Downturn Smacks Deutsche Telekom

The global economic downturn gave Deutsche Telekom AG (NYSE: DT) a kick in the zähne today as it was forced to cut its 2009 earnings forecast due to worsening conditions in its international markets, particularly the U.K., the U.S., and Poland.

The German giant, which in February said it expected its full-year adjusted EBITDA (earnings before regular costs such as tax and one-time charges) to be about the same as 2008's €19.5 billion ($25.3 billion), now says that figure -- not including the earnings likely to be generated by Greek national operator OTE S.A. , which are now being consolidated into DT's reported numbers -- is likely to be "between 2 and 4 percent lower for the full year." (See Wireless Gives Deutsche Telekom a Lift , EC Approves OTE Stake, and Deutsche Telekom to Buy OTE Stake.)

The news shaved 7.5 percent off DT's share price, sending it down $0.93, to $11.59 each, on the New York Stock Exchange.

The operator says it has "felt the impact of the economic slowdown and the more intense competitive environment, particularly in the United States and the United Kingdom" during the first three months of this year. Meanwhile, in the U.K. and Poland, "fluctuations in the local currency exchange rates also had a negative effect on revenue and adjusted EBITDA."

In the U.K., U.S., and Poland, first-quarter revenues have been hit by the downturn in the local economies, "for example with lower roaming revenues as a result of the lower level of traveling."

In the U.S., DT says it will "reinforce the competitive position" of T-Mobile US Inc. by expanding its portfolio of 3G handsets and rolling out the 3G network to 200 points of presence (POPs) by the end of this year. It also plans to renegotiate interconnection charges, cut marketing and travel budgets, and freeze salaries.

First-quarter revenues at T-Mobile USA are set to grow by 20 percent to €4.1 billion ($5.3 billion), but that figure is enhanced by positive currency exchange rate movements. In dollars, the mobile player's sales are set to increase by 4 percent, while adjusted EBITDA is set to dip by 4 percent, as average revenue per user figures fell sequentially by $3 to $50.

In the U.K., T-Mobile (UK) will experience "strict controls on costs" in the areas of administration, advertising, and systems, while the "main task for the new management team is to reposition the company." DT expects to report a non-cash impairment charge against the goodwill value of its British operation: Some market rumors suggest DT might even try to sell T-Mobile UK.

In Poland, Polska Telefonia Cyfrowa Sp. z.o.o. (PTC) will cut advertising and staff costs, and reduce its outlay on customer acquisition and retention.

Overall, DT expects to report a 6 percent increase in first-quarter revenues to €15.9 billion ($20.65 billion), though this is mainly due to the addition of revenues from OTE in Greece.

Including OTE, the German carrier expects to report first-quarter adjusted EBITDA of €4.8 billion ($6.2 billion), up 3 percent year-on-year.

Without OTE's help, DT's first-quarter revenues are set to be €15 billion ($19.5 billion), about the same as a year ago, while adjusted EBITDA is set to drop by about 5 percent to €4.5 billion ($5.84 billion).

The carrier's domestic business has slightly exceeded expectations, it noted, with T-Mobile Deutschland GmbH revenues increasing slightly and the T-Home fixed line business adding 390,000 new broadband customers during the first three months of the year. The carrier has been pushing hard to maintain its near 50 percent share of the German DSL market and upgrade its broadband users to value-added services such as IPTV. (See Euro Carriers Grow Cojones.)

DT will publish its full first-quarter results on May 7.

— Ray Le Maistre, International News Editor, Light Reading