• Deutsche Telekom ups dividend on strong domestic performance
• Orange and Telefónica offset domestic issues with overseas growth
• But BT and TIM struggle to spin Q3 numbers
• Germany is the place to be in Europe at present

Deustche Telekom was the last of the big European telcos to report third quarter results and its numbers help to highlight a key trend in the market: To put it simply, those that have diversified portfolios are performing significantly better than those without.

The German incumbent is making headlines by increasing both its dividend and full-year earnings guidance, which was not wholly surprising given that its T-Mobile US unit upped its own outlook earlier this month. But make no mistake, Deutsche Telekom's latest quarterlies are not driven entirely by its cash cow US operations.

For a start, the telco generated more than 26% of its revenues at home in the three months to the end of September, versus less than 23% in the year-ago quarter. And that change is driven by growth in Germany rather than declines elsewhere. Revenues in Germany grew by 2.5% to €5.99 billion, while in the US turnover was up by 1.4% to €16.81 billion. Meanwhile, adjusted EBITDA was up in Germany but down across the Atlantic.

"These positive figures are rooted in sustained customer growth," Deutsche Telekom said of its German business. "The number of broadband customers increased by 90,000 between July and September. Telekom is growing much faster than the market in this area. More than 70 percent or more than 10 million of Telekom's broadband customers use fiber-optic-based products (FTTH, FTTC/vectoring). Almost 4 million customers are now using the television service MagentaTV."

Deutsche Telekom still won't tell us how many full fibre customers it has, but it's significantly fewer than those 10 million who are using fibre somewhere along the line. The telco is now working hard on the rollout of fibre-to-the-premises (FTTP), having clung for so long to those copper assets and its vectoring programme, and by the end of September its FTTP infrastructure passed 2.9 million households.

However, fibre is not the silver bullet, at least as far as financial performance is concerned. Peer and rival Telefónica has an extensive FTTP footprint in its home market but its domestic numbers for third quarter do not make for happy reading. 

Similarly to Deutsche Telekom, Telefónica generates 29% of group revenues at home, but year-on-year growth was flat in Q3, while earnings took a nosedive; the operator attributed a 9% fall in OIBDA – its usual earnings metric – to €3.5 billion to higher energy costs and lower content costs in the year-ago period. But despite the spin it attempted to put on the numbers, there's no denying there are issues here.

Telefónica is losing customers in Spain, particularly at the low end of the mobile market, but there are a couple of bright spots, the most notable being the fibre market. The telco had 4.77 million fibre-to-the-home (FTTH) customer connections at the end of September, an increase of 4.8% year-on-year, despite a drop in overall broadband customers. Its FTTH network covered 26.2 million premises at the same date.

Telefónica's fibre position may not have been enough to offset the weakness across much of its domestic business, but its broader group performance did a great job of disguising the pain in Spain. Group revenues were up by 3.6% organically to €9.3 billion, while earnings increased by 1.6%, the growth driven by Germany, Hispam and, to a lesser extent, Brazil. As an aside, Telefónica raised its earnings guidance in Germany on the back of a strong Q3; there's clearly a specific – and buoyant – market dynamic at play there. As such, the telco was able to confirm its full-year guidance and talk up the bottom line impact of its recent asset disposals – towers and the UK merger – rather than drawing attention to the home market.

But when a company has little else other than the home market to focus on, what then?

Well, if you're BT, you too concentrate on fibre. The UK incumbent posted a revenue decline in its fiscal 1H report while earnings were flat, but declared everything to be on track and reinstated dividends as planned. Best not to look too closely at its flat consumer sale, declines in the enterprise space, or perennial under-achiever Global Services. Instead, Openreach takes centre stage, with its FTTP network passing 6 million UK homes and businesses, 1 million of which are actually connected, and its decision to go it alone in an accelerated rollout programme, rather than seeking an investment partner as many of its European rivals have done. (See Openreach growth helps paper over BT's cracks.)

Despite BT's own hype, its clear that diversification makes a difference to the balance sheet.

Orange's operations across the high-growth markets of the Middle East and Africa enabled it to post flat Q3 revenues at group level, despite turnover declines of more than 4% in both France and Spain. It is obviously experiencing the same market issues in the latter as Telefónica; Orange's European operations would have shown growth were Spain not included.

On the other hand, TIM's numbers were weak because its Italian business is weak. Growth in Brazil, the telco's one remaining overseas market, was not enough to offset a 3.2% revenue decline at home, unsurprisingly, given that the domestic business accounts for more than 80% of group revenues. It was a similar picture on earnings. Interestingly, TIM talked up a strong improvement in churn across its Italian fixed and mobile ops in Q3, but its numbers do not stand up well against its rivals oversees. While TIM is happy with 3.6% mobile churn – its lowest level in 14 years – Telefonica was crowing about a drop to 1.2% churn in Germany. If nothing else, that tells us something about the operating environment in those two markets.

Indeed, this week TIM published a short statement on its latest board meeting, confirming that its directors met to discuss "the difficult market context and the challenges facing the Company in terms of strategy, company performance and organization." Oh, and there was a 'nothing to see here, folks' addendum regarding potential network asset sales. The subtext to this is the ongoing boardroom battle at TIM that stems from shareholder Vivendi's dissatisfaction with chief executive Luigi Gubitosi and its desire to put its own CEO, Arnaud de Puyfontaine, in charge of the board.

No need to check your calendar; we haven't accidentally slipped back in time. This story just keeps coming back around. And its hardly surprising when an operator that generates so much of its turnover in a single market is not performing well in that market. There's simply nowhere to hide.

We will find out soon enough whether BT will face boardroom upset of its own, since Altice owner Patrick Drahi will be able to increase his shareholding before the end of the year, should he so desire.

In the meantime, there's a pattern emerging here. Telcos without the luxury of a diversified portfolio have to work that much harder to impress. Or launch an operation in Germany; that seems to be the place to be in Europe right now.

- Mary Lennighan, reporting for TelecomTV