Price cuts to protect the market share of its fixed line operations have savaged the first nine months figures of Deutsche Telekom AG. Net profits fell 19.3% to 1.25bn euros ($1.32bn), worse than the 17% decline expected by analysts. Revenue in the same period was 3% down at 25.5bn euros ($26.8bn). Deutsche Telekom said that it was not possible to compensate in the short term for the enormous tariff cuts and the resulting decrease in margins. The company said it had made 3bn euros ($3.1bn) worth of price cuts as it fought off competition from companies such as Mannesmann AG and Mobilcom AG.
Deutsche Telekom is prospering in the online and mobile business and, with an average of 300,000 new customers joining its T-D1 mobile phone service a month, it expects easily to top its forecast of 9 million subscribers by the end of the year.
While Telekom has made progress in reducing its fixed line workforce, analysts are concerned that a 175,000-strong payroll is a huge cost to bear when faced with competition from slimmer, nimbler competitors. Telekom’s huge cash pile is soon to be augmented by the sale of its cable interests and its 10% holding in Sprint Corp, currently being devoured by MCI WorldCom.
While Telekom has purchased One 2 One, the smallest UK mobile operator, and made mobile acquisitions in eastern Europe, the company has failed to make the kind of big takeover that will compensate for the inevitable erosion of market share in Germany. With a wave of consolidation underway, it looks as if Telekom will have to move quickly if the likely prizes are not snapped up by faster-moving operators.
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