UK and US drag Deutsche Telekom to shock warning

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UK and US drag Deutsche Telekom to shock warning

By CAROLINE GABRIEL

Published: 23 April, 2009

READ MORE: UK | US

While the iPhone helped AT&T to a robust quarter again, its HSPA rival in the US, T-Mobile, was suffering low rates of customer additions, despite extending its 3G coverage and announcing its own flagship handset, the G1. Worse, its parent company Deutsche Telekom (DT) shocked the markets with a profit warning, blaming the poor performance at its US unit (usually its key cash cow), and also in the UK and Poland.

Although many operators say they have better visibility now despite the continuing downturn, DT still appears to have misted-up spectacles. Only seven weeks ago it predicted that its EBITDA profit would be €19.5bn, but now that figure looks set to be far lower, between €18.7bn and €19.1bn.

CEO Rene Obermann insisted the company is not in crisis, but had been hit by the recession, and increased competition in the US and UK, as well as a drop in roaming revenues as customers travel less. DT expects to report a non-cash impairment charge against the lowered goodwill value of its UK arm, and this subsidiary will have to take drastic action, with a new management team briefed to reposition the company and a strict cost control program. All this triggered speculation that DT could even put the UK arm up for sale, which could lead to two of the country's five cellcos being on the market - there are also rising rumors that Hutchison will divest 3 UK as it approaches profitability.

The US will also have to cut back, even while it continues to invest in expanding its 3G coverage and handset range - even more critical now AT&T has announced its own major HSPA upgrade. It reiterated its plan to double its 3G coverage from 107m POPs to 205m, but the US arm will have to cut marketing and travel costs, freeze salaries and renegotiate interconnection charges. In the first quarter, it added less than half the net number of new customers of the same period a year ago, just 415,000, as it came under pressure from flat rate carriers like Leap and low cost packages from Sprint Boost Mobile. T-Mobile has launched its own $50-a-month unlimited package but said it will have to be even more aggressive on pricing.

At AT&T, first quarter net income fell by 9% overall to $3.1bn, on revenues down slightly to $30.6bn, but wireless was a strong performer, helped by the iPhone, as was the Uverse system. In wireless, earnings rose by 13% and revenue by 8.8% year-on-year. The cellco added 1.2m net subscribers, and over half of these were iPhone users. The carrier activated 1.6m iPhones in the quarter, 40% of them new to the operator. Postpaid churn was stable and total postpaid ARPU increased by 2.1% to $59.21. Wireless data revenue, the main area driven by the iPhone, was up a huge 38.6% year-on-year to $3.2bn, and is now 27.2% of total wireless service revenue. AT&T CFO Rick Lindner said the company was seeing consumers move from pay-per-use data offerings to unlimited data packages as a way to reduce their costs and that AT&T was exploring new pricing options to get more consumers to move to data packages.