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Telekom profits slide
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January 20, 2000: 7:40 a.m. ET
German operator posts 45% slump as falling prices outweigh cellular, Internet
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LONDON (CNNfn) - Steep price cuts and costs for major acquisitions forced a 45 percent slide in Deutsche Telekom's preliminary 1999 earnings, the company revealed Thursday.
Deutsche, Europe's largest company in terms of market value, indicated a drop in net income to 1.2 billion euros ($1.22 billion) from 2.2 billion euros, broadly in line with analysts' expectations, even as revenue was little changed at 35.3 billion euros.
In its sparsely-worded preliminary report on 1999, Telekom did not disclose earnings for the year's final quarter. However the company, which remains 72 percent-owned by the German state, previously reported a 19 percent fall in nine-month net income to 1.25 billion euros.
Analysts cautioned however, that Telekom net income figures offered little real insight into the company's underlying performance, because of substantial accounting changes.
Sales for the quarter were sustained by growth in relatively new operations such as mobile services and Internet access. These successfully offset a 3 billion euro drop in revenue from fixed-line customers in Germany.
"They've had to bite the bullet and really cut prices," said Jonathan Shantry, European telecommunications analyst at Crédit Lyonnais.
Shantry calculates that by year end Telekom may have reduced charges for international and national calls by up to 40 percent.
"This should inject a dose of reality into the market," said Shantry, pointing to the 70 percent jump in the company's market value in recent months, fueled by optimism for its cellular and online operations. The figures "highlight that Telekom's main business is declining," Shantry added, referring to the company's fixed-line telephone operations in Germany.
The German telecom market was opened up to competition on Jan. 1, 1998, and since then Telekom has been besieged by a raft of price-cutting rivals, eager to eat away at the former monopoly's market share. New acquisitions - max.mobil and One2One - added some 1.3 billion euros to revenue. Without their contribution sales would have declined 3 percent.
These new companies - max.mobil is a mobile operator in Austria and One2One performs a similar role in Britain - had a negative impact on Telekom's bottom line however, since both are losing money.
The good news for Telekom was strong growth in its newer divisions. The company now has 15 million cellular subscribers in Germany, Austria and Britain, and the numbers are growing fast. T-Online, its Internet access subsidiary, added 1.5 million new subscribers during the year - up 54 percent - and the monthly tally of new subscriptions jumped from 100,000 in the first nine months to more than 200,000 per month in the final quarter of the year. Deutsche is mulling a flotation for T-Online.
The boom in online subscribers was also reflected in the surging take-up of high-speed ISDN telephone lines, which now account for 28 percent of all Telekom's 47.8 million connected telephone lines.
Telekom shares dipped 1.7 percent to 68.30 euros in Frankfurt Thursday.
Deutsche will publish its definitive figures for 1999 on April 19, 2000 and it said it would hold its dividend unchanged at 0.61 euros per share. 
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Deutsche Telekom
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