Deutsche Telekom CEO Tim Hoettges is looking to close the valuation gap between T-Mobile US and its rivals, as the telco revels following a very positive earnings call.
Share price in the German telco has jumped 3.9% in early morning trading following the financial results which saw revenues increase by 6.4% to €80.4 billion for 2019. Net profit was up by almost 80% to €3.9 billion, while free cash grew by 15.9% to €7 billion.
“The market environment in the European telecommunications sector is far from straightforward. Yet, despite the heavy regulation and inconsistent competitive situation, we emerged from the year just ended even stronger,” Hoettges said his letter to the shareholders.
“Not only that, but we are once again the leading European telco, based on both revenue and market value. That was and remains our overarching goal.”
Deutsche Telekom is one of the largest telcos across the world, but in recent years it is questionable as to whether it is one of the more progressive or future proofed. When looking at the penetration of full-fibre broadband or deployment of 5G infrastructure, the numbers are not as favourable, though the tide does seem to be turning.
The team now suggests 5G connectivity is being delivered in eight cities in its domestic German market, with ambitions to increase this to 20 by the end of 2020. Elsewhere, T-Mobile US launched its 5G offering in December and Austria has 31 5G base stations up-and-running.
Deutsche Telekom is heading in the right direction, but it is moving at a much slower pace than other telcos. It might want to proclaim itself as a leader in the telco arena, but realistically it is a fastish-follower at best, BT for example, has already launched 5G in 50 towns and cities across the UK.
One area where the company is proving to be incredibly aggressive is in the US, and this should continue over the coming months.
“We have the chance to become No.1 in the United States, to overtake AT&T and Verizon. That, at least, is our ambition,” Hoettges said during the earnings call.
With T-Mobile US and Sprint now looking at a clear path to the finish line, after a District Judge ruled in favour of the merger in the face of opposition from 13 Attorney Generals, the team can look further into the future. Following the merger, T-Mobile will be roughly the same size from a subscriber base as AT&T and Verizon, allowing more opportunity for the team to compete on a level playing field.
The US business is one which is once again proving to be very profitable for Deutsche Telekom.
T-Mobile US is the single largest business unit in the overarching business, accounting for just over 50% of the total revenues at €40.4 billion, a year-on-year increase of 10.7%. Momentum is clearly with the business also, the team boasted of 1.3 million branded postpaid net additions during its last financial results.
While the US is looking very positive for the telco, it will have to be careful sluggish activity in Europe does not open the door for rivals to steal market share in the various markets.