Deutsche Telekom, Telecom Italia Locked in Firmish Embrace

Although there are many clouds on the horizon, in the form of the ongoing Olivetti bid for Telecom Italia set to launch Friday, the need for shareholder approval and protests from Italian politicians at the thought of German political control of their Telecom, the two companies’ boards have assented to a merger representing a market capitalization of 175 billion euros (US$173 billion).

The merger would serve one fifth of Europe’s Internet subscribers, and last week announced aims to develop a global portal business and expanding content offerings.

When European Telecoms are lined up on the map, it looks like a battle plan. Deutsche Telekom’s linking with Telecom Italia has the appearance of a flanking
movement to cut out Olivetti with its own hostile bid for the same company.

In price terms, the Olivetti offer is fairly close to Deutsche Telekom’s at 11.50 euros as against 12 euros per share. The battle plan also reveals the interesting link between Olivetti and Deutsche Telekom’s biggest rival on its home turf, major wireline operator Mannesmann Arcor.

The political objection from the Italian side is to German state involvement in the merger. This runs to a holding of 74%, although apparently Berlin is committed to a policy of non-interference.

Nevertheless Brussels regulators, Italian politicians and labour unions will be checking the deal every step of the way and it does need 90% shareholder approval.

Deutsche Telekom is linked with France Telecom, as a stakeholder with ENEL, in the Italian telecom operator Wind. Rumours were flying around that the Wind people kept Deutsche Telekom out of the office, after the news broke. Then there is the confounding variable of the transatlantic link between Deutsche Telekom and France Telecom and Sprint in their joint venture Global One.

Europe’s position in wireless telephony and mobile computing is a leading one, with companies like Ericsson, Nokia and Psion/Symbian. And, transatlantic competitors for Global One, Qwest and MCI WorldCom, are involved in the broadband fiber optic markets for the Internet.

The real focus of activity in Europe, which has lower PC use, will be the deployment of other Internet appliances that are likely to be six to twelve months ahead of the US, and which will hold greater appeal to European customers.

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