DT Plans Strategy Revamp

Thursday will be a big day for Rene Obermann, 43, the youngest-ever chief executive of Deutsche Telekom AG (NYSE: DT). When he announces the 2006 annual results for Europe's largest operator he will outline a new strategy for the under-pressure carrier.

And it's widely expected that his new vision will include acquisitions, non-strategic asset disposals, and big cost-cutting measures.

German newspaper Handelsblatt reports that asset disposals will include the operator's Internet businesses in France and Spain, parts of T-Systems International GmbH , and real estate.

The former CEO of the German giant's mobile business, T-Mobile International AG , may also unveil some degree of integration between the domestic fixed and mobile business units, T-Com and T-Mobile Germany.

A Deutsche Telekom spokesman says all the operator's products are under review and that it is "merging" T-Com and T-Mobile services. "Those changes will be pronounced on Thursday," says the spokesman.

One of the key services under review is T-Com's fixed/mobile convergence (FMC) product, T-One, which was launched in August. Rumors circulated this week that DT was cutting this service, for which no current customer numbers are available.

But a spokesman denied this suggestion. "[T-One] is not cancelled at the moment," says the spokesman. "We're discussing it and we're thinking about the future of T-One."

The FMC product is at the heart of what seems to be an internal struggle within the carrier between its domestic fixed and mobile businesses. T-One, in effect, takes traffic away from mobile networks, while T-Mobile's HomeZone service is a fixed/mobile substitution (FMS) service that aims to replace a consumer's fixed line with a mobile phone.

A spokesman for another German operator, who requested anonymity, says he wouldn't be surprised if the T-One service is cut. "It looks like Obermann's personal revenge," he says. "[With the T-One service] T-Com was going to steal business from his unit at T-Mobile. When he was CEO at T-Mobile he launched a FMS solution in response."

But internal squabbles over which business unit owns the customer in Germany are the least of Obermann's worries.

Obermann took the helm at Deutsche Telekom in November 2006 when Kai-Uwe Ricke resigned after presiding over consistently disappointing financial results. (See Deutsche Telekom's CEO Quits, DT's CEO Resigns, and DT Names New CEO.)

Then, at the end of January, the German operator issued a profit warning, citing a "tough competitve domestic market." (See DT Issues Profit Warning.)

In September 2006, DT set a goal of becoming the strongest company in terms of earnings in the European telecom market by the year 2010. As part of this ambitious strategy, called Telekom 2010, the operator outlined plans for improving efficiency, changing cost structures, and gaining market shares at home and in Europe.

The carrier had previously stated its intention to retain its status as the region's biggest single player by making acquisitions. (See DT Plans Acquisitions.)

Some ways of achieving this goal included deploying an IP-based infrastructure, implementing a new IT architecture, and improving sales and marketing efficiencies. (See DT Outlines 'Telekom 2010'.)

— Michelle Donegan, European Editor, Light Reading

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