T-Mobile USA's financials are recovering following the breakdown of its proposed takeover

Deutsche Telekom’s results for the first quarter of the year show a decline in net profit of more than 50 per cent year on year and a 1.1 per cent reduction in revenue.

Net profit fell from €480m to €238m for the first quarter of 2012, while revenue fell to €14.4bn. Adjusted net profit fell 17 per cent year-on-year to €581m.

Despite the scale of the decline, CEO René Obermann hailed it as a “satisfying” quarter, with the group claiming that its “most important KPIs” saw a positive trend. Adjusted EBITDA remained stable at € 4.5bn in the quarter remained and its adjusted EDITDA margin stood at 31 per cent, 0.4 per cent higher than the same period a year earlier.

The firm’s US operation, T-Mobile USA, has seen revenue and profit deteriorate over the past year and was the subject of a recently failed takeover from rival AT&T. Following the breakdown of that takeover, it received €3bn in cash and a mass of AWS spectrum and is now stepping up its efforts in the market, the firm said. It added that  T-Mobile USA is on schedule to implement its new LTE network  thanks to the transfer of spectrum  and is making preparations to refarm its existing spectrum.

Revenue for the US operation increased two per cent year-on-year for the quarter, to reach €3.8bn, while adjusted EBITDA grew 12.9 per cent to €1bn. However, this was in part due to exchange rate gains made by the US dollar. In local currency, revenue decreased by 2.3 per cent, although adjusted EBITDA increased by eight per cent.

T-Mobile USA also recorded a strong adjusted EBITDA margin of 25.6 per cent, a year-on-year increase of 2.5 per cent, and gained new customers. Growth in prepay business saw the total number of customers up by 187,000 in the first quarter. The number of branded contract customers, excluding machine-to-machine, on the other hand, was down by 510,000.

“Relaunching the T-Mobile brand on the US market and significantly enlarging the sales network in the country are important steps in implementing the strategy,” the firm said in its statement.

“In addition, initiatives for cutting costs and reducing churn are having a positive impact. There was a 0.1 percentage point improvement year-on-year in branded contract customer churn, representing a 0.5 per cent improvement on the fourth quarter.”

Bruno Jacobfeuerborn, CTO of Deutsche Telekom

Bruno Jacobfeuerborn, is the CTO of Deutsche Telekom, Germany, one of the largest operators in Europe. Jacobfeuerborn is delivering a keynote on Day One of the LTE World Summit 2012 taking place on the 23-24 May 2012 CCIB, Barcelona, Spain. Ahead of the conference, Jacobfeuerborn presents his take  on where the operators stand with regard to LTE.

What are the main milestones you have reached with relation to your LTE deployment?

In summer 2010 we put the first LTE site on air in Kyritz. This was the first “white spot” we closed via the digital dividend and overall we have closed over 2000 “white spots”. Another milestone was reached when we started the deployment of high-speed LTE cities with the commercial launch in Cologne on July 1, 2011. In February 2012, Frankfurt followed as the second city and the rollout will be continued end of April with Hamburg, Munich, Bonn and Leipzig.

What are the main challenges you have faced, or expect to face, as you roll out LTE?

In Germany we have an obligation for rollout in rural areas in advance of the cities. Due to this, we started the project Common Broadband Access (CBA) for the technical introduction of digital dividend in April 2010. In the spectrum auction in May, we purchased the equivalent frequencies and launched the LTE site in Kyritz only three months later. This was a huge challenge we had to cope with, but we succeeded.

Can a network realistically cope with unlimited data tariffs?

From customer surveys we have done in the industry we know that a customer’s perceived experience and expectations are critically depending on the price that the customer pays. By better managing quality on a customer basis (i.e., Customer Experience Management) and data traffic across mobile and fixed, it is possible to allow unlimited data tariffs (i.e., based on unlimited volume). If you can manage the network load and investments then you can fulfil the customer expectations and ensure the customer the best experience possible.

With so much attention paid to the radio access network is there enough focus on backhaul?

Deutsche Telekom always aligns the investment in the mobile radio infrastructure (3G and LTE) with the investment in the mobile access backhaul network. In Germany, for example, we have a healthy mixture between fibre and micro wave.

Some operators have said that TD-LTE spectrum is more efficient? Why is there not more attention being paid to it?

In Europe most of the spectrum available for mobile services is paired spectrum. Therefore, the mainstream technologies which have become applied are FDD based like LTE-FDD, UMTS-WCDMA or GSM, with significant advantages for the operators with respect to economy of scale for systems and terminals in these bands.

Do you think that VoLTE will have an impact and if so in what time frame?

As we provide HD Voice, we do not have to push VoLTE very hard. Of course, DTAG is fully in line with the common industry view that VoLTE is the preferred long term solution to deliver operator-provided voice services on All-IP networks. As with every new technology, VoLTE will start small and grow over time. Due to the fact that VoLTE can and will be closely integrated with existing 2G/3G mobile voice services, the introduction will happen very smoothly.

Is there enough innovation occurring in the mobile network industry? Can you provide some examples?

There can never be enough innovation. It is our lifeblood. This said, we have made incredible progress with LTE, ensuring the sustainability of our future as a mobile business. Multi-mode software definable radio systems enable our industry to achieve a new level of economical and technological efficiency that is unparalleled. We have rethought mobile network designs (e.g. small cell topologies) in light of mobile data tsunami and spectrum crunch and have shown new and substantially better ways to provide capacity and quality to our customers, thereby safeguarding their experience. IP Transformation, mobile-fixed convergence, cloud and virtualization concepts are being actively pursued at an aggressive pace in ways that were not considered just 24 month ago in our industry.

Will LTE Advanced make a major difference and when would you expect it to be rolled out?

LTE-Advanced (LTE-A) is the next logical and necessary step in mobile evolution and further technology evolution of LTE. There will be no rollout of new networks and the LTE-A features will be implemented gradually into the LTE networks in the coming years.

What changes would you hope to see in the industry in the next five years?

In order to decrease the network utilisation caused by the proliferation of smartphones, a closer cooperation with app developers is more important than ever. To strengthen this relationship Deutsche Telekom has already launched developer guidelines and also organized an App Developer Day recently.

Why are you attending the LTE World Summit and what are you looking forward to most?

The LTE World Summit offers me the best opportunity to meet many colleagues and companies from the industry in a very short time frame. As we all are facing the same challenges as e.g. massive data growth vs. declining revenues I am very interested to see other strategies to deal with it.

The LTE World Summit is taking place on the 23-24 May 2012 CCIB, Barcelona, Spain. Click here to register your http://ws.lteconference.com/interest.

The EU has accused Slovak Telekom of abusing its market position in the countryThe European Commission has sent Slovak Telekom an anti-trust complaint over allegations that it has abused its market position. The EU regulator accused the local incumbent in Slovakia of stymieing competition by failing to open up its network to rivals and charging “unfair wholesale prices”.

The EU has said that Slovak Telecom has refused to unbundle its local loops and reduced competitor margins to unsustainable levels with its high wholesale charges.

“Alternative operators have experienced unreasonable and burdensome technical and commercial terms proposed by ST,” the European Commission said in a press statement. “Moreover, ST set its wholesale prices at a level that made it impossible for alternative operators to profitably enter and operate in the retail broadband market in Slovakia (margin squeeze). This has hindered the development of the broadband retail market in Slovakia.”

As its parent company Deutsche Telekom AG is liable for Slovak Telecom and as such could be hauled up in front of the EU to answer its objections.

The EU statement reveals that the Commission has not moved quickly in this case however, having first opened proceedings against Slovak Telecom in April 2009, and then against Deutsche Telekom in December 2010.

Both parties are now expected to reply in writing setting out their defence and can request an oral hearing to present their views on the case.

The Broadband World Forum is taking place on the 16 – 18 October 2012 at the RAI Exhibition and Convention Centre, Amsterdam, The Netherlands. Click here now to register your interest.

AT&T and T-Mobile have dropped their proposed $39bn merger

US carrier AT&T has ended its bid to acquire rival T-Mobile USA, after a nine-month pursuit. The firm announced that it has agreed with T-Mobile’s parent company Deutsche Telekom AG to terminate the bid, which involves AT&T paying DT $4bn in break-up fees.

AT&T condemned the efforts of the Federal Communications Commission (FCC) and the Department of Justice (DoJ) for the parts they played in blocking the proposed $39bn merger.

The DoJ filed a civil antitrust lawsuit in a bid to block the deal, claiming that the deal would “substantially lessen competition” in the US wireless sector, while the FCC said that AT&T would have to face an extra administrative hearing next year, before the merger could go ahead. FCC chairman Julius Genachowski had said that letting the two operators merge would “not be in the public interest” and that if approved, “thousands of jobs will be lost in the aftermath”.

Competitor Sprint Nextel also attempted to block the acquisition by bringing a lawsuit against AT&T, claiming the deal would be a violation of Section 7 of the US Clayton Act, which covers competition issues in the US.

These moves resulted in AT&T and T-Mobile USA withdrawing their filings relating to the merger from the FCC last month. At the time, the firms said they would continue to pursue the merger “as soon as is practical”, despite opposition from the DoJ, but they have now backed out entirely.

“The actions by the FCC and DoJ to block this transaction do not change the realities of the US wireless industry – it is one of the most fiercely competitive industries in the world, with a mounting need for more spectrum that has not diminished and must be addressed immediately,” AT&T said in a statement.

It continued that the abandoned merger would have offered an interim solution to the US spectrum shortage, and claimed that now customers will be harmed and needed investment will be stifled.

Randall Stephenson, AT&T chairman and CEO, said:  “Over the past four years we have invested more in our networks than any other US company. As a result, today we deliver best-in-class mobile broadband speeds – connecting smartphones, tablets and emerging devices at a record pace – and we are well under way with our nationwide 4G LTE deployment. To meet the needs of our customers, we will continue to invest.”

He added, however, that adding capacity to meet these needs will require policymakers to do two things.

“First, in the near term, they should allow the free markets to work so that additional spectrum is available to meet the immediate needs of the US wireless industry, including expeditiously approving our acquisition of unused Qualcomm spectrum currently pending before the FCC.  Second, policymakers should enact legislation to meet our nation’s longer-term spectrum needs.”

As a result of the merger breaking down, AT&T will pay out a pretax accounting charge of $4 billion in the 4th quarter of 2011 to Deutsche Telekom. In addition, the two operators will enter a mutually beneficial roaming agreement.

Thomas Wehmeier, principal analyst for telco strategy at Informa Telecoms & Media said that, despite receiving a huge break-up fee, Deutsche Telekom will be disappointed with the outcome of the proposed merger.

“There are very few occasions when you are forced to walk away from the table with $4bn in your pocket and still feel like you’ve just been short-changed – that’s what the collapse of the sale of T-Mobile USA will feel like to Deutsche Telekom,” he said.

“Having frequently – and very publicly – reiterated the absence of a Plan B, the break-up fee will be small consolation as it is forced to carve out a third path, or Plan C.”

Wehmeier said that, in the short term, Deutsche Telekom’s management will have to focus on how to shore up its faltering US business, but a longer-term strategy needs to be carved out quickly. The US arm of T-Mobile contributes a sizeable percentage of group revenue and EBITDA, but has been in limbo for nearly a year now, and Wehmeier believes investors will be seeking swift clarification of its revised strategy and evidence that it can meet its 2012 targets.

He added that the news also has wider implications for the sector – and sets the tone for future consolidation in the industry.

“Much has been made of the need for in-market consolidation within the intensely competitive mobile industry, but having to potentially navigate around seemingly insurmountable regulatory hurdles is likely to shake the confidence of would-be consolidators to the core.”

AT&T has admitted that it has set aside $4bn to cover a potential charge to cover the breakup fee and cost of assets to be paid to T-Mobile parent Deutsche Telekom if the merger deal falls through

AT&T said that it has set aside $4bn to cover a potential charge to cover the breakup fee and cost of assets to be paid to T-Mobile parent Deutsche Telekom if the merger deal falls through, according to the Wall Street Journal.

The firms said they would continue to pursue the $39bn merger “as soon as is practical”, despite opposition from the US Department of Justice.

Earlier this week FCC Chairman Julius Genachowski said that letting AT&T acquire T-Mobile USA is “not in the public interest” and that if approved, “thousands of jobs will be lost in the aftermath”.

He had therefore proposed an administrative hearing take place, which would have required AT&T to present its case before an administrative law judge. The FCC would also present its own findings at the hearing.

“I think rather than going through the FCC first, the two companies are trying to work through the Department of Justice, and get things smoothed out there first,” said Sylvain Fabre, research director in the carrier network infrastructure group at Gartner. “However, they’re already planning for the $4bn charge but nothing’s certain until it’s over.”

“No matter what happens, Deutsche Telekom will walk away with something rather than nothing, which can’t be said for AT&T.”

Deutsche Telekom CTO Olivier Baujard and BT's Sean Williams share a panel at the Broadband World Forum

Truly mobile usage is a for the most part a myth, according to the CTO of Deutsche Telekom. Speaking in his keynote address at the Broadband World Forum on Wednesday, Olivier Baujard said that according to Deutsche Telekom’s data analysis, 80 per cent of traffic for a typical customer is generated from just three cells.

“One is home, one is work or university and one other. The maximum is four cells, depending on class of customer”, Baujard said. The data further showed that only ten per cent of data use is truly mobile.

He also noted the impact of larger screened devices such as tablets on wireless data access. “Usage has shifted. The sessions are longer.” Noting the convergence of mobile and fixed Baujard said that, “20 per cent of customers generate 80 per cent of traffic – because they are using the mobile device like a fixed device.”

Following his keynote Baujard shared a panel session with Sean Williams, head of group strategy for UK incumbent BT, who said that the expectation from some that fibre would soon dominate was unrealistic, and echoed earlier comments from Alcatel-Lucent’s Philippe Keryer that there was much life left in copper connections.

“The copper network will be used in its entirety for long period of time,” Williams said. “We have to recognise reality that we are moving at the pace of our customers and there is a lot that can be done with copper. Our business case is predicated on getting 20 per cent of our copper customers onto fibre but I think it’s completely naive to expect to get everyone on fibre – not for a generation.”

Olivier Baujard, CTO of Deutsche Telekom

Olivier Baujard, chief technology officer for the Deutsche Telekom Group, will be giving a keynote speech on day two of the Broadband World Forum taking place on the 27-29 September 2011 at the CNIT, La Defense, Paris, France. Ahead of the conference, we speak to him regarding his thoughts on the challenges and opportunities facing one of the biggest telecoms players on the global stage.

Could you provide an overview of the state of play in your local broadband market?

I would say that both fixed and mobile are seeing growing demand, but the dynamics are extremely different between them. While both are positive, the challenges to meet, service and monetise that growth are very different.

Mobile data growth is by-and-large the most impressive, showing double or even triple digit growth year-on-year depending on the maturity of the market.

This is derived from a combination of higher and higher penetration of data hungry smartphones, such as the iOS and Android based ones. These terminals generate two to three times more usage than other smartphones and five to ten times more than none smartphones. Penetration is growing, and this is directly impacting the volume of mobile data. And all this in the midst of what we call a worldwide financial crisis.

The challenge of mobile data, though, is the monetisation of that growth. This is something that the industry has to solve. We are working on it because the current investment and cost per capacity is at risk of being unsustainable in the next two and three years. So not only do we need more spectrum, but we will also need new technologies and capacity. We need a different business model where the monetisation and costs are not only borne by asset heavy operators.

For the fixed infrastructure it’s all about double and triple play traction. In countries where we can provide content rich and TV services the demand is extremely high. This opens up an opportunity to deploy our VDSL and xDSL infrastructure and also triggers the plans for Fibre-to-the-Home (FTTH) that we have started to devise, and this is a very CAPEX intensive activity.

Is mobile broadband now more important than fixed line to you and to your customers?

There is an immediate, personal, appetite for mobile broadband – or wireless. It’s triggered by attractive terminals such as tablets and smartphones. It is definitely a ‘pull’ market, as that’s what the customers want. They want wireless access to the internet, to social networks, and content rich services like music and video. That is universal, across all our markets.

The future of fixed is massive broadband, while narrowband, as well as areas where there is poor broadband, is captured by mobile. But mobile and wireless will be more limited when it comes to real triple-play offerings, combining TV, internet and voice. Where there is a market for that there is a need for fixed as well.

Where does Wi-Fi fit into your strategy?

Wi-Fi is technically not a mobile but a wireless offer. However, it is a good solution for bridging the gap between mobile and fixed. We can upgrade our customer experience by using more Wi-Fi, when at home, or indoors. Customers get immediate access to full fixed broadband and still have a mobile experience.

What’s your strategy around LTE?

Our strategy is that we will deploy LTE to expand our mobile broadband capability and we will start where we have higher demand and the spectrum for it. We won’t deploy LTE just for the sake of being the first [operator] in a particular market. It’s a tool in our toolbox of wireless and mobile broadband service. And this toolset is composed of HSPA, LTE and WLAN.

As soon as we have secured spectrum, and in markets where the demand is high enough, we will deploy LTE. Not only for capacity reasons but for broadband quality performance as for many services LTE is superior to HSPA.

We have already launched 800MHz in Germany as well as 1800MHz, and 2600MHz in Austria. We believe that 800, 1800, 2600 and maybe 2100 will be the reference [frequencies] in Europe used by most operators.

Part of the 800MHz license obligations in Germany required us to cover ‘white spots’ to provide a fixed LTE  service to the few per cent of German homes that were not within reach of fixed broadband services. This obligation will be completed between now and early next year.

With all the focus on next generation radio technology do you think that enough focus has been made on backhaul?

We have learned in the past two or three years that the bottleneck in terms of capacity of our network was not always in the radio part but too often in the backhauling and we have learned from that so it doesn’t happen again.

The backhaul challenge will be the same in reality in both an HSPA network and an LTE network. As a consequence, in each of our networks we have a systematic broadband backhauling plan, as a companion to the deployment of LTE and HSPA, to ensure that the backhauling component is compatible with the access capacity. We continue to invest in fibre and point-to-point microwave.

There have been discussions amongst carriers that the major OTT players should contribute to network costs. Where do you stand on this?

There is a need for continuous huge investment in network assets, mobile as well as fixed, which will not vanish. There is a need for CAPEX for infrastructure and innovation in the infrastructure.

Now in the current model only a number of players have this burden. At the same time the regulation and business models have not evolved. That’s a real problem and this has to be solved.

Earlier this summer there were a number of European-led discussions amongst different companies from the content media, and there were some recommendations of how we can solve that issue. And this will be solved most probably by a double sided business model where not only the final user pays, but also the companies that make money out of their final customer getting access to their rich application and content.

If we don’t want to collapse the industry, to spoil innovation, or nationalise – and I’m not sure we want that to happen – then we have to find a way out.

In your view, how should the broadband industry improve and what challenges does it face?

I’m convinced that the industry will have to improve in [delivering] ease-of-use and [to provide a] clear value perception by the customers. And it’s not an overnight thing. There must be a sense of perceived value in what they get. This has to be created first, and maintained second.

I’ll give you an example. The data roaming issue for mobile users is a long lasting discussion between the operators, the consumer associations and the regulators. We have decided to make a big shift with new roaming tariffs that we implement all across Europe, to make it simple.

And we have deployed new packages for all our customers where they will know in advance what they will be paying – and it’s a tenth of what they used to pay in the past, by the way. But we have decided to simplify the tariffs.

What we expect from that is that we will get more trust from our customers so they will use more data when roaming. It is not philanthropy; we believe it will be the right way to develop our business.

The second challenge is how the infrastructure can be financed. That’s a big problem both in fixed and in mobile. In fixed it’s only a CAPEX issue. It’s not a technology or a capacity issue, it’s a money issue.

In mobile, it’s a combination of money and feasibility, because acquisition of sites is almost impossible, as is spectrum. So we could have a situation where there is no technical solution for the capacity demand.

But in fixed, give me the billions and the right of way I need, and then I can roll out FTTH everywhere to 95 per cent of the homes, and then we can get broadband to everybody.

The Broadband World Forum is taking place on the 27-29 September 2011 at the CNIT, La Defense, Paris, France.

The next generation of Apple's popular iPhone is expected to be unveiled soon

The fifth iteration of Apple’s popular iPhone handset has inched closer to commercial availability with the news that Deutsche Telekom has begun taking pre-orders of the new mode.

The company told Bloomberg that it will hand out coupons to people who request the replacement for the iPhone 4, but it would not confirm what the handset will be called or launch details of the device.

As of yesterday, O2 UK claimed that it did not know when the next iPhone would be made available, while Vodafone UK admitted that it would be available soon and that the operator would be supplying the device.

Meanwhile, Apple is also training staff in its retail outlets on the iOS 5 operating system, which the handset will use - as well as on the new iCloud service, according to 9to5Mac.com.

Apple had originally said that the iCloud service would be launched alongside the next generation iPhone. The report states that training will be done through the company’s internal RetailMe application.

Apple iPhone handsets currently hold 18.2 per cent of the worldwide smartphone market, according to research firm Gartner, trailing behind Nokia, which has 22.1 per cent and Google’s Android operating system, which dominates with 43.4 per cent.

The deconsolidation of T-Mobile UK and plans to get rid of the US operation affected DT's results

German carrier Deutsche Telekom reported a significant drop in net profit for the first half of 2011, from €1.2bn a year ago to €828m this year. Revenues were on the slide as well from €31bn in H1 2010 to €29bn in H1 2011.

Adjusted net profit came in at €1.6bn, versus €1.7bn in the first half of 2010, prompting CEO Rene Obermann to comment on a “persistently difficult environment,” and the company also “seeing light at the end of the tunnel in Southeastern Europe,“ with particular reference to Greece.

Mobile internet continues to be a growth driver, with revenues in this area increasing by 13 per cent year on year to €1.2bn, boosted by growth in the use of smartphones, which now account for 46 per cent of all devices sold by the European national companies compared with 21 per cent one year before. There was also a significant increase in the number of smartphones on the T-Mobile USA network, up by over 50 per cent to almost 10 million within a year.

There were two major events during the first half of 2011 to affect DT’s financials, namely the deconsolidation of T-Mobile UK, which now falls under the Everything Everywhere umbrella, as well as the reporting of T-Mobile USA as a ‘discontinued operation’ due to its proposed merger with AT&T. However, the deal is presently having a tough time of it with the competition authorities.

Ovum analyst Charlie Davies commented: “These numbers and Rene Obermann’s reference to a ‘persistently difficult environment’ underline the challenge facing Deutsche Telekom and many of its peers in combating declining revenues in their core income streams. Deutsche Telekom is betting on sustained longer-term growth in South Eastern Europe to help boost flagging revenue numbers.

“Growth in markets like Poland will be even more important in light of Greece’s ongoing economic woes and the overall shaky economic climate makes this a more risky bet. This means Deutsche Telekom must also maintain progress in reducing opex in order to achieve its targets.”

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TeliaSonera brings a Nordic element to the partnership

Nordic and Baltic carrier TeliaSonera has joined the collaborative M2M programme announced by Orange and Deutsche Telekom in February 2011. The project was put in place to create seamless international M2M services across the portfolios of the German and French incumbents. At launch the agreement covered France, Germany, Belgium and Luxembourg, with the Netherlands and the UK joining subsequently. The addition of TeliaSonera adds Sweden, Norway, Finland, Denmark, Estonia and Lituania into the mix.

While many current and proposed M2M applications involve the connection of static devices, some of the most advanced are international in nature. Fleet management and in-vehicle systems in particular will benefit from the availability of consistent cross-border services.

“With this agreement, now three groups are significantly pushing the boundaries of the M2M ecosystem,” said Anne-Marie Thiollet, EVP Enterprise Line of Business, Orange Business Services. “Global availability and reliability will spur the commercial adoption of M2M services and will stimulate new innovations. We are happy to welcome  TeliaSonera as a member of our partnership and look forward to other carriers joining us in this endeavour; only by working together can we make the great promise of M2M a reality.”

M2M is an area of increasing importance to the operator community, particularly in advanced markets where traditional subscriber bases have become saturated. The prediction from industry leading infrastructure and services vendor Ericsson that there will be 50 billion connected devices by 2020 has become almost accepted thinking among many industry players.

“M2M has a very large economic potential and this cooperation with three of the strongest brands in the market enhances our international offers,” said Håkan Dahlström, president of Mobility Services, TeliaSonera. “We know that the services connected to M2M communication in many cases is vital for business and puts clear requirements on us as a communication operator.”