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August 11, 2005

Deutsche Telekom Q2 profit up as mobile remains core driver

Europe's largest fixed-line carrier Deutsche Telekom AG has reiterated its year-end targets after strong growth at its US mobile operation, just one day after it expanded into Austria with the acquisition of mobile operator Tele.ring Telekom Services GmbH.

By CBR Staff Writer

For the second quarter, net income rose 63.4% to 943m euros ($1.17bn) from 577m euros ($717m) in the year-ago quarter. Sales rose 2.6% to 14.74bn euros ($18.35bn) from 14.37bn euros ($17.87bn).

For the six months ended June 30, net income rose 61.5% to 1.95bn euros ($2.43bn), from 1.2bn euros ($1.5bn), while sales rose 3% to 29.124bn euros ($36.21bn), from 28.27bn euros ($35.15).

Deutsche Telekom’s mobile unit continues to act as the growth engine of the Bonn, Germany-based carrier. The principal driver of T-Mobile’s success is its US operation, T-Mobile USA, the former VoiceStream operator that it bought at the height of the telecoms bubble. The US operation continued to perform well after adding 972,000 new customers to take its US total client base to 19.2 million. T-Mobile also added more than 620,000 new users in Germany.

The success of its mobile unit is vital considering that Germany remains a problem area for the carrier. Revenue from all its German businesses declined 1.8% to 8.5bn euros ($10.57bn) in the second quarter. It is also experiencing fierce competition in the broadband and fixed-line market, and revenue here declined 4.5% year-on-year.

The carrier’s American Depositary Shares on the New York Stock Exchange fell 0.74% to $20.02 as of 4.50pm BST on Thursday, as the market had been expecting a higher net income figure of 1.2bn euros ($1.49bn), which DT said was hit by substantial increase in tax expenses.

DT had some success in reducing its net debt, which fell to 44.533bn euros ($55.38bn). When CEO Kai-Uwe Ricke took charge in 2002, the carrier appeared to be in serious trouble after over-extending itself during the late 1990s. It was saddled with a colossal debt burden, which at the end of 2002 stood at 61.1bn euros ($75.97bn).

Looking forward, the carrier reiterated its financial targets for the year as a whole, in which it expects to generate earnings of about 21bn euros ($26.11bn).

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