Deutsche Telekom, Europe's biggest phone company, reported a 35 percent slump in second-quarter earnings as the strong euro and erosion of its German customer base hit the group's profits.
Predictions of an exodus of Telekom's fixed-line customers have been realized
Germany-based Telekom said Thursday, Aug. 7, that it booked net profits of 394 million euros ($608 million) in the latest quarter compared to 604 million euros.
This followed a 2.9 percent drop in second-quarter revenue to 15.13 billion euros with a tough round of savings helping to offset the pressure on the group's earnings.
"We made good progress during the first half of the year in achieving our strategic objectives, both in operations and in cost savings," Telekom chief Rene Obermann said in an attempt to put a positive light on the quarterly numbers.
Several factors contribute to profit drops
But while fierce competition in Telekom's domestic German market led again to a fall in its fixed-line customers, the rise in the euro undercut revenue from the group's US operations, including its mobile phone business, T-Mobile USA, which has been a key driving force behind group profits.
The euro hit an all-time high of more than $1.60 during the second quarter.
Revenue from T-Mobile USA slipped by 0.8 percent during the first half also amid growing competition in the US mobile phone market.
Obermann has yet to hit the panic button
At the same time, more than 650,000 German households abandoned their Deutsche Telekom fixed-line connection during the second quarter. This mass exodus followed the some 120,000 fixed-line customers who left the company throughout this year's first-quarter.
Obermann told Deutsche Welle in an interview earlier this year that such losses were to be expected in 2008.
"There's no way around it," he said. "The important thing is that we continue to grow with broadband and mobile connections and with innovative value-added services."
However, the company's broadband and fixed-line unit posted a 6.4 percent drop in revenue to 5.3 billion euros in the quarter.
Telekom said group quarterly adjusted earnings before interest, tax, depreciation and amortization (EBITDA) dropped by 1.1 percent to 4.85 billion euros ($7.5 billion).
However, it remained on course to hit its full-year EBITDA target of about 19.3 billion euros.