Deutsche Telekom Issues 2006, 2007 Profit Warning"

BERLIN -(Dow Jones)- Deutsche Telekom warned late Wednesday it expects earnings in 2006 and 2007 to come in lower than previously expected due to the intense competitive environment, particularly in Germany.

Europe's largest carrier by sales said that it now anticipates 2006 earnings before interest, taxes, depreciation, amortization and special items, or adjusted Ebitda, of between EUR19.2 billion and EUR19.7 billion, down from the previous guidance of between EUR20.2 billion and EUR20.7 billion.

The Bonn-based company said it had cut its earnings expectations for both its fixed-line and wireless telecommunications units.

The company also cut its earnings and sales forecasts for 2007.

Analysts had widely expected the company, which will announce its second-quarter results Thursday, to cut its guidance for 2007, while some had also noted that the company's 2006 guidance seemed to be at risk as well.

Deutsche Telekom narrowed its sales guidance for 2006 to between EUR61.5 billion and EUR62.1 billion, down from the previous guidance of EUR62.1 billion and EUR62.7 billion.

For 2007, the company said that it expects adjusted Ebitda to remain around the 2006 level amid moderate sales growth.

This is a sharp reduction from its previous guidance. Before, the German telecoms incumbent had anticipated adjusted Ebitda in 2007 to rise to between EUR21.7 billion and EUR22.2 billion, while sales had been expected to come in at between EUR65.2 billion and EUR66.2 billion.

In 2005, Deutsche Telekom's adjusted Ebitda stood at EUR20.7 billion and sales at EUR59.6 billion.

In a statement, the company said that the guidance cuts were "initiated in response to the particularly intense current competitive environment in Germany. It has become clear that pressure on prices in particular will intensify to a greater extent than recently expected across all three strategic business areas."

Deutsche Telekom has said 2006 is a transition year in which it pledges to increase spending on marketing and sales to drive revenue growth by luring customers with new offerings such as combined phone, Internet and TV services.

But in recent months, analysts have said they don't expect the positive effects of Deutsche Telekom's marketing offensive to materialize, due to ever-increasing competition from low-cost rivals in its domestic and international operations.

Deutsche Telekom's cut in guidance comes on the heels of similar statements of some of its European peers, who face eroding sales and profit from further deregulation and the introduction of low-cost rivals. Earlier Wednesday, Swisscom lowered its earnings guidance for 2006. At the end of July, France Telecom warned that it may not achieve its targeted organic sales growth.

Deutsche Telekom said Wednesday it will compensate for the lower earnings by adjusting its investment plan. It didn't elaborate.

It forecasts free cash flow in 2006 to reach EUR5 billion and EUR6 billion in 2007, before dividend payments.

The company also reiterated its pledge that it will continue to pay an annual dividend of at least EUR0.72 a share - the same amount it paid over 2005.

Company Web site: http://www.telekom.de

-By Joon Knapen, Dow Jones Newswires; +49-30-28884121; joon.knapen@dowjones.com

(END) Dow Jones Newswires "

Posted to the site on 10th August 2006