November 8, 2018 / 6:15 AM / a year ago

UPDATE 2-D.Telekom warns of risk of 5G disaster on home turf

* Third outlook hike for 2018 as U.S. unit shines

* Q3 revenues up 4.7 pct, adj EBITDA up 8.5 pct

* CEO warns of "industrial policy disaster" on German 5G

* T-Mobile-Sprint deal seen on track (Adds conference call, results breakdown, analyst comment, shares)

By Douglas Busvine

FRANKFURT, Nov 8 (Reuters) - The head of Deutsche Telekom warned that Europe's largest telecoms company could face a disaster in its home market if German politicians botch plans for fifth-generation mobile services.

The comments from CEO Tim Hoettges came after Telekom raised its outlook for the third time this year as its U.S. unit T-Mobile led the way and all of its divisions increased third-quarter profits, including its struggling IT services arm.

Germany's telecoms regulator is finalising terms for an auction of 5G mobile spectrum which it will present on Nov. 26. The actual process, expected to raise billions of euros, is due to take place in the first quarter of 2019.

"There's a contest under way among politicians on network coverage and buildout," Hoettges told reporters on a conference call.

"I am not going to take part in the further inflation of targets. If we carry on like this, we will face an industrial policy disaster," he added.

His intervention appeared aimed at containing the costs of building out Germany's 5G network while cementing Telekom's leadership on its home market. Hoettges opposes ideas like national roaming that would help new market entrants cover areas where they don't have their own infrastructure.

Germany's existing 4G networks are notoriously patchy, leading the government to pile pressure on the industry to plug holes in their coverage.

Those demands are spilling over into the 5G debate, even though the 2 Gigahertz and 3.6 Gigahertz frequencies on offer are suited to data-intensive applications such as connected factories, and don't have the range to cover remote rural areas.

The 5G roll-out around the world should generate billions in orders for equipment makers such as Ericsson and Nokia.


Telekom said it expected adjusted core profits to reach 23.6 billion euros ($27 billion) in 2018, up from 23.4 billion previously, and it nudged up its forecast for free cash flow to 6.3 billion euros.

Group revenues rose by 4.7 percent in the third quarter to 19.10 billion euros, beating average expectations of 18.85 billion euros in a poll of analysts commissioned by the company itself.

The upgrade was driven by T-Mobile, which accounts for nearly half of group revenues and contributed a 9 percent gain in the third quarter, while the consolidation of UPC Austria, a recent acquisition, also provided a lift.

Hoettges shared T-Mobile management's confidence that a $26 billion deal to take over Sprint Corp would win the approval of U.S. regulators, as originally foreseen, in the first half of 2019.

At the same time, he reiterated his opposition to Vodafone's proposed takeover of Liberty Global assets in central and eastern Europe, the chief prize being its German subsidiary Unitymedia.

Germany's Federal Cartel Office on Thursday asked the European Commission to refer the deal to it for scrutiny, a step that Hoettges expressly welcomed, citing concerns that the deal could create a dominant player in cable TV.


Telekom, which counts 175 million mobile subscribers and 20 million broadband customers, showed signs that problem areas were on the mend.

Its European division, a traditional laggard, increased revenues and core profits while Telekom's IT services arm T-Systems, which is cutting 5,600 German jobs, is on target to hit its 2018 goals.

"The quarterly results confirm our thesis of an inflection in operating cash flows in both Germany and Europe," analysts at Bernstein said in a note. "The stock unequivocally remains our top pick despite the recent run-up in the share price."

Telekom shares pared earlier gains to trade just ahead for the session. They are also broadly flat in the current year to date, outperforming a 10 percent decline in Germany's DAX blue-chip index. (Reporting by Douglas Busvine Editing by Keith Weir)

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