Deutsche Telekom AG has made a 2.86bn euro ($3.55bn) offer for the 26% of shares it does not own in ISP T-Online because it believes there is an increasing convergence of the telecom and ISP business models with the widespread adoption of broadband.
CEO Kai-Uwe Ricke said that from a customer perspective, the internet was losing its status as a separate, independent business segment. Once the merger is complete, in the second half of 2005, T-Online will become part of a broadband/fixed network strategic business unit offering IP-based services for the mass market.
Ricke said that broadband would cover three worlds in the future; voice and PC-based internet communications and television as a platform for innovative internet offerings to consumers.
Deutsche Telekom is offering a stock swap with a cash alternative of 8.99 euros ($11.15) a share.
The company is following in the footsteps of France Telecom SA which launched a bid to buy out minority shareholders in its Wanadoo subsidiary earlier this year.
Both companies fell victim to the prevailing orthodoxy in stock market circles to spin out fast growing sectors of their business and are seeking to remedy what with hindsight was a huge error. With broadband enabling VoIP, traditional carriers face a considerable threat to their already shrinking fixed network revenue unless they can climb on the bandwagon.
Deutsche Telekom is Europe’s largest provider of broadband lines and Ricke said the company hoped to double the current five million DSL lines in Germany to 10 million by 2007.
Separately, German state-owned investment bank KfW is selling 4 billion euros ($4.9bn) Deutsche Telekom shares. The bank owns 16.7% of Deutsche Telekom and the government still retains a 26.1% stake.