Deutsche Telekom shakes market with credit crunch warning

Top-tier German carrier Deutsche Telekom sent a tremor through the market this week when it warned that earnings before interest, tax, depreciation and amortisation (EBITDA) would be between two and four per cent lower than expected in 2009.

Despite being able to consolidate financials from Greek carrier OTE during the first quarter, the company is feeling the bite of the credit crunch, as well as pressures from competition.

During the first three months of 2009, excluding the consolidation of OTE, Deutsche Telekom’s revenue remained stable at around Eur15bn, with adjusted EBITDA dropping by five per cent year on year to Eur4.5bn.

Commenting on the profit warning, chief financial officer Timotheus Hottges said: “We are currently in difficult times for rapid, comprehensive and clear communication. For that reason, we have decided to inform our shareholders as early as possible.”

Monthly ARPU (average revenue per customer) in the US fell as a result of lower roaming revenues due to a decrease in consumer travel, while the rollout of the carrier’s 3G network increased expenditure and costs.

Polish operation PTC suffered considerably from the sharp decline in its home currency, the Zloty, which fell around 26 per cent year on year against the Euro. Meanwhile T-Mobile UK recorded a significant drop in revenues of around 21 per cent due to the fall in the value of Sterling.

Commenting on the announcement Michael Kovacocy, European telecoms analyst and sector strategist at Daiwa Securities, said Poland is in the least of the company’s problems, while the situation in the US and the UK is more problematic and less likely to be easily resolved in the mid-term.

“Based upon our analysis, the UK business suffers not simply due to the existence of one too many competitors. T-Mobile UK’s problems go deeper, in that market maturity has combined with macro-economic weakness to drive customers increasingly towards price-sensitive behaviour and SIM-only offers. We have been bullish on the prospects of SIM-only for some time, but there is a difference between being a leader and 1st mover (Telefonica/O2 and “Simplicity”) and a follower,” he said.

The analyst also notes that top line growth in the US has slowed largely as a result of macro-economic induced cost-saving behaviour and increased competition. “With net adds down to 415k in 1Q 2009 versus 981k in 1Q 2008 and organic revenue up only 1.6 per cent over the same period, these figures indicate substantial operational deceleration which will not easily reverse, especially given US macro weakness,” Kovacocy said.

In related news, T-Mobile’s German network suffered a nationwide collapse on Tuesday, leaving nearly 40 million customers without voice and SMS. No details have yet emerged on the nature of the outage, although some reports suggest a “software glitch”.