Deutsche Telekom recently released its Q1 2024 earnings call transcript, and while analysts are busy dissecting the obvious – fiber expansion, wage negotiations, and the ongoing saga with 1&1 – a quiet revolution is brewing within the European segment. This revolution, if it continues on its current trajectory, has the potential to unlock significant value for Deutsche Telekom, value that most analysts seem to be overlooking.

The European segment, often overshadowed by its flashy American counterpart, T-Mobile US, was the undisputed star of Q1 2024. Organic revenue growth reached an impressive 5.7% year-over-year, powered by robust service revenue growth. While a one-time benefit from a European Recovery Program contract in Greece contributed, the underlying strength of the segment cannot be ignored.

Even more striking is the 8.1% organic EBITDA growth – yes, you read that right, 8.1%, even surpassing the usually dominant T-Mobile US. While favorable energy costs played a role (estimated at about 2 percentage points), the driving force is margin expansion driven by price increases across various European markets.

Here's where the intrigue lies. Analysts are, understandably, focused on the sustainability of this EBITDA growth, questioning if energy tailwinds will persist and how inflation might impact non-personnel costs. But what they're missing is the potential long-term impact of this pricing power.

Think about it. Deutsche Telekom, in its European markets, is demonstrating a remarkable ability to raise prices without significantly impacting customer acquisition. This indicates a strong customer base, satisfied with the network quality and service offerings, willing to absorb these price adjustments. This pricing power, if sustained, can fundamentally shift the profitability profile of the European segment.

Projected EBITDA Growth for Deutsche Telekom Europe

The following chart illustrates a potential growth scenario for Deutsche Telekom's European segment based on the information provided in the Q1 2024 earnings transcript.

Let's delve into the numbers. In 2023, the European segment generated €4.1 billion in EBITDA after leases. For 2024, Deutsche Telekom is guiding for €4.3 billion. While seemingly modest, consider this: If the 5.7% organic revenue growth continues, even with a moderation in EBITDA growth to, say, 5%, the European segment could reach €4.5 billion in EBITDA by 2025. This represents an additional €400 million in profitability – a substantial sum that could be further enhanced by operational efficiencies and strategic initiatives.

The implications are clear. This untapped potential in Europe provides Deutsche Telekom with a powerful engine for sustained growth, a counterweight to any potential challenges in other segments. It strengthens their financial flexibility, enabling them to confidently invest in fiber expansion, pursue strategic acquisitions, or even enhance shareholder returns.

"Fun Fact: Did you know that Deutsche Telekom was the first telecommunications company in Germany to launch a GSM network in 1992? That pioneering spirit is still evident today as they navigate the complex landscape of the European market, quietly building a profitable and sustainable business that could soon grab the spotlight."

The key takeaway? While the market obsesses over the obvious, a subtle shift is underway within Deutsche Telekom. The European segment is proving its worth, demonstrating a potent combination of revenue growth and pricing power. Analysts would be wise to look beyond the headlines and recognize the hidden gem that could unlock millions for Deutsche Telekom.