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Deutsche Telekom renews call for European consolidation

02/26/2021 | 01:14am

* Europe has 100 operators, the United States only 3, CEO says

* Eyes consolidation costs benefits

* Issues upbeat guidance after results top expectations

Feb 26 (Reuters) - Deutsche Telekom renewed its call for European industry consolidation on Friday, saying the region's sub-scale operators were not in a position to invest more in 5G networks as weak profits and high debts weigh.

CEO Tim Hoettges drew a stark contrast between Europe's 100-plus mobile operators and the U.S. market, where the field shrank to three players last April when Deutsche Telekom's unit T-Mobile took over Sprint for $26 billion.

"The industry is in a dilemma that it can only escape through cost synergies," Hoettges told a news conference after Deutsche Telekom reported forecast-beating results for the fourth quarter.

"I believe deeply that European consolidation is necessary," Hoettges added, echoing remarks he made last August.


Outperformance at T-Mobile, which achieved double-digit growth in organic profit and accounted for three fifths of group revenue last year, has overshadowed more pedestrian progress at Deutsche Telekom's European operations.

That has also led investors to value Deutsche Telekom's U.S. operations more richly than those on its German home market and across Europe.

Of Deutsche Telekom's $87 billion market capitalisation, its 43% stake in T-Mobile is worth $65 billion, meaning the European part of the business is worth only $22 billion.

Yet Deutsche Telekom is in a strong position relative to its European peers, Hoettges said. Vodafone is worth $47 billion, Orange $32 billion and Telefonica $25 billion.

Deutsche Telekom is not in active merger talks but is actively looking for network infrastructure partners for its mobile-only operations in Poland and the Czech Republic, Hoettges said.

"We are open to light or heavy partnerships," he said, indicating that some form of equity participation could be part of any deal.


Deutsche Telekom provided upbeat 2021 guidance, saying it expected core profit of 37 billion euros ($45 billion) this year, implying growth of 5.7%, while free cash flow would rise 27% to 8 billion euros.

Analysts said the outlook for Telekom's European business was in line with expectations. They also welcomed clarity on investment in its German fibre-optic network, which will accelerate in 2022 with a goal of reaching every household by 2030.

After stripping out the effects of the U.S. merger and other one-offs, organic revenue rose by 5.4% in the fourth quarter while adjusted earnings before interest, tax, depreciation and amortisation after leases (EBITDA AL) grew 9%.

Management confirmed it would propose an unchanged dividend of 0.60 euros for 2020.

Deutsche Telekom shares reversed early losses to trade 1% higher in Frankfurt, outperforming blue-chip stocks that were a little down on the day. ($1 = 0.8228 euros) (Reporting by Douglas Busvine Editing by Thomas Escritt and David Goodman)

© Reuters 2021
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