NEW YORK-Deutsche Telekom, which bought England’s One-2-One last month, considers its 10-percent stake in Sprint Corp. too minuscule a toehold in the burgeoning and beckoning American market, company executives said at a press conference Sept. 9.
Make no mistake, the German giant is pleased with its $1.9 billion investment in Sprint’s landline and wireless business, a stake valued at $6.7 billion, which represents a 250-percent return. Rather, DT sees its role as one of controller, not financial stakeholder, said Jeffrey A. Hedberg, board of management member in charge of international operations.
Deutsche Telekom’s strategy, which is targeted on Europe, North America and Asia, “realizes the importance of control to the achievement of value creation, if not majority control immediately, a clear path to do so in the future,” he said.
However, first things must come first, said Ron Sommer, chairman of the board of management.
“Our German [Internet Protocol] customers are interested in global service, and that is why clarification of Global One is so important. Either we’re in or out … and we will come out with some answers when we have them,” he said.
Hedberg said he expects a resolution by year-end to the carrier’s participation in Global One, a joint venture with Sprint and France Telecom.
Asked if Deutsche Telekom plans to be a consolidator of Global System for Mobile communications carriers in the United States, Sommer offered this response:
“There are many ideas we are putting into our model that I can’t discuss or it would limit me.
“You can guess them yourselves, and the press has been very helpful in suggesting ideas.”
Besides the explosive growth in mobile wireless voice communications, DT sees its convergence with mobile wireless Internet and later with third-generation multimedia services as a catalyst for unforeseen, exponential growth, said Kai-Uwe Ricke, managing board chairman of T-Mobil, DT’s wireless business.
Earlier this year, Hans Snook, chief executive of Orange plc in the United Kingdom, endorsed the third-party construction of carrier’s carrier networks in order to spread among many the enormous infrastructure costs next-generation wireless will entail.
Hedberg said “the market is ripe with speculation” about prospects for a Deutsche Telekom play as a carrier’s carrier in the United States through acquisitions of bankrupt C-block carriers, like NextWave Personal Communications Inc.
“We need more convincing that the economics of a carrier’s carrier strategy make sense, and the bankruptcy proceedings give us even more concern about this,” he said.
“It is not something we are thinking of actively pursuing right now.”
Hedberg, formerly a venture capitalist, also said Deutsche Telekom has formed a new, $100 million venture capital fund focused in financing early-stage communications and information technology companies in the United States. This development is in addition to T-Venture, a $55 million venture fund organized as a wholly owned subsidiary. DT formed T-Venture in 1997 and headquartered it in California’s Silicon Valley.
In Europe, where it is digesting its recent purchases of One 2 One and Austria’s max.mobile, Deutsche Telekom still has a hearty appetite for further acquisitions, in line with its goal to become a cross-continental carrier, Hedberg said.
“We expect to report shortly on what our consolidation plan is in Asia,” he added.
Deutsche Telekom owns 21 percent of TRI in Malaysia, 25 percent of Satelindo in Indonesia and 35 percent of Islacom in the Philippines.
To pay for its expansion plans, Deutsche Telekom last month sold a secondary stock offering of $11 billion, said Joachim Kroske, board of management member in charge of finance. This is about the same amount as it paid for One 2 One and as it raised in its initial public offering in November 1996.
“We are considering bringing our mobile communications and Internet businesses public through stock listings internationally. In keeping with our investment strategy, we would definitely hold on to our majority stakes in these subsidiaries,” Sommer said.
“In view of the relatively high stock market value often given to Internet and mobile communications companies, we plan in future acquisitions to pay for shares of the Internet target companies with Deutsche Telekom `Internet currency’ and to pay for the shares of mobile communications target companies with Deutsche Telekom `mobile communications currency.’ “
Right now, he added, DT executives have more questions than answers about these proposed transactions. Furthermore, their timing will be dictated by market conditions and the execution of the federal government’s plans to begin exiting from its majority control over DT during the second half of 2000.
“In the field of mobile data communications, the dynamics of the mobile communications market are converging with the dynamics of Internet developments,” Ricke said.
“In practical terms, this means that T-Mobil is collaborating closely with its sister company, (Internet service provider) T-Online … Anyone who subscribes to the T-D1 network with T-Mobil goes T-Online at the same time … We also provide over the mobile phones of T-D1 customers the useful applications … including their bank balance via [short messaging service] … within Germany (and) about 85 countries around the world, including the U.S.”
T-Mobil, which has retained a market share of 40 percent despite three competitors launching service in Germany since last year, expects to exceed 8.5 million subscribers by year-end, Ricke said. Its primary customer base is individual consumers, and its immediate target market is the small and medium-size business customer.
The wireless company has added 2 million customers so far this year, bringing its total to about 7.5 million. All but 250,000 use its T-D1 digital services, and the remaining analog customers will be transferred to digital by the end of 2000, he said.
“T-Mobil is pressing full speed ahead to turn mobile phones into info-terminals … Together with InterShop, the leading manufacturer of e-commerce software in the world, and Danet, in which [DT] has a stake, we have made the InterShop software [Wireless Application Protocol]-capable,” Ricke said.
“In just a few months, our customers will be able to use mobile Internet applications at [Integrated Services Digital Network] transmission rates. The enabler will be our new [General Packet Radio Service] system, which will be introduced throughout Germany in the first half of … 2000.”
