Deutsche Telekom Pivots on Network Fee and Drone Defence as T-Mobile US Propels Q1 Earnings

The Deutsche Telekom has abandoned its long-standing push for a so-called network fee on US technology giants, while simultaneously forging a military-oriented partnership with Rheinmetall to counter drone threats. The twin policy shifts, announced alongside quarterly results that comfortably beat expectations, signal a strategic recalibration at Europe's largest telecom operator.

Revenue climbed 4.7% on an organic basis to €29.9bn in the first quarter, with adjusted EBITDA AL advancing 7.5% to €11.5bn. On a reported basis, net profit fell roughly 28% to around €2.0bn, a decline the company attributed to favourable valuation effects in the prior-year period that were not repeated. Stripping out that distortion, the adjusted net income rose 6.5% to €2.6bn, equivalent to €0.54 per share.

The US subsidiary T-Mobile US once again acted as the primary growth engine. Service revenue jumped 11.5% to $18.9bn, and the division added a net 217,000 postpaid accounts during the quarter. Management now expects full-year postpaid net additions of between 950,000 and 1,050,000, a slightly wider range than previously flagged. That momentum helped lift the group's full-year guidance for adjusted EBITDA AL to approximately €47.5bn, up from the prior target of €47.4bn. Free cash flow AL is expected to exceed €19.8bn, while the adjusted earnings per share target of around €2.20 remains unchanged.

At home, the German business posted more modest but stable growth, with revenue up 1.9% to €6.3bn. The fibre rollout has now connected more than 13 million households, and the number of active fibre users reached 2.2 million, representing a take-up rate of 17.1%.

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Chief Executive Tim Höttges has also formally shelved the company's long-running campaign for a network usage fee levied on US tech platforms. The initiative lacked sufficient political backing in Brussels and Berlin, making it untenable. Instead, the Telekom will pursue direct commercial partnerships with the same companies.

On the labour front, tensions escalated after the third round of wage negotiations on 11–12 May in Potsdam ended without a deal. Ver.di, the union representing workers, immediately rejected the Telekom's initial structural offer. Since strikes began on 28 April, more than 20,000 employees have taken part in walkouts, with around 2,500 gathering at the Potsdam rally. For the first time, staff from subsidiaries T-Systems and Telekom Services Europe also joined the industrial action. Ver.di is demanding a 6.6% pay increase over a 12-month term, an annual member bonus of €660, and a €120 monthly rise in training allowances. The next round of talks is scheduled for 26–27 May and is currently the last planned session.

The Telekom's new cooperation with Rheinmetall, announced ahead of the AFCEA security fair in Bonn, targets the protection of cities and critical infrastructure from drone incursions and sabotage. Under the pact, Rheinmetall supplies sensor technology and countermeasures, while the Telekom contributes its mobile networks and digital expertise. The aim is to build a multi-layered defence system that fuses cybersecurity, sensor data and secure communications. Particular attention will be paid to drones controlled via mobile networks — a threat the Telekom is also researching alongside the Helmut Schmidt University in Hamburg.

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Market reaction to the quarterly figures was mildly positive. The stock closed at €28.24 on Wednesday, up 1.23%, though it remains nearly 17.5% below its 52-week high of €34.25. The relative strength index stands at 77.5, indicating overbought conditions, and the share price still trails the 50-day moving average of €30.37. JPMorgan cited the improved outlook driven by T-Mobile US as a positive takeaway, but cautioned that sustained outperformance will hinge on whether the American unit's growth trajectory proves durable. Meanwhile, the outcome of the late-May wage talks will determine whether the industrial peace holds or the labour dispute escalates further.

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