August 7, 2014 / 5:27 AM / in 3 years

UPDATE 2-Deutsche Telekom Q2 profit beats forecasts on U.S. growth

* Q2 core profit 4.43 bln euros vs 4.35 bln expected

* Still sees stable 2014 core profit of about 17.6 bln euros

* No comment on sale process of T-Mobile US

* Deutsche Telekom shares indicated to open up 0.3 pct (Recasts, adds shares, detail, background)

By Harro Ten Wolde

FRANKFURT, Aug 7 (Reuters) - Deutsche Telekom reported a bigger than expected quarterly core profit on Thursday after a rise in earnings in the United States offset heavy investments in its German networks.

Second-quarter earnings before interest, tax, depreciation and amortisation (EBITDA), excluding special items, rose to 4.43 billion euros ($5.9 billion), above the average forecast of 4.35 billion euros in a Reuters poll.

Last week, T-Mobile US reported its first net profit in a year, raised its forecasts for subscriber growth and reported the most post-paid phone subscriber additions in the industry.

Deutsche Telekom now faces a tough decision on whether to stay in the United States after its preferred strategy of selling T-Mobile US to its bigger rival Sprint crashed into a regulatory wall.

The German operator has been looking for a way to exit the United States for more than three years because it sees T-Mobile’s fourth-place position behind Verizon, AT&T, and Softbank’s Sprint as limiting long-term profitability.

Sprint’s decision to pull the plug on deal talks on Tuesday came shortly after French mobile operator Iliad made an offer for the business, sparking hopes for a potential bidding war.

The chairman of the second-largest U.S. satellite operator Dish Network Corp said on Wednesday it now made sense to consider bidding for T-Mobile US, with Sprint out of the picture.

The German telecoms operator did not make any comments about the process in its earnings statement. A spokesman declined to comment on the matter and referred to a conference call with Deutsche Telekom’s management due at 0800 GMT.


The global telecoms industry is in the midst of a wave of dealmaking, as companies look to take advantage of low interest rates to build economies of scale. In Europe, mobile operators have seen revenues shrink in recent years because of regulatory changes such as roaming fees and tough price competition.

In its home base Germany, Deutsche Telekom is up against No. 2 carrier Vodafone, which has bought Kabel Deutschland to boost its broadband offering. Third and fourth-placed mobile groups Telefonica Deutschland and KPN’s E-Plus last month received EU approval to merge.

Deutsche Telekom shares were indicated to open 0.3 percent higher, in line with the German blue chip index.

“Our strategy so far has been to make bold and prudent investments, focus first on lifting customer numbers, and then on upping revenues and results. And we are now starting to reap the rewards,” said Chief Executive Tim Hoettges in a statement on Thursday.

The company said it still expected 2014 EBITDA, excluding special items, to remain stable at around 17.6 billion euros in 2014 and that free cash flow would drop to around 4.2 billion euros on additional investments. ($1 = 0.7470 euro) (Editing by Maria Sheahan and David Clarke)

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