Can Deutsche Telekom's brass survive Its troubles‾

Jack Ewing and Kate Norton
04 Sep 2006
00:00

Deutsche Telekom Chief Executive Officer Kai-Uwe Ricke wanted to make one thing clear: Despite rumors in the German press that he could lose his job, Ricke is not worried about a regularly-scheduled meeting of the German telco's supervisory board over the weekend of Sept. 2. 'I'm looking forward to it,' the CEO insisted at a press conference in Berlin Aug. 31. 'I'm well prepared.'

But Ricke is under pressure, and his drawn face showed it. The trouble started Aug. 10, when Europe's largest phone company said its second-quarter net profit fell 14%, to $1.3 billion, and it dramatically cut sales and earnings targets for the rest of this year. At about $25 billion, operating profit for 2006 will be more than $1 billion less than expected, Ricke warned at the time.

Since then, as Ricke acknowledged at the press conference, there has been rampant speculation about whether the company is poised for a executive shakeup. 'The whole [management] board is in danger,' says one analyst who asked not to be named. (German companies have separate supervisory and management boards.)

MASS DEFECTIONS. At a press conference tied to the International Radio Exposition in Berlin, the normally good-natured Ricke displayed a touch of testiness toward his critics, saying their ideas about how he should be running the company 'don't fit together at all.' He declined to answer a reporter's question about what behind-the-scenes role U.S. buyout firm Blackstone Group, which owns 4% of DT, might be playing.

DT

) is struggling to stem the tide of customers defecting to rivals offering cheaper phone and Internet services in its home market. All told, DT lost about half a million phone lines in the second quarter as customers switched to other carriers.

In Berlin, Ricke and his management team sought to convince doubters that the company has a strategy in place to stop that catastrophic loss of market share. 'We have to work hard,' he acknowledged, before unveiling a package of price cuts of as much as 30%.

SWEET DEAL. Ricke also will step up internal cost cutting and offer customers new packages designed to exploit Deutsche Telekom's holdings in all areas of the telecommunications market, from regular telephone lines to on-demand entertainment. For instance, the company announced Aug. 31 a new bundle called T-Home Complete Basic, which offers customers fixed-line telephony, high-speed Internet access, 60 TV channels via broadband, and an archive of on-demand programs and movies, all for about $100 a month.

In its first so-called 'quad-play' offering, DT will further sweeten the T-Home deal by offering discounts to customers who are also T-Mobile subscribers. Such customers could get the Internet-telephone-entertainment-mobile package for as little as $85 a month.

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