* DT adj net profit 701 mln euros vs 662 mln forecast
* T. Italia Q1 net 549 mln euros vs 604 mln forecast
* Both confirm outlook
* DT shares down 0.1 pct, T.Italia up 1.9 pct (Adds OTE, analyst quote, updates shares)
By Nicola Leske and Valentina Za
BERLIN/MILAN, May 6 (Reuters) - European telecom groups Deutsche Telekom (DTEGn.DE) and Telecom Italia (TLIT.MI) are pinning their hopes on new business areas to offset dwindling growth in fiercely competitive regional markets.
Both companies stuck to their 2011 targets on Friday, after reporting lower first-quarter net profits.
Deutsche Telekom said core profit at its key European business dropped by 23 percent, hurt by weak economies in Greece and Romania, while its Italian rival’s crucial domestic mobile revenue fell by 12 percent. [ID:nLDE745049] [ID:nLDE742267]
Telecoms operators across Europe are seeking ways to ensure growth by diversifying away from traditional businesses or reaping benefits from operations in fast-growing emerging countries.
Bonn-based Deutsche Telekom, which is shrinking to become a regional European player by selling U.S. businesses, wants to eventually compensate dwindling sales from traditional businesses such as voice calls with growing revenue streams from mobile data and services around devices and the Internet.
“Mobile data is now at the heart of most major European operators’ growth strategies but they still have some way to go to reach the levels of non-voice revenue being achieved by operators in highly-developed markets such as Japan,” Jost Gillet of research firm wireless intelligence said. By contrast, Telecom Italia is looking to South America, where it has operations in fast-growing Argentina and Brazil, to compensate sharp decline of growth in Italy.
Unlike Deutsche Telekom the Italian operator’s mobile data revenue is dwindling, Dario Talmesio of research company Informa Telecoms & Media said.
“The most disappointing part about Telecom Italia’s results is that data excluding text messages is declining and that means they are losing high-end customers and market share in the growing smartphone market,” Talmesio said, adding Telecom Italia’s strategic mistake was to position itself as a non-premium brand.
While Deutsche Telekom’s mobile data revenue in Germany rose 31 percent in the first quarter -- that amounts to 384 million euros -- it has yet to make a significant contribution to total sales.
Until it does, the German operator is faced with weakness in its European operations. Its Greek subsidiary OTE (OTEr.AT) posted a 54 percent drop in first-quarter net profit on Friday as it cut jobs after losing customers in recession-hit Greece and Romania. [ID:nLDE7450G5]
In Germany, Deutsche Telekom’s home market, business was hurt by cuts in mobile termination rates -- the fees operators charge each other to connect calls -- resulting in a 3.2 percent decline in revenue.
The company agreed to sell its struggling U.S. business to AT&T (T.N) in March.
First-quarter adjusted group net profit fell 27 percent to 701 million euros.
Chief Executive Rene Obermann said the first quarter showed “there are further challenges ahead” but that the company would reach its targets of core profit of 19.1 billion euros ($26.68 billion) and free cash flow of at least 6.5 billion euros.
Telecom Italia posted a bigger-than-expected drop in net profit as a weak home market outweighed contributions from Telecom Argentina (TEC2.BA)(TEO.N) and its business in Brazil. It aims to keep revenue and core profit basically stable this year.
Net profit fell to 549 million euros, below a 604 million euro Thomson Reuters I/B/E/S forecast.
At France Telecom FTE.PA, with whom Deutsche Telekom has a joint venture in the UK and cooperations across Europe, intensifying competition in it’s crucial home market pushed down margins and pressured both mobile and fixed services in the first quarter. [ID:nLDE73S0MB]
Smaller European rival KPN (KPN.AS) was forced to cut its 2011 forecast citing weak domestic revenues. [ID:nLDE73K06E].
(Editing by Erica Billingham and Andrew Callus)