Deutsche Telekom rattled by domestic pressures

Germany’s incumbent carrier, Deutsche Telekom, spooked the stock market Thursday as it reduced revenue guidance for 2006 by Eur600m (£405m) on the back of aggressive competition in its domestic market.

The operator recorded a 3.2 per cent drop in net profit for the first half of 2006, down from Eur2.15bn in 2005 to Eur2bn. EBITDA also dropped 3.7 per cent to Eur9.6bn, while consolidated revenues for the first half increased 3.2 per cent to Eur29.9bn, from Eur29bn a year ago.

Deutsche Telekom is feeling increasing pain in its home market, where competitive pressure led to a 4 per cent decline in revenue to Eur16.3bn across the three strategic business areas. International revenues were on the ascent however, rising 13.5 per cent to Eur13.6bn on the back of strong performance by mobile operations in the US and UK.

T-Mobile Germany’s revenues declined 3.3 per cent despite signing up more customers and as a result the cellco will launch simplified and lower prices in an attempt to increase the level of usage. “New bundled offers will cost well under 10 cents per minute, regardless of which network is being called,” said Deutsche Telekom chief executive Kai-Uwe Ricke.

Domestic revenue in the broadband and fixed line sector declined by 6.5 per cent year on year due to a decrease in access, call and interconnection revenues. The T-Com unit also lost approximately 500,000 lines in the second quarter of 2006 as a result of customers’ switching to other networks and as a result of mobile substitution. T-Com will launch a new pricing and product structure that is geared towards bundled products and is aimed at customers considering changing to bundled offers of alternative network operators. With the new structure, starter offers for the combination of telephone and broadband internet will cost under Eur40, Ricke said.

Dan Bieler, analyst at Ovum, commented: “Reality is beginning to catch up with Deutsche Telekom as it has not effectively adjusted to the changing world of telecoms. This set of financial results highlights that the growth at T-Mobile USA can no longer hide serious deficits in domestic performance.”

Bieler noted that, in fairness, most other incumbents are reporting a similar financial performance in their respective domestic markets. However, others have been quicker to accept the changing realities in the converging market place.

“But change seems to be underway. Now, years after BT and KPN, Deutsche Telekom talks about accelerating the conversion to an IP-based production platform,” he said.

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