Deutsche Telekom Slips as European Rivals Steal Spotlight

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(Bloomberg) -- Deutsche Telekom AG predicted higher earnings on the back of U.S. growth, signaling how important the planned $26.5 billion deal for its T-Mobile US Inc. unit to buy Sprint Corp. is for the German carrier. A European transaction by its competitors almost as big threatens to steal some of the company’s thunder.

Deutsche Telekom increased its full-year forecast for adjusted earnings by 100 million euros ($118 million) to about 23.3 billion euros after its U.S. arm added more than 1 million customers for the 20th consecutive quarter.

An hour later, Vodafone Group Plc announced an 18.4 billion-euro bid to bulk up its European business with Liberty Global Plc assets, including Unitymedia, the second-largest cable network in Germany. Deutsche Telekom fell 2.1 percent to 14.20 euros at 9:23 a.m. in Frankfurt after its rivals unveiled their deal.

While a merger of T-Mobile and Sprint is key for Chief Executive Officer Tim Hoettges, the deal to combine two of the four biggest wireless carriers in the U.S. faces scrutiny from regulators almost four years after an earlier attempt to unite the companies was rejected on concerns of reduced competition.

“Our growth profile, which is unique in our industry, enables us to raise our forecast once again,” Hoettges said in an emailed statement Wednesday. T-Mobile now makes up most of the group’s sales and earnings growth.

FCC Lobby

The leaders of T-Mobile and Sprint appeared at the Federal Communications Commission last week to lobby for the deal, according to an agency official who spoke on condition of anonymity because the meeting wasn’t public. The companies are citing the enormous costs of building a fifth-generation network of ultra-fast, ubiquitous connections as a reason to approve the transaction this time around.

It’s not the only deal where Hoettges risks rejection. Deutsche Telekom also wants to win approval for its purchase of Liberty Global’s Austrian landline division, and the acquisition of Tele2 AB’s business in the Netherlands.

The challenge in Germany, where Deutsche Telekom is investing in the build-out of fiber lines, is to win wireless and business clients in the face of competition from a combined Vodafone and Liberty Global, Telefonica SA and United Internet AG, which is emerging as a fourth large telecom carrier.

Domestic Competition

Vodafone’s bid to buy Liberty Global assets may spell intensifying domestic competition for Deutsche Telekom, which is Germany’s dominant provider of broadband services. Liberty Global CEO Mike Fries said on Wednesday that even together, Liberty Global and Vodafone will be half the size of Deutsche Telekom and that the merger will be decided by the European Commission.

“This is exactly what German market needs, which is a stronger more consolidated competitor to Deutsche Telekom in a market that has really lagged in innovation and investment,” Fries said in a phone interview.

The German carrier said sales fell 3.9 percent to 17.9 billion euros, compared with the average prediction of 18.1 billion euros, impacted by a stronger euro. Adjusted Ebitda was stable at 5.5 billion euros. The company also wants to improve performance at its ailing T-Systems IT services unit and grow in markets including the Netherlands, Poland and Greece.

©2018 Bloomberg L.P.

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