Deutsche Telekom Gets New Boss

Boardroom meetings are almost always dull affairs. A fly on the wall at the recent Deutsche Telekom board meeting might have seen quite a bit of excitement, though. US private equity group Blackstone lead a successful coup against CEO Kai-Uwe Ricke, who resigned yesterday. His replacement, Rene Obermann, used to run DT’s very successful cell phone unit T-Mobile. The stock opened up this morning in Frankfurt, rising 3% to €13.54 a share.

Mr. Ricke has been under fire for some time for disappointing stock prices. At first, he was hailed as a great man for cutting the debt at DT by half. However, one is only as good as the last quarterly report in the world of big business. DT’s third quarter report last week showed a 20% drop in net income. Having survived a coup attempt over the summer, Mr. Ricke’s report was the straw that broke the dromedary’s spine.

He didn’t help himself with plans to outsource 45,000 customer service jobs on top of a 32,000 job cut he had announced earlier in the year. That’s 77,000 jobs in a work force of 250,000. Naturally, the Verdi union that represents these workers was annoyed. Thanks to German corporate structure, Verdi has seats on the board and can vote on who leads.

Mr. Ricke’s successor, Mr. Obermann, gets brownie points from shareholders for turning T-Mobile into a real competitor against Europe’s big cell companies Vodaphone and O2. Even though it is well-behind the pack in the US, it isn’t losing market share, and the mobile business is the company’s biggest and most lucrative. In announcing Mr. Obermann’s appointment to a five-year term as CEO, Klaus Zumwinkel, head of Deutsche Telekom's supervisory board, said Mr. Obermann “is a strong company personality with leadership qualities and has more than 20 years of experience in this sector.” Translated, that means he’s a safe pair of hands.

The company is butting heads with both German regulators and the European Commission over competition in the marketplace and especially over broadband services. Many analysts of Europe’s telecoms markets believe this will prevent large changes, but something is going to have to happen. Shareholders aren’t going to be satisfied with DT until it has the same kind of results across the board that T-Mobile has. Second-tier management changes will happen almost immediately.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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