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ComputerWire: IT Industry Intelligence

Deutsche Telekom AG has written €18bn ($18.2bn) off the value of its US cellular operation as it paid the price for its previous management's reckless acquisition spree and posted a record loss for a European company of €24.5bn ($24.7bn) for its first nine months.

As expected, the German incumbent has appointed Kai-Uwe Ricke as CEO despite fears that the former COO was too much a protege of former boss Ron Sommer to give the company the radical change in direction it needs.

Deutsche Telekom has ruled out the sale of the assets of VoiceStream Wireless Corp for which it paid $34bn in 2001. Instead, it is still pursuing a possible merger with AT&T Wireless or Cingular Wireless LLC as a way of stemming its losses in the US.

Ricke said: "We do not want to, nor will we, remain the number-six in the US mobile communications market in the long term. We view the possibility of a merger, not as a means of reducing debt, but rather as an opportunity to maximize the value which currently resides in T-Mobile USA."

After looking at the shrunken value of its assets, Deutsche Telekom has written off €22bn ($22.2bn) in total, leaving its figures in a dismal state. For the nine months to September 30, it posted a net loss of €24.5bn ($24.7bn), up from a loss of €1bn ($1bn) on revenue up 12% at €39.2bn ($39.5bn).

It expects to close the sale of its cable television assets in the first quarter of 2003, according to chief financial officer Karl-Gerhard Eick.

The company's major priority is its net debt of €64bn ($64.6bn), which it aims to reduce to between €49.5bn and €52.3bn ($49.9bn and $52.8bn) by the end of 2003. The immediate prospects for raising cash are the sale of its remaining cable interests and non-strategic interests such as real estate that will raise between €6.2bn and €8.5bn ($6.3bn and $8.6bn). In further bleak news for equipment suppliers, Deutsche Telekom will cut capital spending next year.

Though job cuts are a sensitive issue in recession-hit Germany, Deutsche Telekom plans to take the axe to its 254,806-strong workforce, and 42,500 jobs are to go in Germany, as well as 12,200 at subsidiaries overseas.

Ricke said that a properly managed Deutsche Telekom should be a "cash machine" and its future lies in debt-reduction and growth. An enormous task lies ahead as the company switches direction from expansion overseas to squeezing more value out of its core operations.

© ComputerWire

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