By Neetha Mahadevan
FRANKFURT-- Deutsche Telekom AG said on Thursday that its
first-quarter results were weighed down by higher costs tied to
investment in the U.S., although net profit tripled in the period
due to an extraordinary gain.
The German telecoms company's net profit rose to EUR1.8 billion
($2.5 billion) in the quarter, largely due to income of EUR1.7
billion from the sale of its stake in online advertising unit
Scout24 late last year. Adjusted for the sale, net profit declined
24%. Operating profit fell 3.9% to EUR4.1 billion due to higher
investments accompanying U.S. customer growth. Revenue increased 8%
to EUR14.9 billion helped by higher sales for domestic mobile
services as well as a sharp increase in customers in the U.S.
In addition to the U.S. customer drive, the recent acquisition
of cellular network MetroPCS helped boost revenue in the quarter.
Deutsche Telekom bought the network last year, merging it with its
U.S. unit T-Mobile U.S. Inc., the fourth-largest wireless carrier
in the U.S.
"Despite the inclusion of MetroPCS, the U.S. operations did not
compensate for the costs for strong customer additions and negative
trends in Germany and Europe," the German telecommunications group
said.
Deutsche Telekom has been opting for investment that boosts
T-Mobile's customer base over its own profitability this year.
Through aggressive marketing and deals encouraging new customers to
switch to T-Mobile from other operators, Deutsche Telekom's
strategy is paying off. T-Mobile added 1.3 million wireless
postpaid customers in the U.S. in the quarter, beating rivals
AT&T and Verizon Communications Inc.
"Our success story in the United States continues. The decision
to invest boldly in this market was right on the mark," Chief
Executive Timotheus Höttges said.
Earlier this month, T-Mobile upped its subscriber base forecast
to 2.8 million to 3.3 million for the full year, compared with a
previous forecast of 2 million to 3 million.
"We are glad to have achieved an increase in subscribers [in the
region], and that is slowly spilling into revenue. We just have to
convert this into earnings now," Mr. Höttges said in a conference
call. He is working to enhance T-Mobile's enterprise value and make
it a self-funding business.
T-Mobile has had talks about a sale to U.S. telecom company
Sprint Corp ., a deal that would allow Deutche Telekom to focus on
its more profitable European operations. However, with regulatory
issues looming, the German company is looking at ways to beef up
the business independently.
T-Mobile Chief Executive John Legere recently said the company
could become an even stronger competitor to industry leaders
AT&T and Verizon if it could grow via a deal.
Deutsche Telekom confirmed its full-year outlook of modest
revenue growth, which is expected to accelerate in 2015. It
predicted operating profit to be around EUR17.6 billion, with free
cash flow of around EUR4.2 billion.
Write to Neetha Mahadevan at neetha.mahadevan@wsj.com
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