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Deutsche Telekom issues profit warning

German carrier Deutsche Telekom saw its shares take a dive on Monday morning after the firm issued a profit warning Sunday night.

The warning, the second in six months, has been blamed on fierce domestic competition at home and the weak dollar.

The telco adjusted its expectation for group revenue and adjusted EBITDA (earnings before interest tax, depreciation and amortisation) for 2007 “in accordance with the extremely tough domestic competitive environment”.

The expectation for adjusted earnings is now Eur19bn, compared to the previous guidance of Eur19.7bn to Eur20.2bn. In terms of group revenue, a moderate increase is expected for 2007.

For 2006, the company expects to meet the expectations for group adjusted EBITDA at between Eur19.2bn and Eur19.7bn. Group revenue of Eur61.3bn is lower than previous guidance at Eur61.5 to Eur62.1bn.

DT said that in the fiercely competitive domestic market, fixed line unit T-Com will play an increasingly important role, strengthened by increased expenditures for service and marketing.

The operator said it aims to drive up its broadband subscriber base, partly through the build out of its VDSL network in 50 cities.

However, the company also said that given “today’s perspective demand for T-Home”, the operators forthcoming IPTV service, development will be slower than originally anticipated.

Ovum analyst, Mike Cansfield, noted that this is the second profit warning from DT in six months. “The underlying problems that face DT remain unresolved – being uncompetitive in its home market and shackled with a high-cost business,” he said.

In March, newly installed CEO Rene Obermann is due to announce his strategy. “If he is to succeed where his predecessor Kai-Uwe Ricke failed then he has to tackle both the revenue and costs lines,” Cansfield said.


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