DT Reports Increased Profit, Fixed Line Losses, Mobile Gains, More Competition

Deutsche Telekom reported net revenue of EUR 15.0 billion for Q1 2008, representing a year-on-year decrease of 3.1 percent, impacted by the decline in revenue in the Broadband/Fixed Network and Business Customers segments due to conventional line losses, the move to flat-rate plans and increased price competition for broadband services. Domestic revenues decreased by 6.1 percent. Adjusted EBITDA of the Group remained stable at EUR 4.7 billion, as the company trimmed its capital expenditures by 11% compared to a year earlier. Adjusted to exclude exchange rate fluctuations, it increased by 3.1 percent. Reported EBITDA of EUR 5.0 billion came in 9.1 percent above the previous year’s figure. The proportion of net revenue generated outside Germany increased slightly to 51.6 percent.

In a conference call, Deutsche Telekom officials discussed the possibility of further acquisitions of mobile operators abroad, but did not confirm rumours of a possible bid for Sprint Nextel.

Some highlights from the quarterly report.

Mobile Communications

• T-Mobile Deutschland strengthened its position in the domestic market, which was dominated by fierce price wars. Although T-Mobile Deutschland reported a 3.4 percent decline in revenue to EUR 1.9 billion, the efficiency gains had a significant positive effect. Adjusted EBITDA decreased only slightly year-on-year by 1.1 percent, totaling EUR 692 million. The EBITDA margin improved by 0.8 percentage points to 36.7 percent.
• New calling plans launched at CeBIT 2008 have generated strong demand, especially MyFaves and Max. New data plans, including cell phone and laptop flat rates, along with cooperation with Yahoo! have also improved competitiveness in the field of mobile Internet usage. Growth also continued in this lucrative segment with the addition of 210,000 new fixed-term contract customers in the first quarter. T Mobile’s customer base in Germany increased year-on-year by 12.3 percent to 37.1 million.



• T-Mobile USA posted 981,000 net additions in q1, three quarters of which were fixed-term contract customers. 1.1 million SunCom customers were also added as SunCom was consolidated on February 22. This took T-Mobile USA past the 30 million customer mark, with 4.8 million net additions compared with the first quarter of 2007, bringing the total to 30.8 million customers.
• Data revenue for mobile communications, excluding messaging services, increased by 28.0 percent in the first quarter to EUR 0.5 billion. Growth in Europe totaled 41.5 percent, rising to EUR 0.3 billion. In the United States, revenue in dollars increased by 30.7 percent to just under USD 0.4 billion.

Broadband / Fixed Network

• In the domestic market, T-Home’s sales of DSL lines for new customers remained high in the first quarter of 2008, totaling 539,000. Deutsche Telekom now accounts for around 43 percent of growth in the entire German broadband market.
• In Germany, T-Home’s revenue decreased year-on-year by 6.1 percent to EUR 4.8 billion, which is in line with expectations.
• The marketing of T-Home Complete packages in Germany continued to deliver solid results. The number of broadband lines increased by 1.9 million compared with the first quarter of 2007 to 13.0 million. The number of customers with Complete packages increased by 5.4 million to 11.1 million.
• Line losses amounted to 120,000, primarily due to the increasing availability of all-IP lines, essentially as resale competitors switched their business models. As a result of the corresponding fall in demand for DSL resale products in new business, the number of DSL resale lines fell to 3.4 million. Between 0.8 and 1.1 million line losses are forecast for the full year due to all-IP migration.
• Another approximately 460,000 are line losses in the true sense of the word, with the forecast for the full year of some 1.7 to 1.9 million losses in this category remaining unchanged. Overall, including the migration to all-IP lines — an effect that didn’t happen in the previous year — the number of fixed lines in Germany decreased by 582,000 in the first quarter. The number of leased unbundled local loop lines, in other words the last mile to the customer, increased accordingly to 7.0 million.
• International business of the Broadband/Fixed Network operating segment posted revenue of EUR 0.6 billion; the decrease of 19.2 percent year-on-year is essentially down to the deconsolidation of the companies
• The broadband market outside Germany also continued on a growth course in the first quarter of 2008. With a total of 1.5 million broadband lines including resale products, the Broadband/Fixed Network segment recorded an increase of around 34.8 percent year-on-year outside Germany.

T-Systems

T-Systems modified its reporting structure to reflect its operational realignment starting in the first quarter of 2008. As a result, reporting will no longer show Enterprise and Business Services. The previous Business Services unit is now fully integrated in Telecommunications. The two other units, Computing & Desktop Services and Systems Integration, have been retained and are not affected by this measure.

Business outside Germany grew by 3 percent to EUR 593 million in the first quarter of 2008. By contrast, revenue in Germany decreased by 13.7 percent to EUR 2.0 billion. As such, the Business Customers segment posted an overall decrease of 10.4 percent to EUR 2.6 billion. This is mainly the result of the reassignment of Active Billing to T-Home and the deconsolidation of Media & Broadcast. Another factor was the reduction in intra-group revenue, which fell 20.1 percent year-on-year. This decrease illustrates T-Systems’ substantial contribution to Deutsche Telekom’s cost-cutting program. Organically, i.e. adjusted for the 2007 revenue from Media & Broadcast and Active Billing, revenue decreased by 5.2 percent in the first quarter of 2008.

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