Deutsche Telekom Profit Falls on US Investment Costs--Update


By Neetha Mahadevan

FRANKFURT-- Deutsche Telekom AG said on Thursday that its first-quarter results were weighed down by higher costs tied to investment in the U.S., although net profit tripled in the period due to an extraordinary gain.

The German telecoms company's net profit rose to EUR1.8 billion ($2.5 billion) in the quarter, largely due to income of EUR1.7 billion from the sale of its stake in online advertising unit Scout24 late last year. Adjusted for the sale, net profit declined 24%. Operating profit fell 3.9% to EUR4.1 billion due to higher investments accompanying U.S. customer growth. Revenue increased 8% to EUR14.9 billion helped by higher sales for domestic mobile services as well as a sharp increase in customers in the U.S.

In addition to the U.S. customer drive, the recent acquisition of cellular network MetroPCS helped boost revenue in the quarter. Deutsche Telekom bought the network last year, merging it with its U.S. unit T-Mobile U.S. Inc., the fourth-largest wireless carrier in the U.S.

"Despite the inclusion of MetroPCS, the U.S. operations did not compensate for the costs for strong customer additions and negative trends in Germany and Europe," the German telecommunications group said.

Deutsche Telekom has been opting for investment that boosts T-Mobile's customer base over its own profitability this year. Through aggressive marketing and deals encouraging new customers to switch to T-Mobile from other operators, Deutsche Telekom's strategy is paying off. T-Mobile added 1.3 million wireless postpaid customers in the U.S. in the quarter, beating rivals AT&T and Verizon Communications Inc.

"Our success story in the United States continues. The decision to invest boldly in this market was right on the mark," Chief Executive Timotheus Höttges said.

Earlier this month, T-Mobile upped its subscriber base forecast to 2.8 million to 3.3 million for the full year, compared with a previous forecast of 2 million to 3 million.

"We are glad to have achieved an increase in subscribers [in the region], and that is slowly spilling into revenue. We just have to convert this into earnings now," Mr. Höttges said in a conference call. He is working to enhance T- Mobile's enterprise value and make it a self-funding business.

T-Mobile has had talks about a sale to U.S. telecom company Sprint Corp ., a deal that would allow Deutche Telekom to focus on its more profitable European operations. However, with regulatory issues looming, the German company is looking at ways to beef up the business independently.

T-Mobile Chief Executive John Legere recently said the company could become an even stronger competitor to industry leaders AT&T and Verizon if it could grow via a deal.

Deutsche Telekom confirmed its full-year outlook of modest revenue growth, which is expected to accelerate in 2015. It predicted operating profit to be around EUR17.6 billion, with free cash flow of around EUR4.2 billion.

Write to Neetha Mahadevan at neetha.mahadevan@wsj.com

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