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Deutsche Telekom profits plunge 58%

Local loop unbundling hits where it hurts

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Europe's biggest telecommunications firm, Deutsche Telekom, lost over half a million customers during the first quarter of 2007 as fixed-line subscribers fled to cheaper rivals.

The Bonn-based company, which is the continent's largest telco in terms of sales, said on Thursday that first quarter profit declined by a staggering 58 per cent from €1.09bn for the first quarter of 2006 to €459m or €0.11 per diluted share for the same three-month period in 2007. It was the fourth consecutive quarter of declining profit.

Much of the dip in profits was attributed to the firm's failure to keep hold of many of its customers following local loop unbundling (LLU). Overall, the company lost 588,000 fixed-line subscribers during the first quarter.

In 2006, the troubled telco, which is facing industrial action over its plan to shift 50,000 jobs to its newly created T-Service customer service division, lost two million fixed-line customers.

Despite the fall in profit, sales rose 4.1 per cent to €15.5bn in the first quarter, compared with €14.84bn in the year-ago quarter due to increased revenue for its mobile unit, T-Mobile. Overall, Deutsche Telekom's mobile division contributed €8.4bn in revenue, up 10.9 per cent on the same quarter a year ago.

In addition, the firm gained 572,000 broadband customers in Germany during its first quarter.

While the telco's latest figures don't read well, Deutsche's chief executive Rene Obermann was putting a brave face on it.

"The group's financial figures are pointing in the right direction for us to achieve our targets for the year, but we are fully aware that here in Germany we are exposed to considerable competitive pressure. For this reason, it is crucial that the new 'focus, fix and grow' strategy continues to be put into action," said Obermann.

More worrying for the firm right now is the threat of industrial action. Trade union Verdi is vehemently opposed to Deutsche's plan to outsource jobs and the results of a strike ballot are expected to be announced late on Thursday.

Looking forward, the firm estimates moderate growth in net revenue, pre-tax profit of around €19bn and free cash flow of €6bn for the financial year, which is unchanged from fiscal 2006.

Copyright © 2007, ENN

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