Deutsche Telekom's European operations hit by regulation in Q3

Deutsche Telekom blamed the impact of regulation for a 3.6 per cent year-on-year decline in revenue from its European operations (excluding the UK and Germany) that translated into a 10.1 per cent drop in earnings before interest, depreciation and amortisation (EBITDA) in the third quarter of 2014.

Deutsche Telekom CEO Tim Höttges

Deutsche Telekom CEO Timotheus Höttges

The operator's businesses in Austria, Romania, Greece, Slovakia and Hungary generated EBITDA of €1.1 billion ($1.3 billion) during the quarter, though adjusted EBITDA grew 1.3 per cent annually. European revenue fell to €3.3 billion, which Deutsche Telekom said was due to regulatory decisions relating to mobile services in the market.

Despite the revenue decline, Deutsche Telekom was buoyed by the performance of its European businesses, noting each unit showed "strong development" during the third quarter.

The operator said that the number of LTE sites in its European operations grew four-fold to 11,900, and that 35 per cent of its fixed network lines were IP based by the end of the third quarter, an 11 percentage point increase on the same period in 2013.

Deutsche Telekom splits out its domestic business from its broader European results. EE, the operator's UK joint venture with Orange, reports its results separately.

The company said it remained the "the clear leader" in terms of German mobile service revenues during the third quarter. However, total revenue at the division fell 1.5 per cent year-on-year to €5.6 billion. Domestic EBITDA declined 1.4 per cent to €2.2 billion on the back of higher costs associated with launching new converged service tariffs and Apple's latest iPhone.

Deutsche Telekom lost its crown as the country's largest mobile operator by subscriber numbers when Telefónica Deutschland completed an acquisition of rival E-Plus during the quarter. However, Deutsche Telekom said it strengthened its position as the country's number two operator in terms of user numbers.

Contract mobile subscribers in Germany increased by 432,000 during the quarter, and the operator also signed up 225,000 new customers to its fibre services.

The operator's highly sought-after T-Mobile US business enjoyed record customer growth during the third quarter, with 1.4 million postpaid subscribers added and 411,000 pre-pay users. The subscriber growth failed to translate to higher earnings, though, with EBITDA falling 14.7 per cent year-on-year to €869 million. Deutsche Telekom blamed higher customer acquisition costs for the decline, and noted T-Mobile US revenues increased 8.7 per cent year-on-year to €5.6 billion.

T-Systems, the operator's ICT subsidiary, recorded a 65.6 per cent drop in EBITDA year-on-year to €44 million, while revenues fell 4.9 per cent to €2 billion.

Deutsche Telekom CEO Timotheus Höttges said the company is "clearly making progress" despite the different challenges presented by each region Deutsche Telekom operates in.

"Whether in the Unites States, Europe, or our home market of Germany, it has been a very successful quarter for us," Höttges said.

Overall, the company generated a net profit of €506 million in the third quarter, a 13.9 per cent drop on the same period in 2013. Revenue grew a marginal 0.8 per cent year-on-year to €15.6 billion--beating analyst forecasts of €15.5 billion, Bloomberg reported.

For more:
- see Deutsche Telekom's Q3 earnings announcement
- view this Bloomberg article

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