Deutsche Telekom Lands First-Ever A Rating and Drones Into Defence Pact With Rheinmetall

A long-sought upgrade from S&P and an unexpected alliance with arms maker Rheinmetall have given Deutsche Telekom’s equity a dual narrative of financial discipline and strategic expansion, even as a bitter wage dispute threatens to overshadow both.

The ratings agency lifted the Bonn-based group’s long-term issuer rating from BBB+ to A- on Wednesday, marking the first time the stock has entered the A-band. S&P cited a free operating cash flow that is projected to exceed €20bn annually, giving the telecoms giant ample room for capital spending, debt management and unforeseen charges. The short-term rating was affirmed at A-2 with a stable outlook, and analysts expect the services revenue to keep climbing while operating efficiency continues to lift the EBITDA margin step by step.

The upgrade landed alongside the group’s first-quarter numbers, which showed a reported revenue of €29.870bn — up just 0.4% year on year, but with organic growth of 4.7% after stripping out currency swings and one-off items. Domestic revenues climbed 1.9%, while the US business slipped 0.3%. Management also nudged up its full-year target for adjusted EBITDA AL to around €47.5bn from a previously lower level.

Should investors sell immediately? Or is it worth buying Deutsche Telekom?

Investors responded warmly. The stock rose 2.68% on Wednesday to €28.35, building on a more modest gain of roughly 1.4% to €28.01 earlier in the week after the quarterly release. Still, the technical picture remains mixed. The shares trade below both the 50-day moving average of €30.37 and the 200-day line at €29.28, while the relative strength index of 77.5 signals a short-term overbought condition. Closing above €29.28 would close the gap with the long-term trendline.

On the labour front, the third round of wage talks in Potsdam on 11 and 12 May ended without a deal. The ver.di union dismissed the employer’s first structural offer as insufficient, and around 2,500 employees rallied outside the negotiating room. Since the campaign began on 28 April, more than 20,000 workers have taken part in warning strikes, now including staff at subsidiaries T-Systems and Telekom Services Europe. ver.di is demanding a 6.6% pay rise over twelve months, an annual member bonus of €660, and a €120 monthly increase in training allowances for roughly 60,000 covered staff. The next — and currently last scheduled — round is set for 26 and 27 May.

Away from the picket lines, the company announced a strategic partnership with Rheinmetall to protect cities and critical infrastructure from drone and sabotage threats. Under the agreement, Rheinmetall will supply sensor technology and countermeasures, while Telekom contributes its mobile networks and digital expertise to build a layered security system uniting cyber protection, sensing and secure communications. A particular focus is on drones controlled via mobile networks, a growing risk from both commercial off-the-shelf and homemade devices. The telecom group is also researching detection methods in collaboration with the Helmut-Schmidt University in Hamburg.

The dual narrative — a financially stronger operator that is also pushing into novel defence applications — contrasts sharply with the domestic labour unrest. For now, the rating upgrade and the defence pact offer positive headlines, but the stock’s ability to sustain momentum may hinge on whether the May wage talks produce a settlement or trigger an escalation.

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