Deutsche Telekom shocks markets with poor mobile ops performance

Europe's largest telco, Deutsche Telekom (DT) stunned the world's stock markets by issuing a profits warning, stating that a weak Q1 performance by its mobile operations in the US, the UK and Poland had hurt the group's overall profitability. The impact of this warning was exacerbated by an announcement from DT less than seven weeks ago that EBITDA would be €19.5 billion, whereas it appears more likely the number will be between €18.7 billion and €19.1 billion.

Stressing that DT wasn't in a crisis, the company's CEO, Rene Obermann, said the impact of the economic slowdown and the more intense competitive environment, particularly in the US and the UK, had been the main causes--not helped by a fall in roaming revenues as consumers cut back on travel.

In an effort to turn around the situation, DT said T-Mobile UK would come under strict cost control in admin, advertising and IT systems, together with the new management of the UK subsidiary under instructions to repositioning the company. DT said it expected to report a non-cash impairment charge against the goodwill value of its UK operation. This suggestion triggered rumours DT might even put T-Mobile UK up for sale.

While T-Mobile US has been given the OK to expand its range of 3G handsets for this year, it has also been tasked with cutting marketing and travel costs, freezing salaries and renegotiating interconnection charges.

Meanwhile DT's Polish subsidiary, Polska Telefonia Cyfrowa has been told to cut advertising and staff costs, and reduce its outlay on customer acquisition and retention. On the up-side, T-Mobile Germany managed to report slightly better results than expected.

Obermann has also committed to freeze €1 billion of Capex out of its overall budget of €8 billion to ensure the group would end the year with €6.4 billion of free cash flow, down from €7 billion, to fund dividends.

For more on this story:
Financial Times and Wall Street Journal

Related stories:
Deutsche Telecom posts surprise Q4 loss
T-Mobile and Deutsche Telekom to merge operations
Deutsche Telekom exec: Android, not Windows Mobile, is the future
T-Mobile UK to chop 5,000 cellphone masts