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DT Issues Profit Warning

Ray Le Maistre
1/29/2007

Deutsche Telekom AG (NYSE: DT) has issued a profit warning for 2007, citing an "extremely tough domestic competitive environment" as the main catalyst for the reduced outlook. The news sent DT's share price down by €0.58, more than 4 percent, to €13.59 on the Frankfurt stock exchange Monday morning. (See DT Revises Outlook.)

The German giant says that, while it expects a "moderate increase" in revenues for this year compared with 2006's €61.3 billion (US$79.2 billion), its earnings before interest, tax, depreciation, and amortization (EBITDA) are now expected to be €19 billion ($24.5 billion), down from the previously stated range for 2007 of €19.7 billion to €20.2 billion ($25.4 billion to $26.1 billion).

That also means EBITDA for 2007 is set to be lower than last year, as DT says it's on course to report EBITDA of €19.2 billion to €19.7 billion ($24.8 billion to $25.4 billion) for 2006.

Lehman Brothers analyst Graeme Pearson stated in a research note issued Monday morning that DT's "management had underestimated the rate of traditional access line loss and are having to cut pricing to improve retail market share of broadband." He also notes that mobile pricing is being driven down by "aggressive competition" from the likes of E-Plus Mobilfunk GmbH .

But DT plans to fight back. In its domestic market, the carrier is particularly focused on retaining its dominance in the broadband sector. It says it plans to invest heavily in marketing to hold on to its DSL customers, and win some back from the likes of HanseNet Telekommunikation GmbH . DT says it will make better price and performance offers than its competitors, but ask customers to sign up to longer contracts. (See DT Rival Launches IPTV .)

DT also confirmed it will continue its 50-Mbit/s DSL rollout to all planned 50 German cities, though the carrier now says it expects demand for its T-Home triple-play package to "develop more slowly than originally anticipated." Recent media reports have suggested DT halted its deployment of VDSL2 technology because of the cost. (See Alcatel, ECI Land DT Gig, DT Flings Billions at Fiber Access, and Microsoft Wins IPTV Deal at DT.)

— Ray Le Maistre, International News Editor, Light Reading

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