By Harro Ten Wolde
FRANKFURT (Reuters) - Deutsche Telekom revealed the cost of its successful drive to win customers in its main U.S. and German markets, as it posted a drop in first-quarter core profit on Thursday.
The former German phone monopoly's fast-growing U.S. business, T-Mobile US, has caught the eye of Japan's Softbank, which is interested in merging the unit with its own U.S. telecoms arm, Sprint Corp.
Last week, T-Mobile US said it had added a record 2.4 million new subscribers in the first quarter, more than its top three rivals combined.
But Deutsche Telekom showed on Thursday its discounting came at a cost, as it posted a 3.9 percent drop in quarterly earnings before interest, tax, depreciation and amortisation (EBITDA), including an already reported loss in the United States.
While the group reiterated its forecast for a stable EBITDA this year, some analysts said that was starting to look tough.
"EBITDA of 17.6 billion euros might be a bit ambitious at the end of the year," said Equinet Bank analyst Adrian Pehl.
Deutsche Telekom's shares were down 0.8 percent at 0915 GMT, lagging a firmer European telecom index.
The global telecoms industry is in the midst of a wave of dealmaking, as companies look to take advantage of low interest rates to build economies of scale.
In its home base of Germany, Deutsche Telekom is up against No. 2 carrier Vodafone, which has bought Kabel Deutschland to boost its broadband offering, while third and fourth-placed mobile groups Telefonica Deutschland and KPN's E-Plus are seeking to merge.
In the United States, it’s the No.3 player Sprint looking to link up with No.4 T-Mobile US to close the gap on leaders Verizon and AT&T.
However, regulators have taken a tough line on telecoms deals in the past, fearing a reduction in competition could drive up prices for consumers. In 2011, U.S. regulators rejected a merger between AT&T and T-Mobile on the grounds the market needed at least four major players.
Deutsche Telekom CEO Tim Hoettges reiterated on Thursday he would be in favour of building a stronger third player in the U.S. market, but that regulators didn’t seem to want this.
Hoettges, who took the helm on Jan. 1, has pushed for a bigger market share in North America and said the strategy was working.
"Our success story in the United States continues. The decision to invest boldly in this market was right on the mark," Deutsche Telekom said in a statement.
Robin Bienenstock, an analyst at Bernstein Research, said Deutsche Telekom was in a "strong position", expecting Softbank to make a move for T-Mobile US. "At the very least investors should expect a very long regulatory process," she added.
Subscriber growth in both Germany and the U.S. business helped to drive an 8-percent rise in Deutsche Telekom's quarterly sales to 14.9 billion euros ($20.7 billion).
In Germany, it added 551,000 new subscribers with its high-speed fourth-generation mobile network, which is now available to 74 percent of the German population. Mobile service revenues rose 0.2 percent. Rival Telefonica Deutschland on Thursday reported a 3.4-percent decline.
However, Deutsche Telekom's first-quarter group EBITDA excluding special items, dropped to 4.12 billion euros, in line with analysts’ average forecast.
(Editing by Thomas Atkins, Maria Sheahan and Mark Potter)