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Scorecard: DT's Struggles Continue

Carrier scorecards are in for European wireline carriers and find Deutsche Telekom still sinking

Raymond McConville

August 15, 2007

6 Min Read
Scorecard: DT's Struggles Continue

In our third carrier scorecard for the European wireline carriers, the German incumbent Deutsche Telekom AG (NYSE: DT) scored its third consecutive D as it continues to see its earnings fall at an alarming rate -- this time by 40 percent.

Meanwhile, Telefónica continues to put up big numbers, but are we starting to see signs that its mounting pile of debt is going to come back to haunt the company? Either way, it's time for another Euro Scorecard.

You know the drill by now. Each company is assigned a grade, A through F, derived from revenue; GAAP earnings and earnings per share; subscriber data; and our random subjective whims. "Second quarter" refers to April through June, regardless of whether the carrier labels that as its fiscal first quarter, second quarter, etc. Some carriers, like France Telecom, report halves instead of quarters.

You may notice the absence of Telecom Italia (TIM) from this version. Telecom Italia's full results are not available until its half year report becomes available in early September. We'll provide an addendum containing those results at that time.Last quarter's European scorecard can be found here: Euro Scorecard: Telefónica Dominates. This quarter's North American scorecard can be found here: Carrier Scorecard: Verizon Makes the Grade.

Without further ado, here are the results.

BT: B
It was another solid quarter for BT Group plc (NYSE: BT; London: BTA), but the growth was more modest than it had been in recent quarters. The good news is that broadband adds continue to outpace losses in fixed access lines by a large margin. The company lost about 1 million access lines but gained 2.5 million broadband subs.

Also, for the first time, we have some subscriber data to work with for BT Vision, its video over broadband service. While it boasts only 20,000 subscribers, the company is banking heavily on sports content by offering more Premier League Football (Soccer to us Yanks) games than any other service. With the "football" season having started this month, BT is counting on a big jump in subscribers. (See BT Talks Google, IPTV & Collaboration, BT Pushes Soccer Service, and BT Pushes IPTV.)

Table 1: British Telecom's Q2 2007 Scorecard

2Q07

2Q06

Q/Q Change

Revenue (Millions)

�5,033

�4,864

3.47%

Earnings (Millions)

�489

�464

5.39%

GAPP EPS

�0.59

�0.56

5.36%

Access Lines

20,756,000

21,777,000

-4.69%

Broadband Subscribers

11,195,000

8,651,000

29.41%

Video Subscribers

20,000

n/a

n/a





Deutsche Telekom: D
It's certainly been a rough stretch for Deutsche Telekom AG (NYSE: DT). But while a 40 percent drop in earnings is pretty significant, it is a big improvement from the near 60 percent drop in the previous quarter. (See DT Reports Q2.)

Whatever gains DT has managed to achieve have been primarily from its international operations. But even those gains have been mainly driven by mobile services and not wireline. For example, DT generated over half of its revenue outside of Germany largely due to the successes of T-Mobile in the U.S. which recorded 1.8 million net additions.

Like all the major carriers, DT has been losing fixed line subscribers at a fast pace having lost 2.4 million (6%) of them since the same quarter last year. But in this most recent quarter, the company blamed a large part of the line losses on the six week service worker strike that saw the company lose the equivalent of 500,000 employee days. With DT and its union having reached an agreement to end the dispute, the carrier won't have that excuse next quarter. (See DT, Union Seal Deal, DT, Union Agree, and DT Resumes Strike Talks.)

Table 2: Deutsche Telekom's Q2 2007 Scorecard

2Q07

2Q06

Q/Q Change

Revenue (Millions)

� 15,575

� 15,130

2.94%

Earnings (Millions)

� 608

� 1,018

-40.28%

GAAP EPS

� 0.14

� 0.24

-41.67%

Access Lines

37,700,000

40,100,000

-5.99%

Broadband Subscribers

13,000,000

9,800,000

32.65%

Video Subscribers*

n/a

n/a

n/a

*DT does not disclose subscriber data for its IPTV service





France Telecom: B+
Orange (NYSE: FTE) gets high marks this quarter for its strong broadband growth and even stronger growth in IPTV. While the company technically saw a 41 percent jump in its profits for the first half, much of that came from a massive one time tax break. Even without the tax break though, the company's earnings were up 8 percent, which was higher than expectations.

Even FT's fixed access line losses were very negligible compared to most other carriers. Combine that with the broadband and IPTV growth and it was a very good quarter for France Telecom. (See Emerging Growth Pumps Up FT.)

Table 3: France Telecom's Q2 2007 Scorecard

1H07

1H06

H/H Change

Revenue (Millions)

� 25,913

� 25,422

1.93%

Earnings (Millions)

� 2,416

� 2,237

8.00%

GAPP EPS

n/a

n/a

n/a

Access Lines

45,566,000

45,602,000

-0.08%

Broadband Subscribers

10,524,000

8,549,000

23.10%

Video Subscribers

872,000

306,000

184.97%





Telefónica: B+
Telefónica SA (NYSE: TEF) in a way is like the European version of AT&T Inc. (NYSE: T) with its large appetite for making acquisitions. In fact, it has made over $80 billion worth of them in this decade.

While these acquisitions have resulted in massive growth to the tune of 125 percent jumps in earnings, 35 percent broadband growth, and 65 percent video growth, Telefónica now has more debt than any European carrier -- a whopping 49.2 billion euros. Investors are weary of the company making any further acquisitions that would require taking on any more debt.

Table 4: Telef�nica's Q2 2007 Scorecard

2Q07

2Q06

Q/Q Change

Revenue (Millions)

� 14,079

� 13,217

6.52%

Earnings (Millions)

� 2,573

� 1,135

126.70%

GAPP EPS

� 0.54

� 0.24

125.00%

Access Lines

42,068,000

42,755,400

-1.61%

Broadband Subscribers

9,119,300

6,758,000

34.94%

Video Subscribers

1,288,100

782,800

64.55%





— Raymond McConville, Reporter, Light Reading

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