Euro Scorecard: Telefónica Dominates

We're so close to Memorial Day Weekend that you can smell the hot dogs and stale beer in the air. (Then again, LR headquarters usually smells like stale beer.) There's nothing more American than the first official weekend of summer, which is why we're using the event to hand out our first-quarter 2007 Wireline Carrier Scorecard for the, uh... European carriers.

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 a swimsuit competition. "First quarter" refers to January through March, regardless of whether the carrier labels that as its fiscal first quarter, second quarter, etc.

Last quarter's European scorecard can be found here, while this quarter's North American scorecard can be found here.

Without further ado, (or is it adieu?) here are the results.

BT Group plc (NYSE: BT; London: BTA) is on a roll. This makes 20 consecutive quarters of earnings growth with income and EPS both up in the double digits. Sure, Britain is losing fixed-line subscribers as if they were colonies, but broadband subs continue to surge and more than make up the difference. We'd still like to see some data on its new video service, however. Until we can get an idea of how it's performing, it's hard to hand out anything higher than a B.

Table 1: British Telecom's Q1 2007 Scorecard
1Q07 1Q06 Q/Q Growth
Revenue (Millions) �5,292 �5,134 3.08%
Earnings (Millions) �455 �392 16.07%
GAAP EPS �0.55 �0.47 17.02%
Access Lines 20,964,000 22,508,000 -6.86%
Broadband Subscribers 10,737,000 8,116,000 32.29%
Video Subscribers* n/a n/a n/a
*BT has not yet announced any subscriber data for its video service

Deutsche Telekom: D
Just like last quarter, big strides in broadband subs are the only thing standing between Deutsche Telekom AG (NYSE: DT) and a big fat F. Profits are off by more than 50 percent (did East Germany become its own country again?), and we still don't know how well its video strategy is panning out.

As if that weren't enough, the German telco has to deal with 20,000 of its workers going on strike due to DT's continued lowering of wages. (See Deutsche Telekom Faces Strike.) Not a good sign for a company that needs to seriously cut costs.

Table 2: Deutsche Telekom's Q1 2007 Scorecard
1Q07 1Q06 Q/Q Growth
Revenue (Millions) � 15,453 � 14,842 4.12%
Earnings (Millions) � 459 � 1,090 -57.89%
GAAP EPS � 0.11 � 0.26 -57.69%
Access Lines 38,300,000 40,600,000 -5.67%
Broadband Subscribers 12,700,000 9,400,000 35.11%
Video Subscribers* n/a n/a n/a
*DT does not disclose subscriber data for its VDSL service

France Telecom: I
We'd really like to give Orange (NYSE: FTE) a solid grade for the first quarter. Fixed-line subs were off by less than most of its peers, and broadband grew by 25 percent. Perhaps most impressive was the continued strength of its video service, which jumped 235 percent.

FT had set very aggressive goals with its IPTV strategy, and so far it's meeting expectations. But aside from a funny accent, the French also have funny accounting practices and only release full financial data every six months. Since we're left without income and EPS data, we have no choice but to give them an I for incomplete.

Table 3: France Telecom's Q1 2007 Scorecard
1Q07 1Q06 Q/Q Growth
Revenue (Millions) �12,844 �12,616 1.81%
Earnings (Millions) n/a n/a n/a
GAAP EPS n/a n/a n/a
Access Lines 48,533,000 48,586,000 -0.11%
Broadband Subscribers 10,185,000 8,141,000 25.11%
Video Subscribers 768,000 229,000 235.37%

Telefónica: A-
Make Telefónica SA (NYSE: TEF)'s Memorial Day hotdog a foot long. It deserves it. Everything was up for the Spanish carrier, even fixed access lines! Broadband and video, the two most important subscriber data points, were strong once again. Had earnings been up by a double-digit number, Telefónica likely would've earned the first ever A in carrier scorecard history. But with pedestrian progress made in those areas, it'll settle for the first ever A-.

Table 4: Telef�nica's Q1 2007 Scorecard
1Q07 1Q06 Q/Q Growth
Revenue (Millions) �13,747 �11,946 15.08%
Earnings (Millions) �1,257 �1,167 7.71%
GAAP EPS �0.26 �0.25 6.12%
Access Lines 42,079,000 40,808,100 3.11%
Broadband Subscribers 8,543,500 6,263,200 36.41%
Video Subscribers 1,144,200 739,600 54.71%

Telecom Italia: C-
Telecom Italia (TIM) received an I last quarter for turning in its annual report late. This time we've got some data to work with, but they show a flat quarter with hardly any movement in any key performance indicators. Even broadband subscribers hardly budged, up only 4.8 percent.

The carrier also dealt with a dropped acquisition bid by AT&T Inc. (NYSE: T), a company with a huge M&A fetish. (See AT&T Abandons Italian Bid.)

Telecom Italia also continued the European trend of not disclosing any data on its video service (a strategy AT&T might want to adopt with U-Verse), so we can't really draw any conclusions from that either.

Table 5: Telecom Italia's Q1 2007 Scorecard
1Q07 1Q06 Q/Q Growth
Revenue (Millions) �7,540 �7,482 0.78%
Earnings (Millions) �775 �772 0.39%
GAAP EPS �0.04 �0.04 0.00%
Access Lines 23,205,000 23,698,000 -2.08%
Broadband Subscribers 7,095,000 6,770,000 4.80%
Video Subscribers n/a n/a n/a

— Raymond McConville, Reporter, Light Reading

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