Deutsche Telekom's Profit Falls 40 Percent

Deutsche Telekom AG said Thursday that its second-quarter net profit fell by 40 percent as more than half a million customers abandoned its traditional land-line offerings for cheaper rivals or switched completely to mobile phones. The company earned 608 million euros ($839 million) in the April-June period, compared with 1.02 billion euros a year earlier. It blamed the decrease not only on the loss of customers but also on higher tax expenses and greater depreciation, amortization and impairment losses. However, the figure was still better than the 563 million euros ($777 million) that analysts polled by Dow Jones Newswires had forecast.

In addition, the company's pretax profit unexpectedly rose by 1.8 percent to 4.9 billion euros ($6.8 billion) from 4.82 billion euros a year earlier, beating expectations of a decline to 4.74 billion euros ($6.5 billion). Sales rose 2.9 percent to 15.6 billion euros ($21.5 billion) from 15.13 billion euros, lifted by continued growth at the company's wireless unit, T-Mobile. Analysts had expected sales of 15.5 billion euros ($21.4 billion). Sales at T-Mobile were up 10 percent to 8.65 billion euros ($11.93 billion) from 7.86 billion euros, lifted higher in part by the addition of 857,000 new customers at its growing U.S unit.

This is the fifth consecutive quarter in which Deutsche Telekom's net profit has come in below the previous year's figure. Although Europe's biggest telecommunications company in terms of sales, Deutsche Telekom has been struggling for more than a year with a customer exodus and is reorganizing its operations to focus more on wireless use through T-Mobile and broadband Internet access. A nearly two-year-old cost-cutting drive has seen the company eliminate 8,200 jobs and rack up a total 800 million euros ($1.1 billion) in savings.

"We are on the right track with our activities to become more competitive and keep our costs under control," Chief Executive Rene Obermann told reporters and analysts after the results were released. "However, we should not let this hide the fact that our journey is far from over and will not become any easier as we continue on this path. The key message that we want to communicate for the first half of 2007 is that we are right on track to achieve our 2007 financial targets."

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