Deutsche Telekom AG ADRDT

Morningstar Rating

Stock Research and Analysis

by Allan C. Nichols, CFA

Deutsche Telekom's plan to join its U.K. operation with France Telecom's FTE addresses its biggest problem country. The firm has been steadily losing ground in the U.K., but if the deal can get past the regulators, the JV will become the largest operator Read more

Bulls Say

Deutsche Telekom's debt reduction has been impressive and a real boost to the firm's financial health.

T-Mobile USA added 2 million subscribers during the past 12 months, taking its total to 33.5 million.

DT is now being allowed to consolidate the results from its Polish wireless subsidiary, which has 13 million subscribers, which were previously tied up in litigation regarding who controlled the firm.

The acquisition of OTE significantly strengthens its position in emerging markets, adding 5.9 million fixed-line subscribers in Greece and 3 million in Romania as well as about 15.5 million wireless customers in Greece, Romania, Albania, Serbia, and Bulgaria.

The proposed JV with France Telecom in the U.K. should enable margins in that difficult country to improve. Read more

Bears Say

DT's margins are the lowest among its peers, especially in the U.S. Its relative return on capital is also low.

The telecom market in Germany is increasingly competitive, and regulators are threatening to restrict interconnection charges, both of which squeeze the firm's margins.

The German government is interested in reducing its large stake in DT, which is a potential weight on the stock price.

DT and Daimler may yet be liable for more than EUR 2 billion in fines and penalties for the delayed implementation of the German toll-collection system they built.

The firm had to spend $4.2 billion in the wireless auction in the summer of 2006 in order to gain more U.S. spectrum that it desperately needed. This cost was above most expectations. Subsequently, it bid to acquire Suncom Wireless for $2.4 billion, including debt, to access its spectrum. Read more

Strategy

Deutsche Telekom is trying to maintain its fixed-line business by expanding its high-speed Internet access business in Germany. It is also growing its wireless operations around the world. High-speed Read more

Management

Kai-Uwe Ricke was let go in November 2006 for not doing enough to cut costs. His successor, Rene Obermann, has survived a union strike and continues with job cuts. He previously ran the mobile unit, where he successfully reduced staff, though mostly Read more

Profile

Deutsche Telecom is Germany's incumbent telephone company. It also operates in many other countries. Its fixed-line networks serve 39.6 million voice lines and 17.2 million Read more

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