Deutsche Telekom has reported net 2000 profits well below market expectations.
German incumbent telco Deutsche Telekom (DT), Europe’s largest telecoms operator, today reported net profits of E7.4 billion. While this is an enormous rise on last year’s figure of E1.25 billion, most of the growth comes from asset sales. The company announced a net loss for Q4 2000 of E1 billion.
For many years telcos could operate as private monopolies, restricting others from using their lines and leveraging their dominant position to build large mobile and Internet operations. But now, as the focus in fixed line operations shifts away from voice and modem calls towards fast Internet technologies, this cozy state of affairs cannot continue. Firms such as AOL have persuaded governments both to toughen regulatory controls on incumbent telcos and to force them to allow their local networks to carry other operators’ traffic. Local loop unbundling (LLU) means that rivals can offer high-speed DSL Internet across the country and only have to cover DT’s costs.
Of course, DT knew this would happen. But its diversification strategy doesn’t seem to be paying off either. Its major hopes for the future are T-Online and mobile subsidiary T-Mobil, but neither of these is making any money just yet. T-Mobil has to pay huge upfront subsidies for mobile handsets to maintain market share, as well as paying huge sums for its 3G mobile licenses and network building, whilst T-Online has yet to build substantial eCommerce revenues.
In the longer term, DT is better positioned than many of its rivals, since T-Mobile and T-Online both have the potential to become market leaders as their respective industries become more mature and more profitable. The decline in its core business will also slow, since many customers will not want to switch provider or access high-speed Internet. However, the upturn is still some way ahead.
