* Q3 wireless revenue growth 5.6 pct vs 8.6 pct in Q2
* Q3 core operating margin 27.2 pct from 24.8 pct
* Shares down 1.9 pct, underperforming main market
(Adds detail, background, analyst comment, shares)
By Harro Ten Wolde
FRANKFURT, Nov 6 A faltering German economy has
slowed revenue growth at Telefonica Deutschland's main
wireless business, weighing on its shares a week after their
stock market debut.
The firm, which remains majority-owned by Telefonica
after the Spanish group listed a 23 percent stake, said
on Tuesday revenues for its wireless services rose 5.6 percent
in the third quarter, down from 8.6 percent in the second.
That was still better than its closest peer in the German
market, KPN, which last month reported flat sales.
But Telefonica Deutschland's shares were down 1.9 percent at
5.825 euros by 1330 GMT, underperforming a 0.8 percent rise on
the STOXX Europe 600 telecoms index, though remaining
above their initial public offering (IPO) price of 5.6 euros.
"The market reaction suggests that some hopes had been
raised unreasonably high in the IPO process," Bernstein Research
analyst Robin Bienenstock said.
The German mobile market is feeling the impact of the euro
zone financial crisis after growth of Europe's biggest economy
slowed to 0.3 percent in the second quarter.
Telefonica Deutschland, which operates under the O2 brand,
is the smallest of four operators in Germany, after Vodafone
, Deutsche Telekom and KPN's E-Plus.
Its listing last week raised 1.45 billion euros for
Telefonica to trim its debt.
Investors were drawn to the stock for its dividend and the
fact the German wireless market is considered one of the more
attractive markets in Europe due to a stronger economy.
Also, Germans spend less on mobile phone calls and wireless
internet than other Europeans, which could give telecom
operators scope to increase revenues through higher data use.
Telefonica Deutschland shares trade at just below 5.7 times
earnings before interest, taxes, depreciation and amortisation
That is above the multiple of 3.5 at Deutsche Telekom which
is due to publish quarterly results on Thursday, and KPN's 4.2,
but below France Telecom's 7.4.
"It is a good stock and fully priced," said Erling Thune, a
fund manager at DNB Asset Management who does not own Telefonica
Deutschland shares and has no plans to add the stock to his
portfolio. "Maybe in the future when market noise will lead to
Telefonica Deutschland shares have so far not dropped below
their IPO price, nor the 5.7 euro level at which they started
The firm's market capitalisation is now around 6.6 billion
euros, just below KPN's 6.8 billion.
KPN, which is 27.5 percent owned by Mexican operator America
Movil, and Telefonica in the past discussed combining
their German operations but could not reach an agreement.
Tough competition is forcing players in the German mobile
market such as KPN to offer better deals to win clients, putting
pressure on margins.
But Telefonica Deutschland's core operating margin widened
to 27.2 percent in the third quarter from 24.8 percent.
It had 25.3 million connections at the end of September, 4.1
percent more than a year earlier.
($1 = 0.7823 euro)
(Additional reporting by Leila Abboud in Paris; Editing by Mark