Deutsche Telekom raids cash flow to drive U.S. growth
FRANKFURT (Reuters) - Deutsche Telekom (DTEGn.DE) is boosting marketing spend in the United States to sustain the pace of acquisition-driven customer growth after adding subscribers for the first time in years.
The extra marketing outlays prompted the company to cut its free cash flow target for this year to around 4.5 billion euros ($5.99 billion) from initial forecasts of 5 billion.
"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," said outgoing Chief Executive Rene Obermann in a statement.
The company added 688,000 contract customers at T-Mobile US (TMUS.N) in the second quarter, the first gain after 16 consecutive quarters of losses, helped by its Apple (AAPL.O) iPhone launch and marketing of a new pricing policy.
T-Mobile US, the No. 4 U.S. mobile service provider, eliminated phone subsidies and set up installment payment plans so customers could upgrade their phones more often.
Deutsche Telekom said it expected T-Mobile US to add 500,000 to 700,000 new customers in the second half of the year, resulting in total annual customer growth of 1-1.2 million customers.
Previously it had said it was aiming to keep its customer base stable.
As a result, Deutsche Telekom expects to invest an additional $600 million this year in its U.S. business, Chief Financial Officer Timotheus Hoettges told reporters.
"We think investing in the U.S. now is the right decision, and will make the most of the momentum in T-Mobile US," said analyst Robin Bienenstock at Bernstein Research.
"The dividend of 0.50 euros remains well covered for this year and next, with improving growth prospects thereafter," the analyst added.
Deutsche Telekom shares were 4.7 percent higher by 0530 ET, outperforming the European sector index .SXKP which was up 0.7 percent higher.
TOP SPOT REGAINED
Second-quarter earnings before interest, tax, depreciation and amortisation (EBITDA) excluding special items came in 6 percent lower at 4.4 billion euros, in line with an average forecast in a Reuters poll.
In its home market Germany, the former monopoly said it had regained the top spot from Vodafone (VOD.L) in the mobile services market, with around 114 million subscribers the European Union's largest.
The once cosy German mobile market has turned highly competitive as customers catch up with the rest of Europe in switching to smartphones from basic mobiles.
Last month the two smaller mobile operators E-Plus and Telefonica Deutschland announced plans to merge, which will turn the combination into the country's third-biggest mobile player, with a 30 percent market share, close behind Deutsche Telekom and Vodafone with 35 percent each.
Deutsche Telekom said mobile service revenues rose during the quarter by 1 percent, excluding the effect of lower mobile termination rates, and that it was the only German network operator to have booked a gain.
The company said it expected EBITDA before special items to come in at around 17.5 billion euros in 2013, which includes profit from MetroPCS.
This is lower than even the most pessimistic estimate of 17.6 billion euros from a Reuters poll, however, as analysts expected a higher contribution from MetroPCS.
Previously Deutsche Telekom had guided for EBITDA of around 17.4 billion euros excluding MetroPCS. ($1 = 0.7508 euros)
(Reporting by Harro ten Wolde; editing by Christiaan Hetzner, David Cowell and David Evans)
- Air strike kills 15 civilians in Yemen by mistake: officials
- Pope attacks mega-salaries and wealth gap in peace message
- North Korea says Jang Song Thaek, uncle of leader Kim Jong Un, executed
- Probation for drunk Texas teen driver who killed four sparks backlash
- North Korea says leader Kim Jong Un's powerful uncle executed |