Deutsche Telekom is to ramp up investment in its fibre-optic network in Germany to €6bn ($7.8bn), as part of projected group capex of almost €30bn over the next three years (including the acquisition of US mobile service provider MetroPCS). In Germany alone, investment is set to increase to €4.1bn in 2014 and to €4.5bn in 2016, up from an average of €3.6bn over the last three years, while the incumbent also plans further investment in its mobile LTE infrastructure.
Deutsche Telekom has also updated its financial forecasts, saying that it expects adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) to grow to around €18.4bn next year, up from an anticipated €18bn in 2012, while free cash flow will fall to €5bn in 2013, down from the expected €6bn this year. Both figures include anticipated revenue streams from MetroPCS, which Deutsche Telekom expects to consolidate in 2013 (excluding the effects of regulation and exchange rates).
Deutsche Telekom is planning to invest heavily in fibre-to-the-cabinet (FTTC) rollout in Germany, along with spending on vectoring technology on its copper network, as it seeks to boost home broadband speeds to meet the increasing threat from cable rivals. The German giant is planning to bring FTTC to around 65 per cent of the population by the end of 2016, while it says vectoring could increase VDSL transmission rates, allowing download speeds of up to 100-Mbps (although in reality speeds are likely to reach less than a quarter of this). Vectoring is increasingly being adopted in Europe as a cheap alternative to fibre roll-out, but is unlikely to offer a long-term solution to ramping demand for superfast connectivity.
Deutsche Telekom also plans to introduce hybrid-box technology at network junctions, allowing it to feed traffic in both directions using VDSL vectoring and wireless LTE, and is aiming for download speeds of up to 200-Mbps in the long-term. IHS Screen Digest forecasts Deutsche Telecom will reach 2.3 million VDSL connections by 2016, accounting for 6 per cent of German households.
The incumbent is facing increasing competition from fixed-line rivals such as Kabel Deutschland and Liberty Global-backed Unitymedia & KabelBW, which are able to offer improved downstream speeds via DOCSIS 3.0 cable connections (up to 150 Mbps download speeds). While Kabel Deutchland and Unitymedia & KabelBW currently have just 6 per cent and four per cent shares of the German broadband market respectively, they have both recorded the highest successive growth in subscribers out of all German ISPs in the last two years (5.5 per cent and 7.1 per cent average quarterly growth, respectively). By contrast, Deutsche Telecom's quarterly growth in new broadband subscribers in Germany has not exceeded one per cent in the last two years.
Deutsche Telekom's third-quarter 2012 revenues in Germany fell 1.3 per cent year-on-year (y/y), due to ongoing declines in the fixed-voice sector, as total fixed-line connections fell 5.3 per cent y/y to 32.8m, while retail broadband lines rose 2.4 per cent y/y to 17.1m. Meanwhile, German state-owned bank KfW has stated this week that it may push ahead with the privatisation of its 17 per cent stake in Deutsche Telekom, if financial markets continued to improve.
In the mobile sector, Deutsche Telekom plans to accelerate the rollout of its LTE network, to provide coverage to some 85 per cent of the German population by the end of 2016. The German regulator recently announced that the country's mobile operators have met their LTE mobile broadband coverage obligations, as stipulated in the 800-MHz digital dividend auction in 2010 - meaning Deutsche Telekom's T-Mobile, along with rival Vodafone Germany and Telefónica's O2 Germany can freely use the spectrum in all states. However, the regulator has also announced it will cut mobile termination rates (MTRs) in the country by nearly half, with the first round of cuts coming at the start of December 2012. The cuts are being severely criticised by the operators, with Deutsche Telekom estimating that the cuts will cost the German operators some €500m annually.