U.S. News

Deutsche Telekom Profit Falls, Fixed Lines Slump


Deutsche Telekom, facing its biggest strike in over a decade over planned cost cuts, reported
a 5.8% drop in first-quarter core earnings on Thursday but said it was set to meet full-year targets.

Europe's top telecoms carrier said earnings before interest, tax, depreciation and amortisation (EBITDA), adjusted for one-off charges, fell to 4.7 billion euros ($6.36 billion) -- in line with the average forecast in a Reuters poll of 21 analysts.

The group's financial figures are pointing in the right direction for us to achieve our targets for the year, but we are fully aware that here in Germany we are exposed to considerable competitive pressure," Chief Executive Rene Obermann said.

Germany's Deutsche Telekom, which has been battling a dogged decline in home fixed-line networks, confirmed its forecasts for this year of core earnings of around 19 billion euros and
moderate sales growth.

The company is at pains to improve competitiveness in its domestic market with new products, improved service and lower costs at its fixed-line division T-Com. At the same time, it aims to expand its mobile business, which drives the group's profit, and grow outside of Germany.

It said international sales boosted revenue in the first three months of the year by 4.1% to 15.5 billion euros, above the average of analyst forecasts of 15.27 billion euros.

But revenues in Germany declined by 5.1% to 7.8 billion due to continued competitive pressure.

Deutsche Telekom's shares stood 0.16% firmer, trading in line with the DJ Stoxx European telecoms index.

T-Mobile Shines, Strike Looms

Deutsche Telekom's fixed-line unit T-Com used to be the company's cash cow. But poor customer service and tough, cheaper competition have prompted customers to leave in droves, pushing down adjusted core profit by 17.9% in the first quarter.

The Bonn-based firm said although it had won 572,000 broadband customers in Germany, it lost 588,000 customers at T-Com, where its German business is dominant.

Analysts had expected a loss of about 600,000 customers in the first three months of 2007.

In contrast, the company's mobile division reported an 11.4% rise in core profit to 2.54 billion euros. Sales at the T-Mobile unit were 8.4 billion euros, up 10.9%.

Deutsche Telekom hopes to eventually halt customer decline at T-Com and wants to cut costs by moving 50,000 staff to new units that would entail longer working hours and less pay.

Trade union Verdi is fiercely opposed to the move and will announce later on Thursday the outcome of a strike ballot after the failure of several attempts to reach an agreement.

The move is a crucial part of CEO Obermann's strategy, which also includes selling non-core assets abroad such as businesses in France and Spain.

On Thursday, Deutsche Telekom said it had reached agreement with France's Neuf Cegetel to buy Deutsche Telekom's French unit Club Internet. A source close to the company said the sale price was just short of 500 million euros.

The deal is expected to close by the end of the first half of 2007 and Neuf Cegetel will take over all the shares in the Internet unit.