Deutsche Telekom posts stable 2007 results, largely on a strong performance from its mobile businesses.
Deutsche Telekom is close to brokering a partnership deal for its T-Systems unit, chief executive Rene Obermann said on Thursday, as he presented a solid, if uninspiring, set of 2007 results.
More interesting than the financials, the German incumbent’s CEO also indicated that he expects further job losses going forward as cost-cutting measures continue, and and painted a positive picture of the mobile data market.
“We have made excellent progress in negotiations on the planned partnership and expect to be able to conclude an agreement shortly,” said Obermann, referring to plans to find a partner for the systems integration arm of its IT services business. He added that by “shortly”, he means the coming “weeks and months”.
“T-Systems is making a significant contribution to our cost-cutting programme,” said Obermann, explaining that revenue fell by 6.9% to €12 billion last year, primarily as a result of internal service relationships in the group.
Under its so-called Save for Service programme, Deutsche Telekom recorded cost-savings of €2.3 billion in 2007, more than half of which – €1.2 billion – were realised at its domestic fixed networks business. And it is optimistic about future cost-cutting, foreseeing savings of €4.2 billion to €4.7 billion by 2010.
Staff reductions have been a key part of Deutsche Telekom’s strategy over the past 12 months, and have caused the incumbent considerable headaches.
“14,400 staff left the group last year,” said Obermann, 11,100 of which were German employees. He insisted that the creation of new service companies, a move the unions attempted to block last year, “demonstrate[s] we are indeed on the right track.”
However, the telco was cagey about future headcount reductions, but it seems certain there are more to come.
“We are restructuring our workforce and that will continue in years to come,” said Obermann, refusing to be drawn on specifics.
The CEO also played his cards close to his chest when questioned on overseas expansion.
“We are still looking for favourable market penetration opportunities in areas where we haven’t been present before,” he said.
He declined to be more specific, but on possible opportunities in Asia said that the market is still fragmented, with more consolidation to come. “[We will] look for good strategic opportunities for us,” he said.
Mobile growth
Obermann identified the mobile Internet as a key growth driver for the company, and presented some encouraging figures to back up his comments.
“Mobile data usage increased significantly in 2007,” Obermann said, noting that data revenues, excluding messaging services such as SMS and MMS, rose by 40% on-year to €1.9 billion.
He added that growing data usage is further evidenced by the company’s growing number of Web’n'Walk customers; in Europe, Web’n'Walk users grew by 1.3 million to a total of 3.2 million last year.
Furthermore, the amount of data traffic on the telco’s UMTS networks increased by 61% between Q3 and Q4 last year, with traffic growing by a factor of between seven and 10, depending on the market, in the past couple of years.
“The international mobile communications business is the company’s growth engine,” said Obermann.
The company reported 119.6 million mobile customers across all its operations at the end of 2007, the vast majority – 90.9 million – of which were in Europe.
T-Mobile Deutschland gained 962,000 new contract customers last year, of a total increase of 4.6 million, taking its customer base to just under 36 million. Obermann highlighted the company’s low-cost wireless brand in particular, noting that it signed up “200,000 customers at six months.”
The domestic mobile business’ main growth drivers were the Max flat rate and the MyFaves community calling plans, and the iPhone, Obermann said.
T-Mobile USA ended last year with 28.7 million users, although Obermann noted that including SunCom, a U.S. wireless operator the company acquired late last year, the figure breaks the 30 million mark. T-Mobile USA also recorded an “increase of average revenue per user [of] $1.”
The company also reported “customer growth and an increase in ARPU,” in the U.K; customers grew by 406,000 to 17.3 million, while ARPU was up by €2 to €31.
Returning to the subject of cost-savings, Obermann made reference to T-Mobile UK’s recently-brokered network-sharing agreement with 3, which reminded the audience would enable both companies to “save around £1 billion sterling over the next 10 years.”
The figures
Deutsche Telekom posted an 82% decline – to €569 million from €3.17 billion in 2006 – in reported net profit in 2007, but adjusted net profit, taking into account currency issues, fell by 22% to €3 billion.
Adverse foreign exchange changes “did have a major influence on our results,” said Karl-Gerhard Eick, deputy CEO and member of the board of management finance at Deutsche Telekom.
“I don’t think anyone would have believed we would have got up to €19.3 billion adjusted EBITDA at the beginning of the year,” he added. Adjusted EBITDA was virtually flat compared with 2006, falling by 0.6%.
Net revenue grew by 1.9% to €62.5 billion; domestic revenue fell by 5.4% to €30.7 billion, while international revenue was up 10.2% to €31.8 billion.
The company felt the greatest pressure at its broadband/fixed networks division, where total revenues fell by 7.4% to €22.7 billion. 1% growth in international revenues failed to offset an 8% slide at the domestic business. Similarly, higher wholesale revenues did not offset lower calling revenues, although Eick said “that was not expected.”
Eick noted that the fourth quarter of the year brought some positive trends. For example, “domestic revenue stabilised at about €5 billion,” compared with Q3, while domestic adjusted EBITDA rose.
“We are encouraged by these improvements, but I would caution you not to project these developments into 2008,” he said, since Deutsche Telekom expects to face continued regulatory and competitive pressures, including the introduction of naked DSL.
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