Deutsche Tel, Telcom Italia Beat Views But Weak Points Remain

Date : 11/05/2009 @ 12:50PM
Source : Dow Jones News
Stock : Hellenic Telecommunications Organization S.A. (OTE)
Quote : 3.61  0.0 (0.00%) @ 2:05AM

Deutsche Tel, Telcom Italia Beat Views But Weak Points Remain

Deutsche Telekom (NYSE:DT)
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Major European telcommunications companies Deutsche Telekom AG (DT) and Telecom Italia SpA (TI) Thursday beat expectations for third quarter earnings and confirmed their guidance, sending shares in both companies higher.

The companies' market-topping performance comes after rivals KPN (KPN.AE) of the Netherlands and France Telecom (FTE) already confirmed their outlook, with BT Group PLC (BT), Vodafone Group PLC (VOD) and Telefonica SA (TEF) all reporting next week.

Still, the results weren't without their weak spots; guidance for 2010 was patchy and much of the improved performance came amid sharp cost cutting.

Deutsche Telekom posted a 7.2% rise in its third quarter net profit to EUR959 million, mainly on tight cost control, but the U.S. remained a weak spot.

T-Mobile USA's subscriber base shrank by 77,000 in the quarter to 33.42 million, the first time it has lost customers since in entered the market at the start of the decade. Revenue was down to $5.38 billion from $5.51 billion a year earlier.

Analysts were disappointed with the weak U.S. performance, with Gartner Inc. research director Katja Ruud warning that if its U.S. strategy fails it will need a quick revamp to keep pace in a highly competitive market where it is in fourth spot behind Verizon Wireless, AT&T Inc. (T) and Sprint-Nextel Corp. (S).

Chief Executive Rene Obermann said the company's performance in the U.S., once the company's main growth engine, was "clearly not satisfying."

T-Mobile USA Wednesday said it had restored voice, text messaging and data services that left nearly 2 million customers disconnected Tuesday evening.

Obermann was also cautious regarding next year. "There are a few developments at which we are looking very carefully and with caution when it comes to 2010," he said, notably the company's "continuously challenging situation in the U.S.," currency developments such as the weak dollar against the euro and the "uncertain economic recovery" in Eastern Europe, where the Bonn-based company has a big footprint.

Still, Deutsche Telekom's management is confident it will achieve its 2009 targets, which includes the generation of EUR7 billion in free cash flow.

Sales for the period rose by 5.2% to EUR16.26 billion, while closely watched adjusted earnings before, taxes depreciation and amortization, or Ebitda, was up 5.2% to EUR5.53 billion. Both figures were boosted by the first time consolidation of Greece's Hellenic Telecommunications Organization (OTE).

Telecom Italia, meanwhile, reached an agreement to sell its German broadband unit Hansenet to Spain's Telefonica SA (TEF) for EUR900 million. The divestment is part of its efforts to focus on core assets and reduce its heavy debt, which stood at EUR35.5 billion at the end of September.

"The sale price is not high, but it's good news for Telecom Italia's debt. Third-quarter results also highlighted an improving trend in margins," said GestiRE asset manager Gianpaolo Rivano.

Telecom Italia reported a third quarter net profit of EUR741 million up from EUR626 million a year earlier, beating expectations and coming despite a 5.6% fall in revenue to EUR6.7 billion as margins improved due to cost cutting and as a recent price war in Italy abated.

The Italian operator, which has focused on reducing its debt and slashing costs, confirmed its profitability targets for the full year.

Deutsche Telekom's shares ended up 2.3% in Frankfurt at EUR9.50, outpacing a 0.7% rise in the DAX, while Telecom Italia closed 2.1% higher at EUR1.14, also topping an overall positive Italian market.

-By Archibald Preuschat and Giada Zampano, Dow Jones Newswires, +49 211 138 7218,


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