FRANKFURT (Reuters) – German telecoms firm 1&1 Drillisch and its parent company United Internet slightly trimmed their profit guidance on Wednesday to account for regulatory effects and the initial costs of a planned 5G network.
Drillisch splurged 1.07 billion euros ($1.2 billion) at an auction of 5G frequencies in June that will enable its CEO, self-made billionaire Ralf Dommermuth, to achieve his dream of founding a fourth German mobile network.
First half sales and core profits at Drillisch were marginally higher than a year earlier as it added 380,000 new customer contracts in the period, bringing the total to 13.9 million.
The pre-paid specialist now sees earnings before interest, taxation, depreciation and amortization (EBITDA) growing by 8% this year compared to an earlier forecast of 10%.
Drillisch has tapped banks for extra credit and minimized dividend payments to fund commitments to build out a network that can reach half of German households by 2025, as required by the network regulator.
Much of the cost of building its 5G network, which has not yet begun in earnest, can be financed out of cash flows. The downward tweak to guidance reflected initial 5G planning costs and an increase in subscriber line connection charges.
At United Internet, first-half EBITDA gained 11.6%, helped by a favorable change in lease accounting rules. On an underlying basis, EBITDA rose by 3.6%. It trimmed its EBITDA guidance for the full year by a percentage point to 11%.
United Internet, in which Dommermuth owns a 40% stake and which in turn owns 75.1% of Drillisch, also announced a share buyback worth 192 million euros.
Shares in Drillisch have fallen by 48% over the last year on concerns that it will not be able to recoup its network investments. United Internet’s share price has fallen by 39% over the same period.
Reporting by Douglas Busvine; Editing by Kirsten Donovan
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