Earnings Call - DEUTSCHE TELEKOM AG

Explicit Guidance:

• FY2026 Financials: Raised guidance for 2026 driven by improved US outlook; expects 2-digit EPS growth (specifically €2.20 per share, representing a 10% increase from prior year) and €2.50 EPS for 2027.
• EBITDA Guidance: Purified EBITDA expected to exceed €15.4 billion in the current fiscal year due to favorable exchange rates; expects 5% organic EBITDA growth in Germany and 4% in Europe for the full year.
• Dividends: Proposed €1.10 per share dividend for FY2026 (payable in 2027); dividend policy remains 40–60% of clean-up EPS, currently targeting 50% payout ratio.
• Share Buybacks: Share return program includes €2 billion for the upcoming year (initial increase in this metric), with total capital return of ~€7 billion (including dividend); flexible buyback allocation up to €3.5 billion (vs. €5 billion initial plan) depending on share price volatility.
• Debt Metrics: Maintains debt target of 2.75x Purified EBITDA; current leverage is ~2.6x, providing headroom for future investments.

Business-Segment Outlook:

• T-Mobile USA: Expects 1 million net new postpaid accounts for the full year (slightly fewer than FY2025 but "decent"); anticipates continued strong performance despite aggressive competition from Verizon; US Cellular acquisition synergies (€1.2 billion) are being realized, with €2.6 billion in implementation costs recognized over two years.
• Germany (Fiber & Mobile): Record 190,000 new fiber access connections in Q3 (20% YoY growth); target to achieve 25 million accessible households by 2030 (striving for 2/3 to 3/4 of total 45 million housing units); expects 190,000 new fiber customers per quarter to continue steadily.
• Europe: Driven by strong performance in Poland (current year) and Hungary/Czech Republic; Austria noted as currently challenging; expects continued organic growth across the nine-country portfolio.
• T-Systems: Expects higher order entry this year than last; sees growth in service sales (+4%) and purified EBITDA (+8%) for the first nine months.
• AI Sales: Expects €250 million in AI-related sales in the Ex-US business for the current year; sees growth potential in "sovereign AI" and cybersecurity.

Market and Competitive Outlook:

• USA Competition: Anticipates intensified competition following Verizon's ownership change and more aggressive market approach; faces potential long-term disruption from SpaceX's satellite mobile network plans, though immediate impact deemed limited due to high construction costs and spectrum challenges.
• Pricing & Volume: Continues to aggressively push unlimited tariff adoption in Germany; maintains volume restrictions on prepaid/tariffs for specific customer segments while targeting unlimited upgrades.
• Subcontracting: Continues to manage subcontractor network quality for fiber expansion; utilizing AI to monitor subcontractor performance.
• Emerging Devices: Anticipates smart glasses will become a popular product requiring low latency; expects eventual adoption of independent mobile connections (SIM) for these devices, though volume is currently "not serious" to quantify.

Macro / Industry Outlook:

• Exchange Rates: Favorable FX developments have boosted current year EBITDA performance; acknowledges debt figures are influenced by exchange rate fluctuations.
• Interest Rates: Acknowledges impact of rising interest rates on debt refinancing but maintains view that costs remain "manageable" given strong operational cash flow.
• Regulatory/Infrastructure: Commits to defending network leadership; notes spectrum auctions in the USA next year will require significant capital allocation and financial positioning.
• Sustainability: Energy consumption is declining despite higher data volumes; continues to expand AI and sovereign computing infrastructure.

Strategic Initiatives:

• Spectrum Investments: Preparing to participate in USA spectrum auctions in the coming year; prioritizes maintaining "best spectrum position" in the US.
• Fiber Expansion: Continuing indefinite expansion of glass fiber in Germany; investing in two glass-fiber joint ventures in the USA (financially initial drag but long-term profitable).
• M&A/Partnerships: Integration of US Cellular ongoing; partnership with NVIDIA for AI computing center in Munich viewed as non-dependent risk (global scale mitigates single-supplier risk).
• Leadership Succession: Chairman Tim Höttges contract runs until end of 2028; succession process expected to follow regulated transition (typically naming successor one year prior to departure).

Risks and Headwinds to Outlook:

• Competition: Aggressive pricing and market moves by Verizon (USA) and potential SpaceX satellite competition create market uncertainty.
• Regulatory/Political: "Burdensome" external news flow (e.g., SpaceX press coverage) impacting stock volatility; potential regulatory changes regarding device connectivity and data protection for smart glasses.
• Execution/Integration: Implementation costs for US Cellular and glass-fiber joint ventures causing short-term negative impact on results/cash flow before synergies materialize.
• Share Price Volatility: High stock volatility in 2024-2025 limits optimal timing for share buybacks; buyback amounts are flexible based on market conditions.

Management Tone on the Future:

• Confidence Level: High confidence in achieving 2026 goals and Capital Market Day 2024 targets through 2027; describes business development as "very steady."
• Strategic Consistency: Emphasizes a "consistent" and "flexible" capital return strategy; rejects "voodoo" solutions in favor of "executing on the field" (infrastructure and network quality) to defend market leadership.
• Employee/Efficiency Outlook: Dismisses rumors of large-scale layoffs; confirms AI will be used to improve customer experience and efficiency rather than blunt rationalization; workforce will continue to grow in Germany to support technical development.
• Transparency: Reaffirms commitment to dividend policy and clear communication; notes that future EPS forecasts beyond 2027 are not provided by management but analysts expect continued two-digit growth.