Deutsche Telekom sees net income rise, but revenues slip

German telecoms incumbent Deutsche Telekom has heralded signs of a turnaround in its US fortunes, and continued improvements in its domestic market, with net profit up 3.5%, to €564 million ($741 million), for the first three months of the year.

The bottom-line figure was boosted by a fall in depreciation and amortization costs in the USA.

German telecoms incumbent Deutsche Telekom has heralded signs of a turnaround in its US fortunes, and continued improvements in its domestic market, with net profit up 3.5%, to €564 million ($741 million), for the first three months of the year.

The bottom-line figure was boosted by a fall in depreciation and amortization costs in the USA.

The operator had already reported a stemming of contract customer losses at its T-Mobile USA (Bellevue, WA, USA) subsidiary, which recently launched the iPhone and is due to merge with smaller rival MetroPCS (Richardson, TX, USA) now it has secured all the requisite approvals.

Having lost 261,000 customers in the first quarter of 2012, the US operator gained 3,000 in the recent three-month period, halving contract losses and continuing to win new prepaid business.

T-Mobile USA also claims to have sold half a million iPhones in the last four weeks.

In terms of customer growth, Deutsche Telekom (Bonn, Germany) also turned in an encouraging performance in Germany, reporting 441,000 contract customer additions, compared with 107,000 losses in the year-earlier quarter.

Nevertheless, the customer growth appeared to come at a cost, with overall revenues slipping by 4.5%, to €13.79bn, and adjusted earnings before interest, tax, depreciation and amortization (EBITDA) down 4.3% to €4.29bn.

In the US, revenues fell by 7.3% in local currency terms – partly because of a decline in average revenue per user (ARPU) from contract customers – and T-Mobile USA’s introduction of new pricing plans that appear to undercut comparable offers from rivals could put further pressure on this number in the coming months.

ARPU has also been falling in Germany, where Deutsche Telekom faces strong competition from close rival Vodafone Germany (Dusseldorf, Germany), although the company said that regulation was largely to blame for a 1.9% dip in mobile service revenues compared with the first quarter of 2012.

Deutsche Telekom’s European subsidiaries remain hard-pressed owing to regulation and the weak economic environment, with revenues falling 6.9%, to €3.3 billion, although the operator reported an improvement in the financial situation of OTE (Athens, Greece) – the ailing Greek incumbent in which it owns a 40% stake – thanks to the €700 million sale of Bulgarian subsidiaries to Norway’s Telenor (Fornebu, Norway).

Despite the top-line setbacks, the company remains on track to hit targets unveiled earlier this year.

Deutsche Telekom expects both revenues and earnings to fall in 2013, compared with 2012, but is investing €30bn in German and US broadband networks between now and 2015 so that it can better compete with cable and telecoms rivals.

The investment plans were recently boosted when German regulatory authorities approved the operator’s proposals to deploy new broadband technology to which smaller rivals have objected.

“We have resolved some major issues,” said Rene Obermann, the operator’s Chief Executive. “The biggest of those were our customer figures in the United States, which are finally back on the up. The positive regulatory decisions form the basis for our planned broadband build-out.”

Deutsche Telekom’s capital expenditure rose 40%, to more than €3 billion, compared with the first quarter of 2012, but the operator said this was down to the acquisition of spectrum in the Netherlands rather than spending on network improvements.

Markets responded positively to the earnings report, sending Deutsche Telekom’s share price on the Frankfurt exchange up by nearly 3% in early-morning trading on Wednesday.