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Deutsche Telekom CFO: Rising mobile competition could dampen network investment


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Deutsche Telekom CFO: Rising mobile competition could dampen network investment

German telecom giant Deutsche Telekom AG's CFO said that given the high cost of upgrading mobile network infrastructure to next-generation technology, it would be a mistake for Germany to welcome a fourth mobile competitor.

Speaking during an Aug. 9 earnings call, CFO Thomas Dannenfeldt said that the increased competition may diminish operators' willingness to invest in the country.

"The key question we need to focus [on] ... is to foster further investments in 4G quality, 5G rollout and the FTTB or H rollout," Dannenfeldt said. Pointing to an analyst's estimates of the cost of investment and impact of past regulatory intervention, he added: "Germany can't afford to have a fourth mobile entrant."

The discussion related to recent comments by Germany's antitrust regulator, Andreas Mundt, the president of the Federal Cartel Office, who has said that he would welcome the entry of a fourth mobile operator.

Deutsche Telekom's U.S. unit T-Mobile is currently in the process of seeking regulatory approval to merge with SoftBank Group Corp.'s Sprint Corp., in a deal that the companies have billed as necessary to speed 5G network investment in the U.S. That transaction would combine the No. 3 and No. 4 largest U.S. wireless providers.

Deutsche Telekom is facing the prospect of increased competition in both its mobile and cable business in Europe. Its main European rival, Vodafone Group PLC, agreed earlier this year to acquire Liberty Global PLC's operations in Germany, as well as a number of eastern European markets. Once the transaction closes, expected in mid-2019, Vodafone will own Liberty Global unit Unitymedia in Germany.

Deutsche Telekom on Aug. 9 reported adjusted net profit for the three months ended June 30 of 1.24 billion, an increase of 3.3% from €1.20 billion reported in the second quarter of 2017. Without adjustments, net profit came to €495 million, down 43.4% from €874 million a year earlier. Second-quarter profits were impacted by a settlement under which Deutsche Telekom in May agreed to pay €550 million to end a yearslong dispute with the German government over the delayed implementation of a truck toll system in Germany.

Deutsche Telekom's consolidated revenues fell 2.8% year over year to €18.37 billion from €18.89 billion, which the company attributed mainly to a weak dollar as well as accounting changes. Revenues in its home market of Germany were down by 0.9% year over year, to €5.32 billion.

Mobile remained the company's largest segment by total customers, with 172.5 million as of June 30, up 5.8% year over year. Broadband customers, excluding wholesale, totaled 19.3 million at the end of the quarter, up 3.8%. Customers for the company's fixed-line services fell 1.8% year over year to 27.6 million.

T-Mobile drove the majority of mobile growth for Deutsche Telekom, with U.S. customers up 8.7% year over year to 75.6 million. Deutsche Telekom's German mobile customers increased by 2.4% to about 43.0 million, accounting for the bulk of its European mobile business. The number of European mobile customers overall grew by 4.6%, to 49.9 million. The company said it expects to continue capital expenditures related to its next-generation 5G wireless network build out to remain high in the near term.

Consolidated earnings per share for the company in the second quarter was 10 cents, compared to 19 cents per share in the same quarter of 2017. The S&P Global Market Intelligence consensus EPS estimate for the just-ended quarter was 29 cents on a normalized basis, with three analysts reporting.

Looking ahead, the company guided to continued revenue growth in the range of 1% to 2% per year, with adjusted EBITDA gaining at a rate of 2% to 4% per year.