Deutsche Telekom Posts $1.7B Net Loss

Reporting its first-quarter earnings today, Deutsche Telekom
did little to quell investors’ fears that its main revenue-generating
segment, the fixed-line business, would continue to sputter. On a happier
note, Deutsche Telekom showed solid growth in its wireless and online
divisions and higher earnings for its information technology (IT) business.

Overall, however, the results were bleak. Deutsche Telekom’s net loss
ballooned to $1.8 billion euros ($1.7 billion), up from a shortfall of 358
million euros a year ago, while revenues increased 15 percent to 12.8
billion euros.

For now, Deutsche Telekom CEO Ron Sommer’s main headache is the company’s
T-Com unit, which accounts for about half of its profits. Like all
fixed-line telecom concerns, however, T-Com has struggled in the face of
pricing pressures generated by stiff competition. In the first quarter,
T-Com saw mostly flat revenue growth at 7.4 billion euros, while earnings
before interest, taxes, depreciation and amortization (EBITDA) fell 8
percent to 2.5 billion euros and pre-tax income fell nearly in half to 694
million euros.

In addition, Sommer has to deal with Deutsche Telekom’s considerable debt
burden, which now weighs in at 67 billion euros, thanks to the purchase of VoiceStream for 33 billion euros and its hefty investment in
third-generation licenses.

The chief executive can take some small cheer from the results of the
T-Mobile and T-Online divisions, both of which returned higher revenues and
earnings.

T-Mobile’s revenues shot up 66 percent to $4.5 billion euros, while it
nearly doubled its EBITDA to 1.2 billion euros. The division’s pre-tax loss
grew 27 percent to 840 million euros. The results included the consolidation
of both VoiceStream/PowerTel and RadioMobil. Overall, T-Mobile ended the
quarter with 50 million customers. VoiceStream/PowerTel showed moderate
growth, adding 400,000 subscribers to finish the quarter with 7.5 million.

T-Online’s revenues were 427 million euros, an 18 percent increase from last
year’s first quarter. EBITDA was in the black at 17 million euros, while
pre-tax loss narrowed to 3 million euros. The unit, which a recent report
said Microsoft might take a stake in, is Europe’s largest Internet service
provider. Its subscriber based increased to 11.2 million, a 29 percent
increase from last year.

“As in the previous year, the access business continues to be the strongest
revenue driver,” the company said.

Unfortunately for Deutsche Telekom, T-Online is still a small part of its
business, accounting for just 3 percent of revenues.

On the IT side, the T-Systems division used cost cutting to show increased
EBITDA. While revenues declined 5 percent to 2.7 billion euros, T-Systems
EBITDA increased from 147 million euros to 258 million. Pre-tax loss
narrowed from 158 million euros to 100 million euros.

For the full year, Deutsche Telekom said it expects “significant” revenue
growth and higher EBITDA.

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