IHS Global Insight Perspective | |
Significance | Deutsche Telekom's quarterly net revenue between April and June grew by 7.4% year-on-year (y/y) and adjusted EBITDA by 8.4% y/y. The figures were boosted by the consolidation of OTE, which contributed 1.5 billion (US$2.1 billion) euro to the revenue. |
Implications | The results allow the company to stick to its current full-year forecast, owing largely to improved profitability at the units in the United Kingdom and Poland, which both reported considerably better EBITDA margins than in the first quarter of the year. |
Outlook | The largest business outside Germany, T-Mobile USA, is still in need of further investment in its mobile broadband infrastructure in order to better compete in the growing data service segment. In the meantime in Germany, the framework for Deutsche Telekom's fibre-optic VDSL network is still somewhat up in the air, as the attempted self-regulatory approach has thus far failed to bring a deal over sharing the passive infrastructure with rivals. |
German telecoms group Deutsche Telekom has released its results for the second quarter of 2009. The company's quarterly net revenue increased by 7.4% year-on-year (y/y) to 16.238 billion euro and adjusted EBITDA by 8.4% y/y to 5.258 billion. Of the revenue, 6.817 billion euro (down 5.1% y/y) came from domestic functions and 9.421 billion (up 18.6% y/y) from the businesses abroad—of which 1.5 billion were due to the consolidation of OTE. Similarly because of OTE, the operator's quarterly capex grew by 20.4% y/y to 2.211 billion euro; adjusted for OTE, capex was still up 13% against the year earlier, with Deutsche Telekom's DSL network in Germany and 3G network in the U.S. being the main targets for investments.
As regards the group's business units, mobile communications generated net revenue of 9.220 billion euro (up 8.3% y/y), fixed telephony and broadband 5.383 billion (up 9.4% y/y), and ICT unit T-Systems 1.502 billion (down 2.3% y/y). Deutsche Telekom reported 149.838 million subscribers for mobile services as of end-June (up 5.7% y/y), 39.615 million for fixed telephony (down 7.4% y/y), and 14.508 for fixed broadband (up 16.7% y/y).
Based on the results, Deutsche Telekom's management confirms the firm's forecast for 2009, with chief executive René Obermann commenting that "the figures for the second quarter make us confident for the full year".
Outlook and Implications
- Cost Reductions at Overseas Mobile Units Bear Fruit: What is notable about the results, is the improved performance at Deutsche Telekom's three largest international units—T-Mobile U.K., T-Mobile USA, and PTC (Poland)—which in the first quarter prompted the operator to issue a profit warning (see Germany: 22 April 2009: Deutsche Telekom Cuts EBITDA Forecast for 2009 as Slowdown Finally Bites and World – Germany: 7 May 2009: Consolidation of OTE Lifts Deutsche Telekom's Q1 EBITDA Up 2.7% Y/Y). Of the aforementioned three, T-Mobile U.K. achieved significantly better margins, with its quarterly EBITDA falling by 13.5% y/y in local currency—against the drop of 40.8% in the first quarter—and the EBITDA margin correspondingly rising to 17.3%, from 13.5% recorded between January and March. Likewise, PTC in Poland was successful in cutting its cost base, lifting the EBITDA margin from 26.4% to 38.7%—which was even better than 36.9% achieved in the second quarter of 2008. At T-Mobile USA, the problem has been perceived largely as being the carrier's incomplete data service offering, and the response—boosting investments in 3G deployment—is understandably a longer-term project. Data revenue in the United States did increase by 42% y/y, which was even more than the quarterly increase of 30% reported for the European mobile businesses; however, this was not enough to offset the downward effect of overall price erosion, and T-Mobile USA's revenue was up just 0.8% y/y, with EBITDA declining by 2.3%. Nonetheless, the results abroad add substance to Deutsche Telekom's confidence for the rest of the year, and at the same time play down the chances that the company might divest the U.K. business, the hardest-pressed of the three.
- Future of Fibre Framework in Germany Remains Ambiguous: Back in Germany, most significantly, Deutsche Telekom continued the transformation of its fixed-line arm, by shifting the business emphasis from the declining traditional telephony to broadband—the domestic retail clientele for broadband increased by 13.4% y/y, partly offsetting the revenue loss caused by a 7.8% drop in fixed lines. However, at the same time the broadband business is facing some new uncertainty regarding the regulatory status of its fibre-optic VDSL network. In the beginning of this quarter, Deutsche Telekom reached VDSL wholesale agreements with Vodafone and United Internet, without much of an intervention by regulator BNA. However, in meanwhile the negotiations over the framework for access to cable ducts, unused fibre and other passive infrastructure appear to have been stalled and the incumbent has asked the BNA to guide on the relevant tariffs (see Germany: 9 July 2009: Vodafone Germany to Offer VDSL Broadband Access After Wholesale Deal with Deutsche Telekom and Germany: 4 August 2009: Deutsche Telekom to Apply Regulatory Permission for VDSL Sharing Charges). It would now be necessary to find a quick and mutually satisfactory solution for infrastructure sharing, so that Deutsche Telekom and the alternative carriers alike, can continue their deployments without further uncertainty on the long-term investment environment.