German carrier Deutsche Telekom on Friday announced a 37 per cent drop in first quarter profits compared to the same period last year. The poor showing was mainly due to weak performance of its T-Mobile USA arm, which it is planning to sell to AT&T.

Revenue from continuing operations for the three months to the end of March were €10.8bn($15.7bn) down 9.8 per cent compared with the same period last year. First quarter profits were €480m, well below the €677m forecast by some analysts.

The decline also partly due to Deutsche Telekom placing its UK mobile business into a joint venture with Orange, creating Everything, Everywhere.

T-Mobile USA’s operating income dropped from $1.39bn in the first quarter of 2010 to $1.19bn in the first quarter of 2011, with revenues of $4.63bn, down just slightly from $4.69bn in 4Q10 and flat compared to 1Q10.

The US operation has been aggressively marketing a 4G message, following network upgrades to HSPA+ which it is pitching as a rival the LTE network run by Verizon Wireless. T-Mobile claims to deliver speeds of up to 42Mbps and said it is expected to cover 140 million people by mid-2011.

To reassure investors, Deutsche Telekom confirmed that it would generate €19.1bn of adjusted earnings in 2011.

“The first quarter shows a mixed picture with positive trends in the development of data ARPU. Our deal with AT&T announced a few weeks ago will not change the focus of our US business. Until the closing of the deal, T-Mobile will continue to challenge its competitors and compete aggressively in the US market,” said René Obermann, chief executive of Deutsche Telekom, in a statement.