Deutsche Telekom cuts earnings targets to fund US expansion

Deutsche Telekom has slashed its free cash flow target for 2015 from €6 billion ($8.33 billion) to little more than €4.2 billion owing to the investment demands of its T-Mobile US subsidiary.

Reporting full year results, the operator said it would increase spending on the rollout of its LTE network using the 700MHz frequencies it recently acquired from Verizon Wireless (New York City, NY, USA).

Its goal is to extend coverage to about 250 million people, up from 225 million at the end of 2013.

Timotheus Hottges, the operator’s chief executive, also indicated that Deutsche Telekom (Bonn, Germany) remained interested in selling its US business should a suitable opportunity emerge.

The operator has been in talks about a possible sale of T-Mobile US to SoftBank-owned Sprint (Overland Park, KS, USA), but US regulatory authorities appear unwilling to approve a deal that would reduce the number of major national players from four to three.

Deutsche Telekom claimed to have hit its full-year financial targets, generating €17.4 billion in earnings before interest, taxation, depreciation and amortization (EBITDA), and €4.6 billion in free cash flow.

However, these figures were sharply down on results in 2012 – when the operator made €18 billion in EBITDA and more than €6 billion in free cash flow – despite a merger between T-Mobile US and smaller rival MetroPCS in May 2013.

Thanks to that deal, and the success of T-Mobile US in signing customers up to its ‘no-contract’ smartphone plans, Group revenues increased by 3.4%, to €60.1 billion, between 2012 and 2013.

But the US was the only major operating segment to report revenue growth over the period, with Europe, Germany and T-Systems all flagging declines.

Although Deutsche Telekom fared better than Germany’s other mobile operators, and remains the country’s biggest, it acknowledged the overall market had shrunk in 2013.

It also continued to lose broadband market share to the country’s cable operators, although it expects to reverse this trend this year with the rollout of vectoring and other high-speed technologies.

In Europe, meanwhile, the operator continues to suffer from the effects of competition and adverse regulation.

Nevertheless, in a strategy update, Timotheus Hottges, Deutsche Telekom’s chief executive, set the operator the target of becoming Europe’s number-one telecoms operator through the development of pan-European capabilities and investment in advanced network technologies.

Between 2014 and 2017, Deutsche Telekom plans to invest €6.5 billion in its German and European networks.

It will also continue to work on restructuring T-Systems amid reports it wants to cut as many as 4,000 jobs at the IT business, which employs a total of 53,000 staff members.

Deutsche Telekom wants to focus T-Systems on the provision of cloud services and standardized IT products.