Deutsche Telekom Steers Into Rough Waters

Intensifying competition and pressure to lower prices have forced Deutsche Telekom, Europe’s largest provider of telecommunication services, to reduce its sales and earnings forecast for this year and next.

The German network operator has slashed its profit forecast for this year by 1 billion euros (US$1.3 billion), admitting that it is reaching the limits of growth in its home market. The group’s 2006 profit, measured by adjusted earnings before interest, tax, depreciation and amortization (EBITDA), will now be between 19.2 billion and 19.7 billion euros, it said Thursday.

In 2007, EBITDA is expected to remain flat, compared with a previous forecast of between 21.7 billion and 22.2 billion euros.

Deutsche Telekom also adjusted its revenue guidance to between 61.5 billion and 62.1 billion euros for 2006, compared with the previous forecast of between 62.1 billion and 62.7 billion euros. The company said it expects a “moderate” increase in revenue for 2007.

The German telecom group joins a few other former European monopoly operators, including Swisscom, that have been forced to revise their earning forecasts due to competition from low-cost phone and Internet service providers.

“Our strategy of generating clear growth on the back of increased investments in the market … is reaching its limits in Germany,” said Deutsche Telekom Chief Executive Officer Kai-Uwe Ricke in a news conference. “We have to acknowledge that the group is no longer growing in Germany.”

To overcome lower earnings and sales in Germany, the operator plans to substantially reduce its cost base in the country, mainly by accelerating the expansion of its broadband network platform based on IP technology, according to Ricke. “By migrating all services from other networks to this single production architecture, we will be able to drive down costs considerably in the long term,” he said.

-John Blau, IDG News Service (Dusseldorf Bureau)

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