Deutsche Telekom ups guidance and it's not all about the US

Deutsche Telekom has upgraded its full-year guidance for earnings and free cash flow, in no small part due to a strong performance at its newly-enlarged US operation…but not entirely.

The German incumbent, which posted a solid set of first-quarter results, now puts full-year EBITDA after leases at over €37 billion, having previously guided at around the €37 billion mark, and similarly expects free cash flow to exceed €8 billion, rather than around €8 billion.

It’s not a big hike and it doesn’t come as a huge surprise, given that T-Mobile US raised its own guidance when it posted Q1 numbers earlier this month. But the increase also reflects the group’s performance outside of the US. Deutsche Telekom expects to generate adjusted EBITDA AL of around €14.4 billion outside the US, up from its previous forecast of €14.3 billion, and has raised its free cash flow AL outlook to €3.6 billion from €3.5 billion.

“Our customer numbers and key financial metrics are on track on both sides of the Atlantic,” said chief financial officer Christian Illek.

T-Mobile reported huge growth in revenue and earnings in the US because its Q1 figures include Sprint, but it has not restated the year-ago quarter to provide a like-for-like comparison. As such, at group level revenues were up by nearly a third to €26.4 billion, while EBITDA AL grew by more than 41% to €9.2 billion. However, stripping out the Sprint effect, and adjusting for exchange rates, the group posted a solid 7.1% increase in revenues in Q1 and 8.3% growth in adjusted EBITDA AL.

And that organic growth came not only from the US but also from Germany, where the telco’s turnover grew by 1.9% and earnings by 3.4%. Fibre is driving success in Germany, Deutsche Telekom said in its Q1 report. It recorded 93,000 net broadband additions during the quarter, an increase of 10,000 on Q1 last year, and by the end of March claimed 16.3 million fibre-based lines, up by 1.5 million over 12 months. Those fibre lines include both fibre-to-the-home (FTTH) and fibre-to-the-cabinet (FTTC)/vectoring though.

Interestingly, Deutsche Telekom’s Q1 numbers coincide with the publication earlier this week of a new set of market statistics compiled by Germany’s VATM and Dialog Consult.

The firms predict that by mid-2021 Germany will have 29.3 million gigabit-capable connections, including DOCSIS 3.1 and FTTH/FTTB, an increase of 1.4 million, or around 5%, since the end of last year. Interestingly, just 8% of those connections will be provided by Deutsche Telekom, with 92% coming from alternative providers.

German economist and Dialog Consult board member Torsten J. Gerpott noted that competitive pressure is now pushing the incumbent to roll out FTTH/B and predicted that it should have built out 2.3 million lines by mid-year. By the same date altnets will have rolled out 3.7 million FTTH/B lines though, giving a market total of 6 million, of which 2.1 million will be live customer connections.

“What is notable is that seven out of 10 end customers buy such a connection from the alternative providers,” VATM/Dialog Consult points out. “While the competing companies achieve a take-up rate of almost 40% for real fibre-optic connections, this is less than 30% for Telekom.”

While Deutsche Telekom might be pleased with its performance in Q1, it looks like it still has some work to do when it comes to building – and more importantly, selling – FTTH/B connections.