German telecommunications giant Deutsche Telekom AG (NYSE: DT) reported better-than-expected profit today of $967 million on revenues of about $19.91 billion. Analysts were expecting profit of about $900 million on revenues of $19.7 billion. The company said it did well in Germany and in southern and eastern Europe.

The company’s T-Mobile unit did not do well in the US. T-Mobile lost 77,000 customers in the quarter and revenue compared both with the previous quarter and with the same period last year. The company reported a total of 33.71 million customers, which represents about 12% of the US market. Market leader AT&T (NYSE: T) had 31.1% of the mobile market at the end of March, Verizon Wireless, a joint venture of Verizon Communications Inc. (NYSE: VZ) and Deutsche Telekom, had 25.2% of the market, and Sprint Nextel Inc. (NYSE: S) had 12%.

T-Mobile’s total churn rate for the quarter was 3.1%, better than the 3.3% in the previous quarter and flat with the first quarter of 2009. It actually did a little better with its contract customers, reducing its churn from 2.5% last quarter to 2.2%.

Average revenue per user (ARPU) remained flat with last quarter, but fell from the year-ago quarter. Total ARPU fell from $48 to $46, contract ARPU fell from $52 to $51, and prepaid ARPU fell from $21 to $18. A bright spot was the total data ARPU rate, which rose from $9.40 a year ago to $10.90 in the first quarter.

Like all other US carriers, smartphones and their data capabilities are driving profits for T-Mobile. The company offers several popular models of smartphones, but like everyone but AT&T, T-Mobile does not offer an iPhone from Apple, Inc. (NASDAQ: APPL). The company offers several smartphones that use Google Inc.’s (NASDAQ: GOOG) Android operating system, which has gained popularity in the smartphone operating system market.

The simple fact is that T-Mobile is not growing enough in the high-end part of the wireless market. Its data and smartphone offerings are solid, but they’re not compelling. There’s little reason to switch to T-Mobile because it doesn’t offer the still wildly popular iPhone nor does the company have a pricing program that will lure anyone away from another carrier.

Deutsche Telekom shares are up about 1.4% at $11.53 this morning.  Of course, shares are far more active in local market trading in Frankfurt.

Paul Ausick

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