T-Mobile sees stabilization in problem markets, but not growth

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T-Mobile sees stabilization in problem markets, but not growth

By CAROLINE GABRIEL

Published: 7 August, 2009

READ MORE: Financial | T-Mobile | Deutsche Telekom

Deutsche Telekom claimed its turnaround efforts in its UK and US mobile arms were starting to take effect, stimulating speculation that it will hold onto T-Mobile UK until it can get a better price.

The German incumbent confirmed its full year guidance and said its three toughest markets of late, the US, UK and Poland, were all stabilizing. However, only the consolidation of the results of Greek acquisition OTE (from February) saved the telco from a drop in sales and earnings. DT has a 30% stake in OTE, which despite weaker revenues and profits, added €1.5bn to the German giant's Q2 sales and €500m to EBITDA, adjusted for exceptional items and restructuring.

CEO Rene Obermann said the main priority had been to "counter the trend" in Poland, the US and UK, whose weak performance prompted a shock profit warning in April, and the intense speculation that T-Mobile UK would soon be sold, possibly to Vodafone in an asset swap with Vodafone Turkey (which would complement OTE in building DT's central Europe business).

In the US, it was clear how much the country's fourth cellco needs to accelerate its move towards offering true 3G services and the type of smartphones that drive increased data usage and ARPU (it has used an early focus on Android, with the HTC G1 and soon the Magic, to spearhead this and try to close the gap with AT&T's iPhone).

T-Mobile USA improved its second quarter Ebitda margin by 4.4 percentage points to 30% on lower operating costs, compared to Q1. This was not enough to please Obermann. "In dollar terms there was no growth in the second quarter," he said."We intend to change that in the medium term, but the turnaround will not be in the third quarter."

US revenue fell by 2.3% to $5.34bn while adjusted Ebitda fell 0.5% to $1.6bn. T-Mobile USA has previously been a key growth driver for DT. But now its revenue and growth have slowed dramatically and ARPU has declined. The addition of net new customers has slowed too, to 325,000 from 415,000 in Q109 and 668,000 in Q208 - it now has a total of 33.5m. Of the new adds, 268,000 were prepaid and there was "higher churn of contract customers". This pattern drove down ARPU, to $48 from $52 a year earlier, with data ARPU at $9.90. By contrast, Verizon Wireless added 1.5m new subscribers during the quarter and had an ARPU of $51.53, and its wireless revenues grew 11.6% to $10.5 billion, largely on the strength of demand for data services. Meanwhile AT&T saw its revenues rise 15.8% to $12bn with stronger subscriber and data gains.

For the UK, Obermann said T-Mobile will unveil its new strategy in a few weeks and refused to reveal any more. In Germany, total sales fell 3.8% to €1.88bn on a 5.1% decline in broadband and fixed line revenues.

For the group, net profit rose 32% to €521m largely because of lower interest payments. Revenue rose 7.4% to €16.24bn, while earnings before interest, taxes, depreciation and amortization, adjusted for one-time items and restructuring, rose 8.4% to €5.26bn, chiefly because of the consolidation of OTE.

The telco confirmed its guidance for full year adjusted Ebitda, excluding OTE, to be 2% to 4% below the €19.5bn posted in 2008, with an additional contribution of €2bn from OTE. But the firm said: "There is lot of work ahead to meet our guidance."