Deutsche Telekom To Cut 22,000 Jobs

Saddled with debt and with its stock price nearing record lows, German telco
Deutsche Telekom said it would cut approximately 22,000 jobs
by the end of 2004 in a move aimed at conserving cash.

In a meeting with shareholders at the company’s annual meeting, Deutsche
Telekom CEO Ron Sommer said the cost savings move, which would eventually
include the sale of real estate holdings and its stake in cable networks,
would save more than $9.2 billion.

According to press reports out of Cologne, Germany, Sommer said the company
would shave almost 30,000 jobs by the end of 2004 but, because there are
plans to hire in some areas, the net number of layoffs would reach 22,000.

Deutsche Telekom employs approximately 257,000 at locations throughout
Europe, U.S, and Asia.

Deutsche Telekom, ranked as the number one telco in Europe, is carrying
about $60 billion in debt and widening yearly losses ($3 billion in 2001)
from mobile sector investments have depressed its stock price.

It is not clear if the workforce reduction, which would primarily affect the
fixed-network unit, would trickle down to Deutsche Telekom’s U.S operations,
which include the VoiceStream wireless subsidiary.

Deutsche Telekom shelled out more than $50 billion for VoiceStream Wireless, a deal that
included a separate $5 billion cash investment. As part of ambitious plans
to enter the U.S market, the German company also spent around $5.89 billion
to acquire Powertel, Inc.

In his speech to shareholders, Sommer said there were no alternatives to
spending heavily on mobile operators and appeared to be defending the
VoiceStream and Powertel deals.

“We have invested heavily in our future by investing primarily in mobile
communications. We were very much aware of the fact that we would
temporarily post losses…The alternative would have been to focus only on
the fixed network. That would have meant no losses, however we would have
had to do without the growth opportunities,” Sommer added.

Sommer, who faced intense questioning from angry shareholders, said Deutsche
Telekom would be patient with plans to divest its cable network. “We have
to wait until the conditions are right. We will neither sell our cable
network nor go public with T-Mobile at terms and conditions that we cannot
justify to you, our shareholders. We are optimistic, however, that the
conditions for these measures will improve within the foreseeable future,”
Sommer said.

Commenting on slump its stock price, Sommer blamed the market’s inability to
differentiate between winners and losers. “The events we have observed in
the last few weeks are no longer comprehensible and can only be explained
with psychological mechanisms,” he said, according to press reports out of
Germany.

Shares in Deutsche Telekom were trading Tuesday at $11.17, more than 50
percent off the 52-week high of $23.41. The year-low is $10.60.

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