The Trials of Deutsche Telekom

EU trustbuster Karel van Miert told Deutsche Telekom (Dtag), which controls cable access to 18 million homes, to sell the network. Unsurprisingly, potential buyers are getting in line at Dtag’s door.

The line-up is said to include media giant Bertelsmann, which is currently the biggest publisher of books in English, and Deutsche Bank, energy companies, General Electric, Microsoft/Media One, and Munich media magnate Leo Kirch.

Dtag CEO Ron Sommer’s asking price is DEM 30 billion (US$ 16.2 billion) for the ‘last mile home’. Bertelsmann is offering between DEM 9 and 10 billion (US$ 4.9-5.4 billion), just a billion more than Deutsche Bank. Another reason for a lack of enthusiasm for this proposal is Bertelsmann’s status as a competitor in telephony and Internet services.

Germany’s Der Spiegel magazine reports that Bill Gates is making regular personal phone calls to bankers and possible media partners in Germany. Participation in the German cable network has top priority at Microsoft, in line with their broadband ambitions. The latest news is that one person Gates has been calling is Bertelsmann’s president, Thomas Middelhof.

Bertelsmann partner America Online recently proposed a flat rate for Internet access in Germany. AOL has 2.8 million subscribers in Europe and it is considering a flat fee formula which includes both telecom costs and internet subscription.

In April, T-Online, Deutsche Telekom’s ISP brought its prices down to 3 pfennigs(US 1.6 cents) a minute for Internet access and another 3 pf for phone time. AOL wants the same rates; it currently charges 8 pf. per minute for the phone connection alone.

America Online is also expanding its free services in Europe. On Tuesday AOL’s newly acquired subsidiary Netscape concluded a cooperative agreement with World Online, Lycos Bertelsmann and VNU. The Dutch Internet provider WorldOnline, which also has a subsidiary in Belgium will be supplying Netscape’s Communicator to its clients.

In the meantime, Dtag is eyeing the US cable market where the prices are attractive and an alliance might be more strategic.

In addition to its cable network woes, Deutsche Telekom is under fire from several other directions. Over the weekend its deal with Telecom Italia went sour; Olivetti’s bid for the take-over of Telecom Italia was successful. Olivetti’s first announcement was intention to not proceed with the Deutsche Telekom merger.

Spin-off from the Olivetti deal means that Deutsche Telekom’s big home-front competitor, Mannesmann, has been able to take control of Italy’s Omnitel and Infostrada from Olivetti. Omnitel is a wireless operator; Infrastrada is wireline. The deal is worth Euro 7.6 billion (US$ 8.1 billion).

It is perhaps not so surprising that Deutsche Telekom is sorting matters out with former strategic partner, the German Postal Service (Deutsche Post). Both want to return to core business splitting IT, network management, logistics and printing services.

Telekom will take over a substantial part of the postal service’s IT business and network management; logistics and printing will go to the Post Office. They will work together on trust center/security services and e-commerce.

Although Olivetti has taken over Telecom Italia and Deutsche Telekom is once more on the sidelines, it has not, however, ruled out cooperation with Olivetti/Telecom Italia at some future time. Since Telecom Italia’s board has resigned and Olivetti has to cut around 15,000 jobs, there will probably need to be some head-scratching first.

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