Deutsche Telekom profit up, cuts outlook

Deutsche Telekom reduces profit outlook on costs for building bigger US customer base

Associated Press

FRANKFURT, Germany (AP) -- Telephone company Deutsche Telekom AG said net profit increased 10 percent in the second quarter to 530 million euros ($704 million) on lower one-time charges — but cut its profit target for the year due to the costs of adding customers in the United States.

The company said Thursday it was adding "droves" of customers in the U.S. market but that spending on marketing and other expenses there would rise, and that it was willing to pay those costs to broaden its business there.

It said 2013 earnings excluding financial items such as interest, taxes and depreciation would now come in at 17.5 billion euros, down from the earlier estimate of 18.4 billion for the full-year. The figure includes mobile provider Metro PCS, which merged with Telekom's U.S. business in May to form T-Mobile US, Inc, based in Bellevue, Washington.

The company said it had "convincingly reversed the trend" in new U.S. business by adding 688,000 customers in the April-June quarter compared to a loss of 557,000 in the year-ago quarter. The company, headquartered in Bonn, Germany, also grew its customer numbers in its home base.

"We are winning droves of customers on both sides of the Atlantic," CEO Rene Obermann said in a statement. "Our strategy is bearing fruit: We are in the middle of a massive turnaround in the United States and we want to carry on along this successful course. We are prepared to spend more on high-value growth this year than previously planned."

The company's shares were 6.2 percent higher at 9.62 euros in afternoon trading in Germany.

Deutsche Telekom said it aimed to add another 500,000 to 700,000 customers in the second half of the year at its U.S. division. Previously the company's forecast had been to keep customer numbers roughly stable this year.

The company also said it increased its spending on fixed equipment by 35 percent as it increased the size of its U.S. mobile network. It said its LTE high-speed network now covers 157 million people, compared with an earlier goal of 100 million by year's end.

Net profit rose as the company moved past the accounting write-downs connected with the merger with Metro PCS. The profit figure fell short of estimates for 627 million euros as compiled by financial information provider FactSet.

Revenue for the whole company rose 5.4 percent in the second quarter, much of that because the company included Metro PCS sales figures for the first time in May. Even discounting that, revenue grew 2.1 percent, the company said.

U.S. revenue — reporting in euros — was up 26.4 percent at 4.825 billion euros, boosted by the addition of Metro PCS, while earnings before financial factors such as interest, taxes and depreciation was down 14.7 percent at 884 million euros.

The company has gone with an "un-carrier" strategy of trying to attract more customers by allowing them to terminate their mobile service instead of requiring fixed contract lengths. It also said sales of smartphones, which can be more profitable because they use more costly high-speed service, had jumped to 4.3 million in the quarter from 2.1 million a year ago, to 86 percent of all phones sold, as the company added the Apple iPhone from April 12.

Deutsche Telekom employs 231,000 people worldwide. The U.S. business has 38,000 employees and 43 million customers under the T-Mobile and MetroPCS brands. Deutsche Telekom AG owns 74 percent of T-Mobile US, Inc., whose shares are traded on the New York Stock Exchange.

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