Deutsche Telekom backs T-Mobile US revival with more cash

Deutsche Telekom backs T-Mobile US revival with more cash

08 AUG 2013

Following the launch of its ‘un-carrier’ strategy, T-Mobile US recorded a bumper 688,000 increase in contract subscribers during Q2 2013, the first post-paid growth since Q2 2010.

Deutsche Telekom, which holds a 74 per cent stake in T-Mobile US (a merger of T-Mobile USA and MetroPCS) says an extra €500 million will be set aside this year to strengthen US operations.

On announcing Q2 results, Deutsche Telekom said previous free cash-flow guidance of €5 billion – for the group – had been cut to €4.5 billion on account of increased customer acquisition costs and marketing at T-Mobile US. Deutsche Telekom has set a target of boosting its US post-paid subscriber base by a further 700,000 by the end of year.

The separating out of handset costs and the introduction of simplified tariffs, plus the iPhone launch on 12 April, appears to have sparked a revival at Deutsche Telekom’s US mobile operations.

Year-on-year Q2 revenue climbed 28.8 percent, to $6.3 billion. As well as the first-time consolidation of MetroPCS, says Deutsche Telekom, “this was primarily due to much higher revenue from handsets”.

The large number of new customers (and existing customers) acquired some 4.3 million smartphones during the Q2, accounting for 86 per cent of all handsets sold over the period. By contrast, in Q2 2012, just 2.1 million smartphones were sold.

As of 30 June, T-Mobile US had around 44 million subscribers. Of these, 8.9 million prepay customers were attributable to the first-time consolidation of MetroPCS. Another 1.13 million were added across all customer segments (which includes wholesale and post-paid) during Q2 2013. There had been a decline of 205,000 customers in the prior-year period.

At the same time, Deutsche Telekom says LTE rollout in the US is ahead of schedule. The network now covers 157 million people, compared with the original plan of covering around 100 million people by the middle of the year.

However, increases in costs for customer acquisition and marketing led to a 10.3 percent decrease in underlying cash profits (excluding one-off items), to $1.2 billion, at its US operations.

At a group level, Deutsche Telekom expects full-year adjusted EBITDA (or underlying cash profits) of around €17.5 billion, down from the earlier projected pro forma figure (including MetroPCS) of €18.4 billion. The difference, says Deutsche Telekom, is entirely due to increased expenses at T-Mobile US.

Deutsche Telekom’s Q2 sales rose 5.4 per cent, to €15.2 billion, beating the €14.6 billion average estimate among analysts compiled by Bloomberg. As well as the T-Mobile US boost, Deutsche Telekom added 434,000 contract customers in its domestic mobile market.

“Performance of the mobile business in Germany and the US is somewhat stronger than expected,” said Wolfgang Specht, an analyst at Bankhaus Lampe, quoted by Bloomberg, who recommends holding Deutsche Telekom shares.

Deutsche Telekom’s year-on-year net profit for H1 2013 increased 6.5 per cent, to €1.1 billion, helped by lower impairment losses.

Net debt, however, increased 12.2 per cent (compared with the end of 2012) to €41.4 billion as of 30 June 2013. The increase was primarily attributable to the first-time inclusion of MetroPCS (€3.4 billion), dividend payments (€2 billion) and spectrum purchases (€1.1 billion), particularly in the Netherlands and Romania.


Ken Wieland

Ken has been part of the MWC Mobile World Daily editorial team for the last three years, and is now contributing regularly to Mobile World Live. He has been a telecoms journalist for over 15 years, which includes eight...More

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