Deutsche Telekom DT reported third-quarter results that were slightly better than our expectations, but we are maintaining our fair value estimate. The firm reported revenue growth of 5.2% for the quarter, ahead of our full-year expectation of 3.9%. However, almost all the growth came from the acquisition last year of a controlling stake in OTE OTE, the Greek incumbent telephone operator, and from foreign exchange gains. Most of its European markets including Germany generated lower revenue than the previous year. After two stellar quarters of broadband subscriber growth in Germany, the third quarter was very weak as many customers chose not to renew their contracts. For the quarter, DT captured only 18% of new broadband customers in the country, but the figure still stands at 46% for the first nine months of 2009. In the key U.S. market, which has been DT's main growth driver for the past several years, the T-Mobile business struggled for the second consecutive quarter. DT benefited from foreign exchange movements as revenue increased 3% year over year in euro terms, but declined 2.3% in dollar terms. Despite significant increases in capital expenditures to upgrade its U.S. 3G network, the company still lost 77,000 subscribers during the quarter while Verizon Wireless VZ VOD and AT&T T continued to add customers. The firm's improved 3G network coverage and larger selection of 3G handsets should help stem customer losses, but we remain concerned about T-Mobile's competitive positioning. The business is significantly smaller than Verizon and AT&T and continues to compete on price despite the scale advantages of the other operators. We believe this scenario will probably pressure profit margins at DT.
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Analyst Notes
09-08-09 | 3:12PM U.K. Wireless Market Consolidates
08-10-09 | 2:21PM Deutsche Telekom Reports Improved 2Q
07-17-09 | 11:21AM DT Unlikely to Sell U.K. Business
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Deutsche Telekom AG Full Analyst Report
Analyst Notes
09-08-09 | 3:12PM U.K. Wireless Market Consolidates
08-10-09 | 2:21PM Deutsche Telekom Reports Improved 2Q
07-17-09 | 11:21AM DT Unlikely to Sell U.K. Business
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