Overwhelmed by the need to restructure its internal organization, Deutsche Telekom AG must expand internationally or run the risk of losing its influence in the world’s telecommunications markets. While there are signs of significant progress such as its worldwide alliance with partners Sprint Corp and France Telecom, Germany’s carrier is still blocked in its other […]
Overwhelmed by the need to restructure its internal organization, Deutsche Telekom AG must expand internationally or run the risk of losing its influence in the world’s telecommunications markets. While there are signs of significant progress such as its worldwide alliance with partners Sprint Corp and France Telecom, Germany’s carrier is still blocked in its other aspirations by government bureaucracy. But the future is far from clouded. Telekom has been able to profit from its early focus on Eastern Europe – a region where Telekom was one of the first on the scene. German unification opened the door for Telekom to expand into new markets and begin behaving as the world’s third largest telecommunications carrier should. Another boost came from the second phase of postal reform in late 1989 which effectively freed Telekom from Article 87 of the German Basic Law.
No longer bound to the law, which required Telekom to limit its activities to the area within the borders of Germany, Telekom was able to plan its first international strategy. A latecomer to the global marketplace, Telekom decided to do what it did best: assist eastern Germany and the rest of Eastern Europe. Close both geographically and politically to Eastern Europe’s emerging democracies, Telekom had what analysts at International Data Corp in London then called a built-in edge. Armed with experts and consultants, Telekom intensified its efforts to woo telecommunications authorities and announced there was no holding back in efforts to co-operate with other carriers in the East. In line with Telekom’s goal to be a global player, the company prepared feasibility studies, organized fact-finding missions and established Detecon GmbH, a consultancy in which Telekom holds a 30% share. These efforts put Telekom ahead of the vast majority of its competitor carriers. Throughout all of eastern Europe Telekom was permitted to assist in designing voice communications networks. It also became the key player in many digital telecommunications projects. In February, Telekom’s cellular operator and wholly-owned subsidiary DeTeMobil GmbH was awarded a license to operate a digital cellular network in Poland. While DeTeMobil already operates several cellular networks in Russia and the Ukraine, Lothar Hunsel, DeTeMobil chairman, Poland is a key country in the company’s international strategy: Poland with its population of more than 38m is one of the most attractive cellular markets in eastern Europe. DeTeMobil, partner in the consortium Polska Telefonica Cyfrowa, together with partners US West and the Polish electronics company Elektrim, has agreed to guarantee network access beginning this autumn. Polska Telefonica says the network will cover all major business centers in Poland first and reach 500,000 subscribers by the year 2000. While building infrastructure is considered a booming business for Telekom, its early decision to participate in the privatization of Hungary’s Matav has proven to be its wisest, analysts note. In 1993 Telekom and US regional operator Ameritech Corp formed the MagyarCom consortium and paid $875m for a 30% stake in the Hungarian operator, effectively beating bids from competitors Stet International and France Telecom. In December 1995 Telekom and Ameritech paid an additional $852m and increased their share of Matav to 67%. As a result, Telekom stresses, Matav is the only operator in eastern Europe that has allowed majority control by a western consortium and Telekom is the only European operator with a strong presence in Hungary, a key country widely regarded to be the regional hub for future telecommunications. Matav operates in 39 of the country’s 59 district networks and has the majority stake in two of three cellular networks.
By Peggy Salz-Trautmann
In addition, Matav is the sole provider of interregional and international telecommunications services. Matav director Elek Straub says he is confident that Telekom’s involvement will bring his carrier new opportunities. Indeed, the three partner
s have high expectations for what they term a milestone in telecommunications. Over the next few years, the operators say, they intend to increase the number of telephone lines installed per annum by 15.5% and make the nationwide move to Integrated Services Digital Network. Construction on the first ISDN network, which serves the capital, Budapest, was recently completed. The future outlook for Matav is excellent, says Ron Sommer, hauled in from Sony Corp’s German subsidiary to be Telekom’s chairman. In the beginning, however, the future was far from rosy. Analysts at N M Rothschild, advisor to the Hungarian government on the transaction warned bidders that Matav would require a large amount of investment. In 1993, after a vigorous three-year development plan, Hungary still had only 1.5m trunk lines – or 15 lines for every 100 inhabitants. There were over 700,000 on the waiting list. The government’s determination to continue deregulation was also not clear at the time. But progress to date has exceeded Telekom’s expectations and effectively satisfied critics who forecast that the technology transfer would strain Telekom’s resources and revenues. In 1995 Matav reported it was able to increase significantly the number of telephone lines and provide connections for 24 of every 100 inhabitants. The way is now clear for Telekom to help introduce additional services to customers there including directory assistance, voice mail and itemized telephone bills. The strategic focus on Hungary may enable the government to liberalize the market there before its stated 2002 deadline. It’s part of getting Hungary ready for its entrance into the European Union, an executive there commented. Increased engagement in Hungary is an important part of Telekom’s international strategy, chairman Sommer says. We build our global presence by investing in attractive markets. The most attractive markets, Sommer stresses, remain in eastern Europe where Telekom is active in some 30 additional telecommunications projects and business ventures. By applying the lessons it learned in eastern Germany from the ground up, Telekom hopes to lead in efforts to deliver modern telecommunications services to Eastern Europe. This goal, analysts at Intercai in Frankfurt argue, may set Telekom apart from competing carriers, but is no guarantee that Telekom will conquer the market. After all, it has had to accept its share of setbacks.
In June 1995 Telekom and its partners lost the bid for a 27% stake in the Czech carrier SPT Telecom. Six months later Russia sold a 25% stake in the regional telephone holding company Svyazinvest to Italy’s Stet SpA, turning down the bid offered by Telekom and its partners France Telecom and US West Inc. While Telekom will not comment on the decisions, executives there are not discouraged by them. Co-operation can also be a game of chance, notes independent telecommunications analyst Michael Rudolphi. And Telekom must take its chances. Indeed, Sommer stresses, Telekom must identify and take advantage of every relevant business opportunity – if it wants to successfully safeguard its home market and expand its global reach. They (these goals) must both be achieved together, Sommer says. We have proved our commitment to internationalism through many joint ventures in countries such as Russia, the Ukraine, and Kazakhstan. Key alliances that set the tone for Telekom’s future are the transatlantic alliance with France Telecom and Sprint and the majority stake in Matav. Telekom’s engagement in Matav, Sommer says, like its own efforts to become a public company, require the same know-how. In both cases, Sommer adds, we are well positioned.