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Deutsche Telekom: A Strategic Buy in European Telecoms, Fueled by U.S. Dominance and 5G Leadership

Samuel ReedThursday, May 15, 2025 4:00 am ET

27min read

Deutsche Telekom’s Q1 2025 results marked a decisive victory for its dual-engine growth strategy: a soaring U.S. telecom giant (T-Mobile) and a resilient European core. With revenue surging 6.5% year-on-year to €29.76 billion and adjusted EBITDA hitting €11.30 billion—both exceeding consensus—this European telecom leader has positioned itself as a rare value opportunity in a sector plagued by regulatory headwinds and slowing growth. Investors should take note: Deutsche Telekom’s stock trades at a discounted valuation compared to peers, while its U.S. operations and 5G leadership are unlocking a future ripe with upside.

The U.S. Growth Engine: T-Mobile’s Unstoppable Momentum

The star of Deutsche Telekom’s Q1 performance is its U.S. subsidiary, T-Mobile, which contributed €19.80 billion in revenue—a 9.9% jump. T-Mobile’s dominance in the U.S. market, bolstered by its “Uncarrier” strategy and superior 5G network coverage, has driven record postpaid net adds (6.1 million in 2024) and expanded its B2B enterprise business. With 5G coverage now at 98% in Germany and a $14 billion share buyback program in place through 2025, T-Mobile is not just a cash cow but a catalyst for sustained growth.

Why Valuations Are Lagging—And Why That’s a Buying Opportunity

Despite its robust performance, Deutsche Telekom trades at an EV/EBITDA multiple of 6.35—well below the European telecom sector median of 7.43. This discount reflects lingering concerns about European market pressures, including regulatory fragmentation and slowing broadband growth. However, two critical factors are underappreciated:

5G Leadership and Digital Services Growth
Deutsche Telekom’s 98% 5G coverage in Germany is a strategic asset, enabling high-margin enterprise services like private networks and IoT solutions.
Its Systems Solutions division (cloud, IT, and AI-driven services) saw a 14.8% EBITDA jump in 2024, fueled by demand for hybrid cloud infrastructure and cybersecurity. These digital services now contribute ~14% of total revenue, a figure poised to rise as enterprises digitize.
Operational Resilience and Capital Allocation
The company’s revised guidance—a €45.0 billion full-year EBITDA target and a €20.0 billion free cash flow goal—reflects confidence in its ability to scale.
A new €2 billion share buyback program and a 17% dividend hike signal management’s commitment to shareholder returns, further justifying a valuation re-rating.

The Case for a Turnaround in European Telecoms

While European markets face challenges like price caps and high churn, Deutsche Telekom’s strategy is defensible:
- Cost Discipline: Delayering initiatives and AI-driven automation are cutting costs, with labor expenses down 3.3% in 2024.
- Fiber Expansion: Targeting 2.5 million additional fiber homes in Germany by year-end, positioning it as a critical player in the EU’s digital infrastructure push.
- U.S. Cross-Subsidization: T-Mobile’s cash flows are cushioning European investments, ensuring the group can weather regulatory headwinds while plowing capital into growth areas.

Risks, but the Reward Outweighs Them

Currency Exposure: The U.S. dollar’s strength impacts net debt, but the company’s guidance assumes a conservative $1.08/€ exchange rate.
Regulatory Uncertainty: EU price controls could crimp margins, but Deutsche Telekom’s scale and digital services provide a buffer.

A Compelling Buy for Telecom Investors

Deutsche Telekom’s valuation gap is closing, but not fast enough. With T-Mobile’s U.S. growth, 5G leadership, and a digital services renaissance, this stock is primed for a multiyear re-rating. Investors should act now: the company is a buy at current levels, with a 12-month price target of €20.00 (upside of 30% from recent closes).

In a sector where most players are trading at single-digit multiples, Deutsche Telekom’s 6.35 EV/EBITDA is a screaming buy signal. Its U.S. dominance, 5G infrastructure, and digital services moat make it a rare telecom stock with both defensive stability and offensive growth. This is a buy—not just for telecom investors, but for anyone seeking quality in a low-growth world.

Action Item: Accumulate Deutsche Telekom shares now. The catalysts are in place; the revaluation is coming.

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