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Angry Shareholders Confront Telekom CEO

With shares in Deutsche Telekom tanking, the company's stockholders take Ron Sommer to the mat over a string of expensive acquisitions and a general decline in the core business of Germany's biggest telecoms provider.


Little to smile about: Telekom CEO Ron Sommer addresses shareholders.

At a general meeting of 9,000 angry shareholders in Cologne on Tuesday, Deutsche Telekom's CEO defended his track record at the helm of Germany's largest telecommunications company.

Ron Sommer announced write offs of more than 16 billion euro ($14.8 billion) relating to the purchase of the American mobile communications firm Voicestream and other expenditures as well as an expected loss of 6.7 billion ($6.2 billion) euro this year, twice last year's loss. The company will also cut 22,000 jobs, mostly through attrition.

Sommer has been under intense pressure over the past year to boost Telekom's share price, which has fallen 32 percent since mid-April, and is currently well below its issue price of 14.32 euro ($13.29). The company's shares were once hailed as the people's choice. After the meeting, Telekom shares rose 0.9 percent to 12.56 euro ($11.64).

Mr. Minus

The man who has been dubbed "Mr. Minus" by the media is now facing the music before his shareholders.

Losses in the billions and a decimated dividend have been hard enough to swallow, but it's a salary raise of more than 50 percent for Telekom head Sommer and top management that has left a bitter taste in shareholders' mouths.

"It's an affront," said one male shareholder. "They dont need that money to live on."

"I'm completely dissatisfied with him," offered female shareholder. "What I really want to know is whether he plans to leave of his own free will or whether we have to throw him out."

Die Telekom auf der Cebit 2002 in Hannover

But Sommer so far hasn't given any signs of stepping down. Instead, he's fighting back - talking down the company's mountain of debt and defending outlays in the billions to buy American mobile phone company Voicestream and UMTS mobile phone spectrum licenses in Germany.

"With these investments in the mobile phone and systems solutions sectors, we made massive downpayments on our future," Sommer told shareholders. "And in so doing, we were fully aware that this would lead to us having to report losses in the short term."

"The industry made mistakes"

But exactly when Telekom will start turning a profit again remains to be seen.

"The industry made mistakes, and we have not always seen everything correctly. Our estimation of a drop in prices through the extreme de-regulation proved to be a incorrect. That was something that simply couldn't be foreseen in this dynamic," Sommer said.

Motorola A820 UMTS Handy

But competition hasn't been the only reason behind Telekoms plumetting share price. Analysts say the 39 billion euro ($36 billion) Sommer paid for Voicestream was excessive. And the 8.4 billion euro ($7.8 billion) purchase of UMTS licences contributed to the company's debt load, which now has reached a staggering 67 billion euro ($62 billion). Indeed, that's one area both analysts and Telekom agree on: Ron Sommer has to reduce this debt burden.

"He has to address the bottom line. That means he has to reduce costs in order to raise cash-flow," says Birger Schäfermeyer, a New York broker. "That's the only was he will be able to decrease the debt load."

Decline in core service

Another reason for the company's recent stock plunge, analysts say, is that Telekom's traditional land-line business is only generating half its former profits. The land-line business will face even further competition when local networks are opened up to independent operators.

But shareholders did not appear to buy the explanations provided by Telekom's management.

"The AGM (annual general meeting) is a disappointment. Fund managers are refusing to approve the executive board's strategy and blame Sommer for the company's woes," one trader said. "The AGM (annual general meeting) is a disappointment. Fund managers are refusing to approve the executive board's strategy and blame Sommer for the company's woes," one trader told the news agency Reuters.

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