Deutsche Telekom Expands Services To Tap New Revenue Streams

Deutsche Telekom AG (DT) said Wednesday it wants to offset declining revenue in existing businesses such as fixed-line by expanding its data offerings, a move that will allow a return to organic growth in the mid-term.

Mobile Internet, broadband offers, Web hosting, data solutions as well as new services like smart grids could generate up to an additional EUR13 billion in sales by 2015, Chief Executive Officer Rene Obermann said ahead of the company's investor days Wednesday and Thursday.

Obermann said that, with the strategy, Deutsche Telekom wants "to return to the growth path by 2012, not by acquisitions but through organic growth."

Germany's incumbent telecom provider also said it wants to increase the profitability of its struggling U.S. operations, once its growth engine, through an increase in mobile data revenue.

Telekom posted higher sales and operating profit in 2009, but this was attributable only to the first-time consolidation of Hellenic Telecommunications Organization SA (OTE).

With stable investment in its German core market totaling EUR10 billion over the next three years, Deutsche Telekom aims to meet the need for broader and faster data networks. Telekom's capital expenditure in Germany in 2009 was EUR3.16 billion.

To compete with cable network providers like Kabel Deutschland AG, which is about to float, Deutsche Telekom wants to connect the home networks of 10% of German households with fiber networks, providing higher bandwidth.

It also wants to supersede Sky Deutschland AG (SKYD.XE) as the leading provider of paid premium TV content. It targets doubling its current 2.9 million TV customers in Germany and South Eastern Europe.

Overall sales in its German core market for broadband and mobile, which declined in recent years through a loss in fixed lines, should stabilize by 2012, the company said.

In 2008, Telekom said it wants to stabilize its German broadband and fixed line sales by 2010, but shuffled its company structure in 2009 to combine fixed and mobile operations in the German market, its biggest market by far.

Obermann also confirmed Telekom's financial targets for 2010.

The Bonn-based company targets free cash flow of EUR6.2 billion in 2010, which should rise by 2012.

The companyr also wants to improve its return on capital employed, or ROCE.

In the struggling U.S. market, T-Mobile USA wants to raise its operating margin based on service revenue to above 35% by 2012 from 31.2% in 2009. Obermann said that T-Mobile USA, which invested $3.5 billion last year in upgrading its networks, could benefit from higher data revenue in the future.

The European Commission earlier this month cleared the joint venture between Deutsche Telekom's T-Mobile and France Telecom's (FTE) Orange in the U.K., creating the biggest mobile network provider in one of the most competitive markets in Europe. As a result of the transaction, 2010 earnings before interest, taxes, depreciation and amortization, or Ebitda, will come in lower after the deconsolidation of T-Mobile in the U.K. Including T-Mobile UK, Telekom has forecast an Ebitda of around EUR20 billion.

Company Web site: www.telekom.de

-By Archibald Preuschat, Dow Jones Newswires, +49 211 138 7218, archibald.preuschat@dowjones.com

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