Germans Aim for Major Internet Play

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BONN - T-Online, Germany's largest ISP, plans an IPO in April and is moving to become a major pan-European Internet player, offering access and content to a growing number of subscribers through foreign acquisition and domestic price cuts.

Price is still a major impediment to Internet growth in Europe but last month Theo Sommer, CEO of T-Online's parent Deutsche Telekom, announced a flat rate for surfers of under $50 a month with special weekend and afternoon rates for students.

By US standards these are high rates but already significantly lower than they were even a year ago.

In February T-Online also moved abroad for the first time, acquiring Club Internet in France and thus adding 320,000 private subscribers and 80,000 e-mail accounts to the 4.2 million subscribers it has in Germany.

That makes the Germans France's third largest online provider behind France Telecom and AOL Europe, whose French branch has 600,000 subscribers. The deal was a stock swap giving Club Internet a 6.5 percent stake in T-Online worth 1.2 billion euros.

The deal also sweetens prospects for T-Online's IPO that could bring in 15 billion to 30 billion euros (euro and dollar are now at parity) depending on how many extra shares the German government will release before then.

Analysts say it does even more, establishing an alliance between DT and Club Internet owner the Lagardere Group, one of the world's most important publishing companies. It owns "Paris Match" and "Elle" and "Car and Driver" and "George" in the US. All told, the company owns 200 magazines in 34 countries.

Neither owner Jean-Luc Lagardere nor Sommer left any doubt about their ultimate global ambitions. Lagardere said that the alliance would allow the old world to take vengeance on the new which heretofore has dominated the Internet business.

"We have everything that Time Warner and the other media giants have," Lagardere told a press conference in Bonn announcing the deal. "It's up to us to reach our ambitious goals. The future is on the Internet."

Sommer also announced plans to make DT into a "pan-European world market Internet provider," but declined to give details beyond a bland "we wouldn't mind becoming No. 1 in the world someday."

Clearly, the AOL-TimeWarner deal sticks in the Europeans' craw but the Germans don't believe AOL is making it in Europe even though it has 3.8 million subscribers and a fifty-fifty partnership with media giant Bertelsmann.

T-Online CEO Wolfgang Keuntje was blunt in an interview with the German newspaper Die Welt: "AOL Europe is a combination of Internet and Media enterprises but that model simply hasn't worked here. What works in the US doesn't necessarily work in the old world.

"We don't see any need to hook up with any one content partner, but plan to stay open and maintain our neutrality. We won't cooperate with any one partner on an exclusive basis but with many of them." He cited book shops and banks as possible partners.

AOL Europe has its own problems as well as opportunities. One difficulty, analysts noted, is the ownership question. German media reported last month that Bertelsmann wanted to sell its 50 percent stake.

Munich's Sueddeutsche Zeitung reported that CEO Thomas Middelhoff was considering two options: one to sell his stake to AOL for 15 billion Deutschmarks ($7.9 million), the other to sell a 35 percent stake to AOL CEO Steve Case and then sell the rest on the stock exchange.

The second option would take more time but net Bertelsmann DM 20 million ($10.5 million), the newspaper said. A Bertelsmann spokesman said the story was "not correct" but only one of many rumors "which you can hear and read about recently."

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