GO
Loading...

D. Telekom Shares Fall on Fixed-Line Outlook

Shares in Deutsche Telekom slumped as much as 12 percent on Wednesday after a presentation meant to reassure investors about the outlook for its struggling fixed-line business backfired.

Deutsche Telekom stock hit its lowest level since March 2003 and lost around 8.3 billion euros of its market capitalisation after the update on sales and earnings targets at its fixed-line unit, where customers have been leaving in droves.

The stock regained some losses by 1325 GMT, when shares were down 7.4 percent at 10.54 euros.

Timotheus Hoettges, head of the fixed-line unit T-Home, said his strategy -- to offset continued customer loss with an increase in subscribers for its DSL broadband offerings combined with cost savings and improved service -- was taking off.

The revenue decline at the division would decelerate to 4-6 percent in 2008 from an 8 percent drop in 2007. Adjusted core profit was seen declining 5-8 percent this year after a 14 percent fall in 2007.

"We will clearly reduce the decline in sales and that trend will continue in 2009, 2010, but not in great leaps," Hoettges said.

By 2010, revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) will stabilise at the division, the company said.

In 2007, the division reported an adjusted core profit of 7.8 billion euros ($12.33 billion) on sales of 22.7 billion.

Spooked Investors

Analysts said the market took the news as a profit warning despite expectations for another decline at the unit this year.

Investors are jittery when it comes to Deutsche Telekom's outlook. The company shocked the market in early 2007 with a second profit warning within two months even though it met all its targets by the end of last year.

"Although Deutsche Telekom's news may seem like a profit warning, it isn't one in my view but the market does seem to interpret it as one at this moment," said Dexia analyst Rob Goyens, adding that the targets were in line with his estimates.

"Market reaction seems overdone and especially the ripple-effect towards the sector," he said.

Dresdner Bank analyst Chris-Oliver Schickentanz said that while the 2008 outlook for the division was slightly below market expectations the drop in the share price was exaggerated.

"The targets for the group remain the same despite the weaker outlook for the fixed-line business," he said.

A spokesman for Deutsche Telekom confirmed that the company was sticking to its guidance for the group.

Bonn-based Deutsche Telekom has been struggling with a decline in its traditional fixed-line unit as customers choose cheaper, more nimble rivals.

But in the last year, Deutsche Telekom has slowly begun to compensate for the decline with new packages and prices for its broadband and mobile offers.

Europe's largest telecoms group by sales wants to gain 1.6 million new broadband customers this year, pining its hopes on new offers such as Internet Protocol TV (IPTV), which allows viewers to watch what they want when they want.

IPTV is seen as a chance for fixed-line operators to compete against cable companies' all-in-one packages of video, voice and Internet services.

Deutsche Telekom has benefited from a booming DSL market in Germany and aims to raise its market share above 45 percent this year from 44 percent in 2007.

The company competes in Germany with Vodafone's fixed-line unit Arcor and Telecom Italia's broadband unit Alice as well as Telefonica's O2 Germany.