Deutsche Telekom's costly bet on the future
Last year the Bonn DAX company set records. But alongside revenues and profits, Telekom's debts and risks are growing.
What is at stake
81 billion euros in revenue, 3.9 billion euros net profit, a profit jump of 79 per cent. 2019 was the most successful year in Telekom’s history. CEO Timotheus Höttges calls it a “historic day”. Outgoing T-Mobile US chief John Legere departs to the sound of “What a Wonderful World”. The numbers are impressive. Yet behind the record lie two weaknesses that this balance-sheet check exposes: rising debt and a risky US integration.
The US bet
Nothing was more important to Telekom – and nothing is riskier. After two years of tough negotiations, T-Mobile US and rival Sprint finally merged on 1 April 2020. The deal does not yet appear in the 2019 accounts, but it shapes the entire strategy. US revenues rose eleven per cent to 40 billion euros in 2019; operating profit was up ten per cent to eleven billion euros. More than half of Telekom’s group revenue already comes from North America.
The debt problem
The price is high. Financing the Sprint acquisition has left Telekom heavily indebted. Integrating the two carriers will take years and consume billions. At the same time Germany requires investment in fibre and 5G. The cash flows of the coming years are already spoken for. Dividend increases will be difficult; room for acquisitions or strategic surprises is shrinking.
What investors need to know
Höttges is betting on the United States. If the Sprint integration succeeds and T-Mobile US continues to rise on Wall Street, the bet becomes a triumph. If it fails, Telekom faces a difficult decade. In 2020 the risk is at its highest point and the hoped-for returns are still invisible. For shareholders that means: either be patient – or invest elsewhere.
I wrote the full piece for Handelsblatt.