Deutsche Telekom AG, the former incumbent in Germany and Europe’s largest telecoms operator, has promised its shareholders an “attractive” dividend after its second-quarter results revealed strong growth in its mobile business.
For the second quarter, the group as a whole reported net income up at 1.65 billion euros ($2.02 billion), from 256 million euros ($313 million). Sales rose 6% to 14.4 billion euros ($17.63 billion), up from 13.59 billion euros ($16.63 billion) in the same quarter in 2003.
The principle growth engine for the carrier continues to be its mobile division, T-Mobile, which is the world’s fourth-largest mobile operator (by users). In the second quarter it posted earnings before interest, tax, depreciation and amortization of 1.9 billion euros ($2.36 billion), up from 1.7 billion euros ($2.13 billion). Sales rose 12% to 6.2 billion euros ($7.63 billion), from 5.6 billion euros ($6.79 billion) a year earlier.
The principle driver of T-Mobile’s success is its US operation, T-Mobile USA (the former VoiceStream operator that DT bought at the height of the telecoms bubble). T-Mobile USA recorded a 30% sales rise and is the second-fastest growing wireless company in the region behind Verizon Wireless, the largest US mobile-phone operator.
It added 1.1 million users in the quarter to give it a total subscriber base of 15.4 million in the United States alone. DT now is forecasting that it will have 17 million customers by the end of the year.
The addition of 1.1 million users in the US unit has meant that T-Mobile USA has now overtaken the UK unit to become the carrier’s largest wireless business (by subscribers) outside Germany. In the UK, during the second quarter T-Mobile added 556,000 new customers, increasing its UK subscriber base to 14.9 million.
Worldwide, T-Mobile added 2.2 million mobile customers in total to its 65.7 million customer base.
The fixed-line unit (T-Com) remains Deutsche Telekom’s core business, producing more than half of the group’s earnings, despite the weak German economy and increased domestic competition. Sales at the unit dropped to 6.8 billion euros ($8.41 billion) from 7.1 billion euros ($8.75 billion). T-Com’s EBITDA rose 1.5% to 2.6 billion euros ($3.17 billion).
The unit is still seeking a new boss after Josef Brauner quit because he failed to build a working road-charging system for trucks by the government deadline. In the last quarter of 2003, DT was hit with a huge 442 million euros ($540.7 million) charge to cover losses at Toll Collect, and in the first quarter of 2004 was hit with another charge of 148 million euros ($181 millio).
T-Systems, the information technology services arm, increased sales by 2.3% to 2.6 billion euros ($3.21 billion), while EBITDA rose 7.1% to 361 million euros ($441 million).
The T-Online International AG Internet unit (in which DT owns a 74% stake) recorded an 11.4% rise in sales after it used discounts to sign up more clients for high-speed Internet access. DT has raised its year-end broadband subscriber target by 12% to 5.6 million users.
Buoyed by its strong performance in the quarter, the Bonn, Germany-based carrier plans to pay its first dividend in three years. It will give details on the payout plan in the third-quarter earnings report.
DT also continues to make impressive inroads to reducing its colossal net debt burden, which at the end of 2002 stood at 61.1 billion euros ($74.75 billion). When CEO Kai-Uwe Ricke took charge in 2002, the carrier looked to be in serious trouble after over extending itself during the late 1990s.
But Ricke has now managed to cut debt by almost a third, which now stands at 43.3 billion euros ($52.97 billion) at the end of June, down from 44.6 billion euros ($54.56 billion) at the end of March.
Ricke has been offloading non core assets to help this debt reduction. In January, T-Mobile agreed to give Virgin Group Ltd its 50% stake in their wireless venture Virgin Mobile (which recently floated on the London Stock Exchange). T-Mobile received 50 million pounds ($91 million) for the shares.
Then in May DT raised 260 million euros ($318 million) by selling about half its holdings in Luxembourg-based satellite broadcaster SES Global. These sales however were offset in May when DT agreed to buy wireless networks in the US for $2.5 billion.
Looking forward, DT reiterated a forecast for adjusted earnings before interest, tax, depreciation and amortization of 19.2 billion euros ($23.47 billion) this year.