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Deutsche Telekom soothes market with debt reduction plan

Results as expected, shares up nearly five per cent

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Deutsche Telekom has followed a rough week by announcing half-year results almost exactly in line with expectations. For the first half of the year, it has seen a 16.9 per cent rise in revenues (to £14.1 billion) and a 12 per cent rise in profit before interest, tax etc (to £4.5 billion). However, overall it made a net loss of £219 million.

Shares have risen 4.5 per cent on end of selling yesterday but this demonstrates relief that the results weren't worse rather than confidence in the telecom giant. As with the other two main European telcos, France Telecom and British Telecom, Deutsche Telekom has been beset by huge debt and has seen its share price fall week-on-week to the lowest in recent memory.

Last week, the company saw 20 per cent wiped off its share price in almost one day as a huge swathe of shares in the company were dumped on the market. The shares had been released from an agreement with Hutchison Whampoa following the purchase of US company VoiceStream. That caused panic since nearly 590 million shares are also due to be released on 1 September.

It also sparked a conversation between the German finance minister Hans Eichel and DT's chairman Ron Sommer yesterday. DT has dismissed it as "routine" but with a 43 per cent stake in the telco, the German government is not over pleased to see shares goes down the toilet.

And so what is DT going to do about it all? Well, you won't believe this but it seems to be following exactly the same steps as British Telecom when it found itself in the same position six months ago. Without the sacking of its chairman and demotion of its chief exec of course.

It will cut its debt from £41 billion today to £36-39 billion by the end of the year and £31.4 billion by the end of 2002. And how will it do this? By floating off mobile arm T-Mobile for £6.3 billion, selling stakes in other non-core companies (£3.1 billion in cable companies, £0.63 billion in France Telecom, others) and selling off real estate (worth another £1.6 billion). All it needs is a rights issue and we've got BT recovery program version two.

The monster has also wisely decided to keep the market informed of everything that's going on so it's not caught out again. Hence its announcement that "only" 170 million shares of the 590 million issued for acquisition of VoiceStream and Powertel are expected to be traded on 1 September (although it went for the term "flow back" to the market). At least 350 million are "safe" it told the market. Oh, and VoiceStream is going to make a "significant" profit in 2002, according to DT - a change from the £59 million loss it made last quarter.

Deutsche Telekom has clearly seen the light and not too soon either. It must have helped seeing BT go through it all earlier in the year. ®

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