Deutsche Telekom AG Q1 2007 Earnings Call Transcript

Tags: Deutsche Telekom AG

Question-and-Answer Session

Operator

Thank you very much Dr. Eick.

The questions on the session will be started now. If you would like to ask a question, please press *1 one on your touch tone telephone. The operator will announce your name when it is your turn to ask a question.

Should you wish to remove your question, please press the pound button.

Mr. Chris Fremantle from Morgan Stanley, may you ask your question please?

Chris Fremantle - Morgan Stanley

Yes, thanks very much. Two questions. First of all, for Dr. Eick, on what he just said about the unions, could you just clarify that you’re able also to make the reductions in wages without the union’s approval. And also, whether or not you’ve considered taking a different tack, which would be to offer generous redundancy terms rather than reduced wages to the Telekom workers?

And then secondly a question really for Mr. Obermann, on the mobile side, not as much as the (inaudible) but also on the mobile side, there appeared to be a cost problem. In (inaudible), the margins are only two percentage points higher than E Plus, a company which is just over a third of the size.

And obviously in the UK the margin fell nine percentage points versus Q4, even though the net ads were similar. What is your perspective on the costs issues within T-Mobile and how those are going to be addressed?

Rene Obermann

If I may start with the second part of the question related to the margins. Germany, in particular was influenced if you compare Q1 over Q1 of the last year by increased customer acquisition costs. I think the increase, off the top of my head, was about 35 million higher than the previous year for SAC’s and then about in the vicinity of 50 million more customer retention costs in order to improve the current situation and both those additional investments into marketing and sales led us to a result of 250,000 net-ads contract and if you compare with what our competitors have published, that’s about ten times as high. I think those who were aggressively attacking with their very aggressive bundles in the last 12 months and have been celebrating the big success we needed to position ourselves against our strategy as you know is to focus on the contract side and also to focus more on high value customers.

So in this respect we were very successful but it has impacted the margin because of higher SAC’s and CAC’s in Germany with 250,000 net-ads a contract. I think E Plus has achieved something in the vicinity between 20 and 25,000 contracts net-ads. OK, so that hopefully answers your question. I think the value of these additional investments given the contract customer’s value should pay back nicely.

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