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Four reasons why T-Online doesn't bark

This ain't going to be a dog stock

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T-Online is to price its shares at €35-50, valuing the ISP anywhere between €39-55 billion (£24-55 billion), according to "people close to the share issue" cited by the FT. This will make it easily Europe's biggest Internet player. Only nine per cent of T-Online's shares will be released for IPO, and 60 per cent of this is reserved for retail investors.

The huge pricing range reflects the "volatile performance of ISP stocks", reports the FT (which really means 'Internet' when it refers to 'ISP'). We agree. But we think that T-Online is a cut above recent high-profile European IPOs. Reports that the mania for Internet stocks is waning in light of the recent poor performance of shares from Lastminute, World Online and Lycos Europe are a bit premature.

It could be that European investors are becoming more discerning when it comes to Internet shares, but don't expect them to pan everything related to the Internet. There are other reasons why these Internet stocks performed poorly in the first days of trading. Aggressive pricing is at least partly to blame. Lastminute shares were priced by Morgan Stanley Dean Witter at the high end of the scale, leaving little upside after IPO day.

Furthermore, the lack of a ballot or lottery meant that each retail investor had too few shares from which to profit (something that T-Online will probably avoid, see T-Online puts IPO to the ballot). Aggressive IPO pricing may be a factor with World Online and Lycos too (traditionally, in Europe IPOs are priced conservatively to help along a first day ramp.) Expect T-Online to fare a bit better than the rest for the following reasons:

  • T-Online has massive market share in one country, at least five million subscribers in Western Europe's biggest and richest country. World Online is supposed to be the second biggest ISP in Europe, but its subscriber base is scattered across several countries and its market share where it operates is more typically 10-15 per cent.
  • The giant German ISP has home banking, a sticky application. T-Online subscribers have been accessing their bank accounts for years using the old videotext network and upgrading to T-Online when the banks Web-enabled their banking apps). T-Online also recently bought equity in online bank Commerzbank, one of the country's pioneer direct bank and brokerages. Commerzbank is also, naturally, selling shares in T-Online.
  • T-Online knows how to market, market, market... For the upcoming IPO, the company has turned on a massive and comprehensive corporate communications machine. Other European IPO candidates could learn a lot from Big Pink's (pink is Telekom's Corporate ID colour, actually it's a purply pink but not quite magenta) marketing program. Its investor relation’s web pages, for example, link users to direct banks and traditional banks selling shares.

    There is a discussion forum for T-Online investors, plus pages of information and hotline numbers for even more information. Another Web site feature is a Germanic-looking avatar called Robert T-Online who takes visitors on guided tours of the company's site. In the month leading up to the IPO, T-Online also conducted a "customer satisfaction" survey, guaranteeing anyone who completed the survey access to shares. The resulting legal proceedings, initiated by AOL Germany, has not hurt either.

  • And T-Online has sex. Revenues from T-Online's numerous erotic channels helps the ISP's bottom line, as it were. T-Online was one of the first ISPs to implement micropayments to ensure that revenues from pay-as-you-go services i its sex channels, which T-Online calls "lifestyle" channels - did not decrease when it shut down the old videotext network and ported all the content to the web a few months ago. ®
  • T-Online - some facts and figures
  • Customers: 5 million (at Feb 2000)
  • Sessions per month: 184 million (as of December 1999)
  • Employees: 1000 (as of Jan 2000)
  • Location: Darmstadt
  • Foreign holdings Austria: 51 per cent of T-Online.at Internet Service GmbH, Wien
  • Shareholdings: 25 per cent of Infoseek.de, 25 per cent Online-Buchshop Booxtra
  • Portals: www.t-online, shopping.t-online.de, www.t-online.de/broker, fun.t-online.de, regional.t-online.de, www.t-online.at

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