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Author: Dan Bieler
13 November 2006
Deutsche Telekom's CEO Kai Uwe-Ricke announced on Sunday evening that he is to step down from his post at Deutsche Telekom with immediate effect, almost exactly four years after his appointment and one year ahead of the end of his contract. His successor is likely to be appointed today. T-Mobile's CEO Rene Obermann is a front-runner.
Comment: Ricke fell mainly over three interrelated issues: first Deutsche Telekom has lost significant ground to competition in its domestic market, both fixed and mobile. Second, Ricke caused irritation amongst staff and the unions over his headcount reduction programme. Third, the share price remains below the issue price of its 1996 IPO. Divisional infighting further undermined the course.
The German government still maintains a 30% stake in Deutsche Telekom. In this sense, the position of CEO at Deutsche Telekom is a partly political appointment, particularly as far as headcount reduction programmes are concerned. Ricke's successor will not be able to circumnavigate this issue unless the government decides to reduce its stake any time soon. Trying to adjust Deutsche Telekom to the changing market forces and technological trends whilst not upsetting the labour force is like trying to make a circle square.
Staffing levels is just one aspect that explains the poor performance of Deutsche Telekom. The belated response to ever tougher domestic competition is in our view a key reason for the problems the firm faces. Deutsche Telekom only reacted to this pressure this year, with a home-zone and mobile-flat rate and convergent offers, which was too late for millions of former Telekom customers who turned to the competition.
Rene Obermann is set to take over at the helm of Deutsche Telekom. Obermann, like Ricke before him, is part of Ron Sommer's legacy and is CEO of T-Mobile, as Ricke also was before taking on the top position. The Supervisory Board claims that the choice of Obermann will secure continuity. We find this argument odd. Why replace the CEO if you are looking for continuity? This move seems to be one that promotes discontinuity.
Be that as it may. The new CEO will have little more room for manoeuvre than Ricke. Given the new product portfolio and changes to the delivery and sales channels, the focus must now be on a mammoth task: the migration towards a next-generation network environment (NGN). This migration requires the complete overhaul of business processes away from the traditional focus on fixed and mobile towards a focus on actual tasks, such as access and application and service provision.
This shift is likely to usher in the demise of the existing three pillar structure and give rise to a consumer and business customer orientation. Significant further staff reduction is also likely. The honeymoon period for the new CEO could be short lived.
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