Deutsche Telekom releases highly efficient quarterly results

Europe’s largest telco Deutsche Telekom has released healthy quarterly results, praising the US T-Mobile business unit in particular.

Group revenues grew by 5.9% to €18.1 billion for the third period, with its home market in Germany decreasing slightly to €5.5 billion and the US accounting for €8.2 billion, a 17.3% year-on-year increase. The European region on the whole, excluding Germany, increased by 1.2% across Q3 to €3.2 billion.

The Uncarrier initiatives in the US were strongly praised for a strong boost to the number of new customers and also to service revenues across the period, though European business faced what it described as “persistently intense competition in the telecommunications markets”.

Broadband in Germany seems to be heading in the right direction for the company, though mobile numbers showed a slight decline year-on-year. Broadband revenue increased steadily in each quarter of 2016 and was up 1.7% year-on-year as of the end of the third quarter. The team expect this growth through Q4 also, and plan to connect another 2.7 million households to a fibre-optic line by the end of 2016.

As with the rest of the industry, the mobile business noted a change in consumer behaviour. The number of minutes used by DT mobile customers decreased by 4.6% year-on-year for the quarter, though monthly data usage increased by 80% for the same period to almost a gigabyte.

This consumer behaviour was reflected in the DT business itself as it focused more on higher data volumes for its contracts, as well as building out its LTE mobile network, which it claims now covers 92% of the population, an increase of 5 percentage points compared with the prior-year quarter.

In the US, 2 million customer additions were seen over Q3, 969,000 in the branded postpaid segment. Churn rate decreased to 1.32% over the quarter, compared to 1.46% in Q3 for 2015 and 1.64% in 2014.

“These figures show once again that we are on the right track in our markets,” said Tim Höttges, CEO of Deutsche Telekom. “We are working on the technologies and products of the near and more distant future – on the basis of a convincing strategy.”

The figures to date are largely in line with the team’s projections across the year, as the first three quarters demonstrated just over 4% year-on-year growth, and while the European performance may not be as barnstorming as the US business, it does represent the restructuring initiative the group is currently undertaking.

Aside from competitive markets and the challenge of OTTs eroding the profits of the telcos across the European market, DT is also moving towards a more centralized approach to business. In the last couple of weeks, the team opened a new Pan-European production site in Hungary, and plan to open two more in Poland and Greece in 2017.

In an example of typical German efficiency, these production sites will be responsible for providing services for all European national companies in the form of product modules like voicemail, text messaging, and e-mail. Each national business can individually select these modules, in line with the needs of the respective local market, though the products are standardized across the European region to increase efficiency, co-operation and profitability.

This Pan-European production model with a standardized IP-based infrastructure is what the team hope will bring healthy growth figures back across Europe. While this sounds like a very sensible strategy (would you expect anything less from our German cousins), it’s not smooth sailing just yet.

The euphoria surrounding Brexit has died down and has been replaced by the Presidential Election (I mean what were those American’s thinking by not taking into consideration how 30-somethings in Europe thought – #gawd), though the DT management team is seemingly keeping a sceptical eye on the situation.

“The uncertainty arising from the aftermath of the UK referendum should only have a marginal impact on economic growth in Europe in 2017 if the exit from the European Union proceeds in an orderly fashion,” the company said in its financial statement.

“The vote of the British people to leave the European Union and the political implementation of this decision, coupled with the danger that other countries may also seek to leave the European Union, could have a negative impact on economic development in Europe in particular, and, consequently, on the global economy.”

The Brits may not be thinking about Brexit anymore but the DT management team are certainly keeping a close eye on how far the ripples will spread around Europe. And the prepared statement hasn’t even taken into account how the US election results will impact (positively or negatively) the local and global markets.

All-in-all, DT seems to have had a relatively positive year to date. Although the impact of its Pan-European production model is not likely to have a material impact for the next couple of quarters, the team seem to be putting in efficiency and productivity measures to tackle what is increasingly becoming a more competitive and demanding market in Europe. All very German.