Deutsche Telekom Issues Profit Warning

Deutsche Telekom AG has issued a profit warning which it blames on the economic slump, says Dow Jones newswire. Citing weak mobile operations in the United States., the United Kingdom and Poland, Deutsche Telekom says it now expects 2009 earnings before interest, tax, depreciation and amortization to be two percent to four percent below 2008's level of EUR19.5 billion, while free cash flow is set to reach around EUR6.4 billion, down from EUR7 billion a year ago.

But Deutsche Telekom first-quarter revenue rose by around six percent to about EUR15.9 billion. Free cash flow was between EUR200 million and EUR300 million in the first quarter of 2009, compared with EUR1.6 billion in the same period last year, it said.

Deutsche Telekom said it had "felt the impact of the economic slowdown and the more intense competitive environment," particularly in the United States and United Kingdom., while roaming revenue fell as consumers cut back on travel.

The weak zloty in Poland and weak sterling in the U.K. also hurt revenue and adjusted EBITDA, the company says.

Some observers think "blaming the economy" is less relevant than operational shortcomings, currency effects, market share shifts and other issues, though.

In Poland, revenues are expected to take hit following a 26 percent decline in the value of the Polish zloty to the euro, says Emeka Obiodu, Ovum senior analyst. The U.K. pound also is down 21 percent compared to the euro.

Competition rather than the recession remains the major problem, says Obiodu. "Generally, the market dynamics have not changed much and competition remains fierce."

"In fact, we have yet to see any disastrous performance from a mobile operator that can be blamed solely on the economic crisis," Obiodu says." Indeed, for each of the recessionary factors cited by Deutsche Telekom for its profit warning (apart from currency risk), it is possible to show a corresponding non-recessionary force at play."

Roaming revenue is down. But the EU has mandated cuts in mobile roaming. In the UK, off the four main mobile operators in the market, T-Mobile’s organic revenue growth for each of the four quarters of 2008 was the lowest, says Obiodu.

In the United States, intense competition and the increased push for unlimited bundles is having a major impact on T-Mobile USA. There are other explanations for the quarterly results, in other words.