pre-paid users. It now has 25.78 million contract customers compared with 26.75 million a year ago, while its pre-paid user base has risen to 7.8 million from 6.87 million a year ago.

Despite the ongoing pressures on its business, DT has been cutting costs to make itself more efficient -- it now has 205,761 employees compared with 213,515 a year ago -- and is working towards a more efficient operational model from a networks and Service Provider Information Technology (SPIT) perspective. (See Euronews: Deutsche Telekom Wields the Axe, Mgmt World: DT Bridges the Chasm and DT & FT Deepen Ties.)

And it still believes it's on course to meet its full-year earnings targets. The carrier's share price gained nearly 1.4 percent to €10.40 in morning trading on Germany's Xetra stock exchange.

DT isn't the only European carrier feeling the pinch these days, as many of its peers around the continent are finding the going tough in their domestic markets and European satellite operations. (See Glimmers of Hope for PT, KPN Reports Q2, Belgacom Reports H1 and BT Reports Fiscal Q1.

— Ray Le Maistre, International Managing Editor, Light Reading

joset01 12/5/2012 | 4:57:05 PM
re: Brutal Q2 for Deutsche Telekom

Well, AT&T had to reveal it to the FCC and others to get the regulatory process underway, so T-Mobile didn't have much choice.

ibarrera 12/5/2012 | 4:57:05 PM
re: Brutal Q2 for Deutsche Telekom

Seems to me that the worst agressor in the US was themselves, just by revealing the plans of being acquired. I was about to get wireless broadband through them, and simply switched my mind to Sprint to avoid AT&T in the near future.

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