Deutsche Telekom's Q3-2026 Investor Conference Call - DEUTSCHE TELEKOM AG

Financial Performance:

• Organic service revenue grew 4% YoY; Adjusted EBITDA grew 8% YoY.
• First nine months Adjusted EPS grew nearly 12% (double-digit).
• US T-Mobile reported 6.2% YoY gap service revenue growth; 11% GAAP core EBITDA growth.
• German service revenue up 4.1% (impacted by World Cup non-service revenues); Adjusted EBITDA up 1.5%.
• European operations saw organic and service revenue growth exceeding 4%, driven by fixed, mobile, and IT services.
• Reported Group EBITDA rose 10% QoQ; Adjusted earnings up 14%.
• Free Cash Flow (FCF) increased slightly; Adjusted Net Profit up 12.7%.
• Net debt (excluding leases) decreased by €4 billion; Net debt leverage at 2.55x (including leases) and 2.17x (excluding leases).

Guidance and Future Outlook:

• Raised 2026 Group EBITDA guidance to ~€47.6 billion and FCF guidance to ~€20.1 billion, reflecting T-Mobile US upward adjustments.
• 2026 Adjusted EPS guidance reaffirmed at €2.20.
• Ex-US EBITDA guidance maintained at ~€15.4 billion (in line with consensus).
• Proposed 2026 dividend increase of €0.10 to €1.10 per share (10% YoY growth); cumulative 43% increase since 2023.
• Announced potential 2027 share buyback of up to $2 billion.
• Total shareholder returns for 2026-27 projected at ~$7 billion, representing a ~6% yield.
• 2027 outlook focuses on spectrum acquisitions and infrastructure investments alongside shareholder returns.

Business Segments and Product Lines:

• Germany: Achieved positive broadband net adds for the first time in a while; Fiber net adds surged 23% YoY (190,000 new customers), reaching ~18% penetration. Mobile service revenue grew 2.9%.
• US (T-Mobile): Postpaid account growth stable at 274k; Churn increased slightly due to broadband-only customers and rate plan modernization.
• Europe: Poland highlighted as an outstanding performer with strong mobile and broadband net adds.
• T-Systems: Solid revenue and EBITDA performance; strong momentum in public, defense, and digital solutions.
• Infrastructure: Announced acquisition of Polish fiber asset for €1 billion; acquired smaller German fiber assets from insolvent companies (e.g., Ruhrfiber Essen, Metrofiber); expanded fiber joint ventures in the US.
• AI Strategy: Targeting €2.5 billion in gross cost savings by 2030; expanding industrial cloud factory in Germany.

Market and Competitive Landscape:

• Satellite Disruption: CEO dismissed immediate threat from SpaceX/Satellite players, citing high capital requirements ($200B+) to build terrestrial networks, bandwidth limitations, and indoor coverage challenges.
• Competition: Deutsche Telekom maintains network leadership and market share; outperformed peers in Germany and Europe for consecutive quarters.
• MVNOs: Strong stance against MVNO arbitrage; prefers value over volume pricing; notes MVNOs often undercut infrastructure-based pricing.
• Spectrum: US holding 380 MHz of high-quality spectrum; exploring joint bids for European satellite spectrum with other operators to ensure sovereignty.
• Huawei: No active government-mandated "rip and replace" plans currently; developing proprietary RAN controllers to mitigate reliance on Chinese equipment.

Risks and Challenges:

• Satellite & AI: Acknowledges potential long-term disruption from new entrants (SpaceX, AI agents) but argues these do not replace terrestrial networks immediately.
• Component Costs: Facing inflation in chipset and optical cable costs; mitigating via supply chain standardization and passing costs to consumers/B2B where feasible.
• Regulatory: Potential regulatory pressure on MVNOs or spectrum allocation; cautious about Huawei removal costs in Germany.
• Economic Sensitivity: German B2B growth slightly slowed (0.4%) due to economic conditions but remains resilient; automotive sector showing some weakness.
• Fiber Rollout: MDU (Multi-Dwelling Unit) penetration remains an execution bottleneck due to landlord permissions, though new legislation is expected to help.

Management Commentary and Tone:

• Tone was confident and defensive regarding the business model; emphasized a ~20-year track record of delivering in competitive markets.
• CEO Tim Mertges dismissed market "fear" as panic, asserting the industry's resilience and high barriers to entry for new competitors.
• Management expressed frustration with the low valuation of the stock relative to performance and strategic value.
• Emphasis on "quality over volume" and avoiding price wars, even as connectivity prices remain low compared to other goods.

Analyst Questions and Answers:

• Satellite/Starlink: Confirmed no plans for MVNO agreements with SpaceX; cited technical and economic impossibility of satellite replacing terrestrial mobile services for indoor usage.
• M&A Strategy: Stated any deal must create shareholder value, ensure economic returns, and provide strategic synergies; no current merger discussions in Germany.
• German Broadband: Attribute Q3 success to price increases having lower-than-anticipated churn and a strategic shift to fiber-focused SDU/MDU rollout.
• Buyback Program: 2026 buyback is conditional on share price volatility (targeting lower prices); 2027 buyback set at $2 billion with no rollover of unutilized 2026 funds.
• Huawei: Reiterated that core networks are already clean of Chinese gear; RAN transition is ongoing with own software controllers; warns against premature replacement costs hurting resilience.
• Pricing Power: Acknowledged difficulty in raising prices due to MVNO competition but maintaining discipline to avoid volume erosion; focusing on cohort-based recurring price hikes.
• T-Mobile Stock: CEO indicated low appetite to sell DT shares into buybacks at current prices, deeming T-Mobile US undervalued.

Other Key Points:

• Board Successions: Announced succession plans for CFO (Dana Jai) and Product/Technology (Jan Hofmeyer from AWS).
• Shareholder Returns: Combined dividend and buyback strategy aims to balance flexibility for strategic opportunities (e.g., Spectrum auctions) with shareholder remuneration.
• T-Mobile Investment: DT increased its T-Mobile stake to 55% by end of September after repurchasing €1.7 billion of shares in 2026.
• T-Satellite: Traffic utilization remains negligible (0.003%).
• German Economy: Forecasts a slow recovery with 1.3% GDP growth in 2026 and 1.1% in 2027; B2B outlook encouraged by digital sovereignty and defense sector demand.