LE DEVOIR LE VENDREDI 13 NOVEMBRE 1998 CLEARNET SUBIT

THE NEW YORK TIMES, FRIDAY, NOVEMBER 13, 1998

INTERNATIONAL BUSINESS

Bowing to Competition, Deutsche Telekom Will Cut Prices

By EDMUND L. ANDREWS

FRANKFURT, Nov. 12—In the clearest sign yet of the competition now roaring through Europe's tele­phone industry, Deutsche Telekom A.G. of Germany said today that it would slash its long‑distance prices by as much as 63 percent.

The move comes as Germany's onetime telephone monopoly is rap­idly losing market share to new ri­vals. Germany, along with most oth­er European countries, opened the doors to competition in January.

Since then, analysts estimate the company has lost as much as 25 percent of its long‑distance business to new entrants. Some of these new rivals are billion‑dollar consortiums that are building their own networks, but the vast majority are small com­panies that resell Telekom's own services at lower prices.

One of the more visible newcom­ers is Mobilcom, a small company that started out by reselling cellular telephone service but has recently begun offering cut‑rate regular tele­phone service. Mobilcom, which went public on the Frankfurt Stock Exchange this year, reported today that profits in the first nine months of the year quintupled to 111.9 million marks, or about $66.4 million.

The depth of today's price cuts surprised investors, even though the company had served notice several weeks ago that it would act aggres­sively.

Deutsche Telekom's stock dropped about 2 percent today, as company executives warned that the price re­ductions would probably hurt profits in the short term.

"That is without question a big dip in our cash till," acknowledged Deut­sche Telekom's chief executive, Ron Sommer, who attributed many of the company's problems to hostile deci­sions by German regulators.

Under orders from the European Union, most West European govern­ments opened their telephone mar­kets to competition last January. Be­yond simply allowing other compa­nies to offer telephone service for the first time, the European Union rules require the traditional monopolies to give rivals access to their networks at reasonable rates.

German regulators have been par­ticularly tough, forcing Deutsche Te­lekom to let rivals use its network for comparatively low prices. Those reg­ulatory decisions have attracted a horde of competitors, from giant en­terprises like Arcor, partly owned by Mannesmann A.G. and the German national railroad, to tiny upstarts.

Most of Europe's traditional tele­phone monopolies are under fire from new competitors. But analysts said that Deutsche Telekom added to its own problems by being slow to revamp its rates, keeping many of its prices too high.

Mr. Sommer openly acknowledged several weeks ago that his company had lost ground. Though Telekom reported that earnings had risen 22 percent during the first nine months of the year, its revenue has stalled since last summer. Company execu­tives have told analysts that about 15 percent of the calls over its network last June were actually on behalf of rival carriers. Most analysts assume that percentage has climbed to about 20 or 25 percent since then.

Mr. Sommer is waging a vocal political and legal campaign to modi­fy some of the Government's deci­sions. Deutsche Telekom has sued to overturn the price regulations and sued to block some of its rivals' advertising. In the most recent spat, the company sued to block Mobilcom from running television and print ads that mimicked Deutsche Tele kom's own logos and slogans.

Mr. Sommer is also lobbying the new Government under Chancellor Gerhard Schroder, arguing that his company is forced to subsidize competitors and that Germany's new and independent telecommunications regulator has been one‑sided. Among other things, company executives argue that the Government forced the company to spend billions of marks on a new telephone network for eastern Germany as well as new digital phone lines throughout the west. That left the company with a huge load of debt, just when it was losing its protected monopoly.

"What we are seeing today is a price war being waged on Telekom’s back," Mr. Sommer said in a speech today. "The present situation fills me with worry about the future of our industry."

Mr. Schröder's new Government appears to be sympathetic. Werner Müller, the Minister of Economics, recently said the regulators might have been too tough.

In an interview last week with the Suddeutsche Zeitung, a Munich-based newspaper, Mr. Muller said he saw himself "in the role of defending the ordinary people and Deutsche Telekom employees" who might be hurt by "the impact of excessively tough regulation."