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Deutsche Telekom-owned T-Mobile has become the latest mobile operator group to feel the effects of the global economic downturn, fierce competition and unfavourable currency fluctuations, as the group’s most recent quarterly figures flagged problems at three of its largest mobile units, the UK, US and Poland.

T-Mobile UK – the group’s third-largest unit in terms of customers and revenue – was hardest hit. Deutsche Telekom took a EUR1.8 billion charge on its UK business for 1Q09, which saw the parent group swing to a EUR1.124 billion net loss for the quarter. Revenues at T-Mobile UK dropped 21 percent over the year to EUR836 million. This was due mainly to the decline in value of the UK pound, but the group also cited lower roaming and termination revenues, and higher subscriber acquisition and retention costs. According to our data, T-Mobile UK was the group’s only major mobile unit to lose customers over the year; connections declined 2.6 percent to 16.7 million as it struggled to compete as the fourth-placed operator in the fiercely competitive UK market. 

Deutsche Telekom has demonstrated its commitment to turning around the ailing unit by installing a new management team, but it is understood to be under pressure from shareholders to find a more immediate solution. The options reportedly being considered are a merger with the UK’s fifth-placed operator, 3 UK, or selling the unit altogether.

It was a similar situation at its Polish unit, PTC, which saw revenues drop 20.6 percent in the year to 1Q09, as the local currency (the Zloty) slumped 26 percent against the euro. A rise in operating costs was also a factor but – unlike at T-Mobile UK – PTC managed to grow its subscriber base over the period.

Currency fluctuations were favourable with regards to T-Mobile USA, which saw revenues grow 20 percent to EUR4.2 billion and earnings (EBITDA) rise 10 percent to EUR1.1 billion as the US dollar strengthened against the euro. However, in dollar terms, revenues only rose 4 percent and earnings declined 4 percent. As in the UK, T-Mobile USA is the country’s fourth-placed operator and is deemed to be struggling to compete with larger competitors. The operator cited a decrease in roaming revenues and higher customer acquisition and retention costs, and also costs associated with the rollout of its new WCDMA network.

Revenue growth at T-Mobile USA over the year was attributed mainly to the 7.8 percent rise in customers, but was offset by a decline in ARPU. There was also a noticeable shift in the operator’s customer mix over the period, as prepaid customers accounted for 60 percent of net additions in the 1Q09, compared to just 25 percent in the year-earlier quarter. T-Mobile USA said the lower share of contract customers in the quarter was due to an increase in contract customer churn caused by customers whose two-year contracts (that were first introduced in April 2006) came to an end. Despite these problems, our data shows that the US business accounted for 45 percent of Deutsche Telekom’s total mobile revenues in the quarter, more than double the revenue contribution made by T-Mobile Germany, its largest market by subscribers. T-Mobile USA’s revenue contribution would be even higher if the various mobile subsdiaries acquired via Deutsche Telekom’s purchase of Greek operator OTE are excluded (Deutsche Telekom included OTE data in its results for the first time in 1Q09, see table). T-Mobile USA now accounts for 26 percent of Deutsche Telekom’s entire group net revenue (including its fixed-line, broadband and other businesses), up from 23 percent in the year-earlier period.

Rollout of T-Mobile USA’s WCDMA network continued to gather pace in 1Q09, supported by capex at the unit of EUR865 million, almost twice the amount spent in the year earlier quarter (EUR480 million). WCDMA and WCDMA-HSPA connections accounted for over 5 percent of T-Mobile USA’s connections base in 1Q09, and we forecast that this could reach as much as 15 percent by year-end as the network continues to be rolled out across the country. T-Mobile USA does not offer the Apple iPhone 3G (as T-Mobile does in several European markets) but it has seen success with T-Mobile G1, the HTC-manufactured device that was the first to support Google’s Android platform when it launched last October. The operator has sold over 1 million G1 handsets to date. It also launched its first USB mobile broadband dongle – known as webConnect – during the quarter, which is compatible with both its WCDMA and Wi-Fi networks.

Meanwhile, T-Mobile Germany – in Deutsche Telekom’s home market – remained the firm’s largest mobile market in terms of connections, though both revenues and earnings (EBITDA) were flat over the year. Like elsewhere in Europe, the unit was hit by competitive pressures and regulatory developments around roaming. However, the firm noted that a recent cost management drive at T-Mobile Germany has been successful. The business is also in the process of being merged with Deutsche Telekom’s fixed-line and broadband businesses in Germany to create a single management unit for its German operations.

Matt Ablott, Analyst, Wireless Intelligence

As demonstrated by the late rollout of its WCDMA/HSPA network in the US, T-Mobile has lagged rival operator groups in terms of high-speed coverage in most markets. To date, its HSPA strategy has been based around USB dongles for laptops (rather than handsets), though it only sold 60,000 laptops last year, representing a tiny share of its connections base. However, the first-quarter marked a major push into the mobile Internet space, including new netbooks (such as the 700 series HP Compaq), mobile Internet devices such as the iPhone and G1, and continued support for its web’n’walk mobile Internet initiative, which is now being positioned as a widget-based platform. In 1Q09, non-voice revenue increased by more than 40 percent year-on-year to EUR432 million in Europe, and by 31 percent to US$467 million in the US. In the US, T-Mobile is investing significant capex in expanding the high-speed network throughout the country this year in the hope that it will provide a solution to slowing revenue growth at the unit. In a market such as the US, which accounts for the lion’s share of group revenue, the investment is justified, but cost-cutting will be a more likely strategy at struggling units such as T-Mobile UK.