Deutsche Telekom AG has admitted that 2005 was a difficult year, but a strong performance from its mobile operation once again allowed the largest telecoms carrier in Europe to post impressive year-end results.
For the fourth quarter, net income fell 43% to 989m euros ($1.18bn) from 1.73bn euros ($2.08bn) in the fourth quarter of 2004. Most of the decline was because it booked a goodwill depreciation of 1.9bn euros ($2.27bn) for the UK operations of its T-Mobile unit.
Group sales however rose 5.4% to 15.51bn euros ($18.6bn) from 14.72bn euros ($17.65bn) in the year-ago period. This growth was once again driven by T-Mobile where sales increased by 17.5% to 7.9bn ($9.48bn) in the fourth quarter alone.
For the year ending December 31, group net income rose 250.5% to 5.6bn euros ($6.69bn) from 1.6bn euros ($1.91bn) in 2004. It is perhaps hard to believe that it was only three years ago when Deutsche Telekom reported one of the biggest annual net losses in German corporate history. Sales meanwhile for the year rose 3.9% to 59.6bn euros ($71.23bn) from 57.3bn euros ($68.49bn) in 2004. T-Mobile recorded a 11% rise in year-end revenue to 29.5bn euros ($35.4bn).
The carrier also made good progress in reducing its massive debt burden, which fell 3.2bn euros ($3.82bn) down to 38.6bn euros ($46.13bn).
2005 was not an easy year for us, but it was successful in terms of the company’s financial development, said the company’s chief executive Kai-Uwe Ricke. Competition in our markets has become tougher, and I mean much tougher. Nonetheless, we managed to hit our targets and continue the positive development of Deutsche Telekom in 2005. We have continued to grow in a profitable way, without additional acquisitions, in other words solely on the basis of our own efforts.
Operationally, T-Mobile remains the key asset of the German carrier, and the strong growth from its US unit (T-Mobile USA) apply illustrates why Ricke last year ruled out any sell-off of its prized US asset.
Customer numbers at T-Mobile USA rose by 4.4 million (nearly 25%) to 21.7 million during the year. This still leaves US mobile operator in a distance fourth position behind the big three in the US market, but fourth is still better than no position at all in the world’s most valuable mobile market. Of T-Mobile revenue, 40% is attributed to T-Mobile USA. This is one of the reasons why Deutsche Telekom is prepared to spend in the forthcoming auctions in the US for additional spectrum, scheduled for June 29.
T-Mobile Deutscheland added 2.1 million customers to leave it in the number-one slot in Germany, with a total customer base of 29.5 customers. T-Mobile UK, including Virgin Mobile, grew its UK customer base to 17.2 million.
Overall, Deutsche Telekom grew its overall mobile customer base 12% in 2005, to 86.6 million customers globally, which helped drive a 11% rise in T-Mobile’s year-end revenue.
The broadband/fixed network continued to benefit from strong growth of DSL. Broadband saturation levels in Germany are lower than those is other western European markets. As of June last year, Germany had broadband penetration rates of 10.2%, compared to 12.8% in France, and 13.5% in the UK, according to figures from the Organization for Economic Co-operation and Development.
During 2005, Deutsche Telekom revealed that the number of broadband lines in service increased by 2.4 million to 8.5 million, with 7.9 million in Germany. This German figure includes 1.3 million resale DSL lines (marketed by other service providers). Deutsche Telekom is in the process of merging its broadband (T-Online) and fixed-line (T-Com) units, as fierce competition and price pressures took their toll on fixed-line market, and revenues declined 3.6%. The services division (T-Systems) did not perform as well as other units, and posted both a profit and revenue fall.
Ricke re-affirmed Deutsche Telekom’s commitment’s to its new 3bn euro ($3.5bn) high-speed fiber-optic network, which is currently at the center of intense scrutiny and possible legal action from European telecoms commissioner Viviane Reding, after the German government agreed to exempt it from regulation for two to three years. Ricke hinted at the controversy by continually stressing the competition and intense regulation that Deutsche Telekom faces.
Here in Germany, competition is undoubtedly tougher than in many other countries, no least because of regulation, said Ricke. He did however admit that internet telephony has not yet taken off in Germany as in some other countries.
Ricke intends to use the fiber-optic network to spearhead the company’s move into triple-play services, and by 2007 he aims to secure 1 million triple-play customers on the new network.
Deutsche Telekom also confirmed it would press ahead with plans to cut 32,000 jobs over the next three years, despite the fact that it has failed to reach an agreement with its services union, Ver.di. In an olive branch to the union, Ricke said the offer is still on the table – and we are always willing to talk.
The restructuring, which will involve no compulsory job losses, will cost 3.3bn euros ($4bn) and is modest given that the workforce at Europe’s biggest carrier is 244,000. The biggest reductions will be at T-Com, which runs the fixed-line network, where 20,000 of 47,000 jobs are to go. A further 5,500 jobs are to go at T-Systems, and 7,000 employees will be moved on a permanent basis to private company Vivento, which operates a large call-center operation. The company also plans to cut 1,500 jobs in the group’s centralized functions.
Looking forward, the carrier reaffirmed its guidance for the year. It expects revenue growth of about 5% in 2006 to reach somewhere between 62.1bn euros ($74.44bn) and 62.7bn euros ($75.16bn). It also expects 5% revenue growth in 2007, and adjusted EBITDA in 2006 to be between 20.2bn euros ($24.2bn) and 20.7bn euros ($24.8bn).
It also proposed to pay the highest dividend in its history, with a 16% increase in its dividend payout to 0.72 euros ($0.86) per share. This means that it will be paying shareholders 3bn euros ($3.6bn) compared to 2.6bn euros ($3.12bn) in 2004.
Shares in the carrier rose 1.56% to $16.32 on the New York Stock Exchange.