But Deutsche Telekom also has high expectations for its European business
Deutsche Telekom lifted its 2023 operating profit target slightly, for a second time, boosted by T-Mobile US’s market strength after already having raised its guidance in the United States.
Telekom said it now expects adjusted earnings before interest, taxes, depreciation and amortization after leases (EBITDA AL) to reach around €41bn ($45.03bn) this year, compared with previous guidance for about €40.9bn. The telco suggested this was due to: “high expectations for the business in Germany and Europe.”
Second-quarter EBITDA AL rose 1.5% YoY to €10bn. However, revenues slipped by 2.4% to €27.2bn, slightly below consensus for 27.3 billion, as it withdrew from the terminal equipment business in the U.S. following its takeover of rival Sprint in 2020.
“We continued our successful course in the second quarter,” said CEO Tim Höttges. “Our businesses are developing well, despite complex market environments. This is underscored by our organic growth rates for service revenues, earnings, and free cash flow.”
Revenues slipped by 2.4% to 27.2 billion euros, slightly below consensus for 27.3 billion, as it withdrew from the terminal equipment business in the US after its takeover of rival Sprint in 2020. Reported service revenue increased 1.4% to €23bn. The guidance for free cash flow AL remained unchanged at more than €16bn.
Capex excluding spectrum costs amounted to €4.4bn euros. Investments increased, especially in Germany in connection with the FTTH build-out. In the US, however, investments were reduced after the accelerated build-out of the 5G network over the last few years.
German customer growth
In the German market, customer growth continued. 67,000 broadband net additions were recorded between April and June of this year. Now, 43% of consumers have now subscribed to a rate plan offering bandwidths of up to 100Mbps or higher. At 36,000, Magenta TV net additions also exceeded the prior-year quarter. At the end of the first six months of the year, 833,000 Telekom said customers used an FTTH line, which corresponds to a year-on-year increase of more than 38% – the country still has some FTTH catching up to do.
The telco’s new rate plan portfolio accelerated mobile customer growth again in the quarter. At 319,000, branded net additions more than doubled compared to the prior-year quarter. The churn rate for contract customers remained low at 0.8%. Mobile service revenues were up 2.1 percent against the second quarter of the prior year. In the domestic market broadband revenues drove service revenue growth.
As of the end of the first half of 2023, Telekom’s 5G network was available to 95.3 % of the German population, and a total of around 6.2 million households have the option of a direct connection to its fibre-optic network.
The telco outlined progress in network sharing. In addition to its regional partnerships with the provider Städtische Werke Netz + Service for Kassel in North Hesse and with housing association Marzahner Tor in Berlin, the telco has also agreed framework conditions with the central association of the German housing industry for the telco’s fibre build-out to properties managed by this sector.
June 2023 also marked the start of the implementation phase of the Saxon State Ministry of Education and Cultural Affairs’ broadband access initiative to connect schools across Saxony to Telekom’s fibre network.
Europe looking healthier
In its other European markets, revenue increased by 6.2% to €2.9bn while earnings increased by 3.9% year-on-year, more than offsetting the negative effect of higher energy prices. The number of broadband lines increased by 72,000 in Q2, the number of customers using fixed-mobile convergence products by 152,000, and the number of TV customers by 34,000. Mobile contract net additions totalled 173,000.
Telekom had 47.6m mobile customers in other European markets at the end of the first half of 2023, a slight increase of 0.5% compared with the end of 2022. The number of contract customers increased by 1%. The contract customer base grew in almost all of its national companies, but in particular in Greece, the Czech Republic, Poland, Croatia, Slovakia, and Austria. Overall, contract customers accounted for 56.2% of the total customer base. As of June 30, 2023, DT’s national companies covered 58.7% of the population on average with 5G.
Telekom’s broadband business increased by 2.3% compared with the end of 2022 to a total of 6.8m customers. This growth was mainly driven by the national companies in Poland, Hungary, Greece, and the Czech Republic. Around 8.5m households have access to its fibre-optic network offering gigabit speeds.
The total number of fixed-network lines subscribed to increased again slightly by 0.8%, reaching 8m. The TV and entertainment business had a total of 4.2m customers at the end of Q2, up by 1.5% compared with the end of the prior year. Telekom blamed saturated markets for the weak growth.
US poster child
With 1.6m postpaid net additions in Q2, T-Mobile US recorded more than its two nationwide competitors, Verizon and AT&T, combined. Telekom said the number of postpaid phone customers increased by 760,000, marking the strongest Q2 growth in eight years.
T-Mobile US is also losing fewer customers – churn has dropped to 0.77%. There was also strong growth in high-speed internet via FWA: 3.7m customers are already using this product, with 509,000 net additions in Q2.