Deutsche Telekom Plans International Wireless Expansion

BONN, Germany -(Dow Jones)- Deutsche Telekom Chief Executive Rene Obermann Thursday said he plans to expand the German firm's wireless telecommunications business internationally in an attempt to further boost growth.

The CEO, who replaced Kai-Uwe Ricke in November, also unfolded plans to upgrade the traditional fixed-line network with a technology that will enable it to broadcast Internet-television, and he unveiled a list of assets up for sale.

The plans are core to a new strategy spearheaded by Obermann to revive the fortunes of Europe's largest telecoms company by sales.

The former state monopoly, in which the government still holds roughly one third, has been faced with declining earnings and slow growth, primarily due to shrinking business on its home soil as it loses customers to smaller and cheaper rivals.

The German telecoms titan said that it aims to expand its wireless business internationally both organically, but also through acquisitions. The company said it considers acquisitions to strengthen its business in current markets, but also to expand into new markets and regions.

"We want to use our expertise to be able to grow in mobile communications, including the possibility of acquisitions, based on our strict business criteria," said Obermann. He added that that acquisitions will be subject to clear conditions: "Deutsche Telekom is in solid financial shape and is to remain so in the event of acquisitions."

Obermann also said that the company will continue to grow organically, adding that Deutsche Telekom will aim for a significant rise of its European customer base in 2007, while T-Mobile USA will add 5 million customers by 2008.

At 0950 GMT, Deutsche Telekom shares traded 2.5%, or EUR0.34, lower at EUR13.22, while Germany's DAX blue-chip index was up 0.5%.

Obermann's strategy held little surprise for most analysts.

Some analysts had expected Obermann, who previously held the CEO job at Deutsche Telekom's wireless unit T-Mobile International, to unveil a strategy largely build upon the international success of its wireless unit.

The company's US unit T-Mobile USA has long been the main growth driver of Deutsche Telekom, but analysts estimate that growth rates in the U.S. have hit its peak as the market matures. However, the U.S. mobile phone market is expected to continue to show high growth rates until 2010.

In 2006, T-Mobile contributed a higher adjusted operating profit than Deutsche Telekom's traditional fixed-line business arm.

Adjusted earnings before interest, tax, depreciation and amortization in the mobile phone unit rose to EUR9.9 billion in 2006, up from EUR9.8 billion a year earlier. Adjusted Ebitda for the T-Com fixed-line unit fell to EUR8.7 billion, down from EUR9.9 billion a year earlier.

Deutsche Telekom's new strategy seems to mirror that of UK-based rival Vodafone Group, which recently agreed to acquire a controlling stake in India's Hutchison Essar for $11 billion.

In 2006, the former German state monopoly saw domestic sales drop by 5% to EUR32.5 billion, while international sales rose 13.6% to EUR28.9 billion.

Foreign sales make up for around 47.1% of total sales by now, up from around 42.7% in 2005.

Obermann said that he also wants to concentrate his attention on turning around the fixed-line German business, which has been shrinking in recent years due to increased competition from more nimble rivals like Arcor, which is owned by Vodafone Group, and Mobilcom.

The company plans to build "a new media platform" consisting of the new network it is building with the so-called VDSL technology, but also by plugging in its traditional fixed-line network which will be upgraded with ADSL2+ technology.

By 2008, 50 cities will be connected to VDSL, and an additional 750 towns and cities will be covered using the ADSL2+ technology, Deutsche Telekom said, adding that it expects to have signed on 1.5 million customers to this media platform by 2010.

The ADSL2+ technology is used to expand data speeds on traditional copper telecom networks, enabling them to run new services such as broadcasting TV via the Internet. VDSL is a new technology which enables even higher data speeds.

Obermann Thursday also confirmed that the company aims to save up to EUR4.7 billion by 2010 through various measures, including job cuts and moving personnel into a newly created service unit.

In addition, the company is looking into further cost saving measures, Obermann said, without elaborating.

Part of the funds for acquisitions should come from disposals, Obermann said.

On the list are assets such as its Internet service providers in Spain and France - a move widely expected by analysts - and other businesses such as its real estate assets and its mobile towers in the U.S. and Germany.

Deutsche Telekom also said it seeks "a strategic partner" to further develop its key account business of its information-technology services unit.

Company Web site: http:/www.deutschetelekom.com

› See More: Deutsche Telekom Plans International Wireless Expansion