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Falling European Phone Prices Boost E-Commerce Prospects

BONN – The dramatic decline of European phone prices this year caught up with the continent’s largest telecom last month as Deutsche Telekom’s profits fell 19 percent in the first 9 months of 1999 to 1.2 billion euros ($1.4 billion).

Sales were off 3 percent over comparable 1998 figures, down to 25.5 billion euros. Rising mobile phone and online earnings could not make up the difference.

But the sharply higher number of subscribers to Deutsche Telekom’s T-Online service signaled that the outlook for e-commerce sales in Germany is improving significantly.

High phone costs have slowed growth of the time surfers and would-be e-commerce buyers spent on the web. As costs declined the number of Internet subscribers rose.

T-Online subscribers climbed to 3.6 million in the first three quarters of the year, an increase of 900,000 since Jan. 1.

While mobile phone users do not yet have easy access to the Internet, the technology exists to let them do so.

T-Mobil, Deutsche Telekom’s cellular phone subsidiary, had 7.9 million customers at the end of September, an increase of 56 percent over the comparable 1998 period.

But the German giant faces stiff competition from domestic and foreign rivals.

France Telecom last month completed acquisition of E-Plus, Germany’s third largest mobile phone operator, paying 7.4 billion euros. E-Plus has 3.6 million subscribers and expects 6 million in 2000.

Mannesmann and Mobilcom, two domestic rivals, continue to build their mobile networks in Germany, while Mannesmann moved across the channel to challenge Deutsche Telekom in the United Kingdom.

Weeks after the German phone company bought the British mobile company One2One, Mannesmann struck back with a highly risky 30.6 billion euro (about $32 billion) bid for Orange PLC, another major UK mobile operator.

And on Oct. 20 MCIWorldcom announced that it had completed its 3,100 kilometer fiber optic network in Germany, offering German firms swift and direct connection among the nation’s major business centers.

The new German network has already been integrated into the company’s pan-European and transatlantic networks. That gives the giant US telco networks in 16 major European cities – three of them in Germany, in Frankfurt, Duesseldorf and Hamburg.

Finally, British Telecom is interested in chipping away at Deutsche Telekom’s domestic ramparts. It owns 45 percent of Viag Interkom, the parent of another telco incubator that hopes to have 1.6 million subscribers in Germany, Austria and Switzerland by year’s end.

Viag, however, is engaged in merger negotiations with another Germany industrial giant, Veba, and should they succeed BT would continue to explore the German market on its own, perhaps by taking control of Viag-owned E-2, Germany’s fourth largest mobile operator.

Deutsche Telekom CEO Ron Sommer is under growing pressure to show a profit now that most of his foreign ventures have turned sour. Sommer has trimmed his foreign appetite, especially in the US market, and is focusing on modest gains in Europe – not easy since the French consider the continent their domestic market.

He is negotiating in Spain, the Netherlands and even in France, and has been telling his majority stockholder – the German government – that his company may be the target of a foreign takeover.

That ploy may sound hollow, however, since MCIWorldcom chief Bernard Ebbers said he wasn’t interested because he’d be buying the German government, not a viable telco.

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