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Business

Newfound Hope Keeps Telekom Shares Rising

Deutsche Telekom shares rose by as much as 13% Wednesday as markets responded to the change of leadership. Analysts expect caretaker CEO Helmut Sihler to introduce radical cost-cutting measures.

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Something old, something new: Deutsche Telekom interim CEO Helmut Sihler

Shares in Deutsche Telekom AG rose by as much as 13% on Wednesday as the markets responded to the news of the change in leadership at the German telecommunications giant.

Market experts said the investors were not so much celebrating the temporary appointment of Helmut Sihler to the position of chief executive officer as expressing hopes of better times now that the seven-year reign of Ron Sommer has come to an end.

Traders said large blocks of shares were being traded. Over the past few days, for example, some 40 million Telekom shares had changed hands daily in Frankfurt alone. On a quiet day, combined trading in all 30 titles that make up the Dax-30 blue-chip index often fails to reach this level.

The buyers are tending to be funds, traders continued, particularly hedge funds, who have bet on falling prices and now see the danger that there'll be no reversal in the latest advances in the Telekom share price. This is because two of the phenomena that tend to signal the end of a downwards phase -- strong price fluctuations accompanies by high turnovers -- have been strongly in evidence for some days now.

On top of that, telecommunication funds have been buying up Telekom stock recently. "Anyone who needs telecommunications shares can hardly pass Detusche Telekom by," said Gottfried Heller of Fiduka asset management.

Supervisory-board chief Hans-Dietrich Winkhaus stressed that the interregnum period would bring no change to the group's strategy, with its four pillars of fixed-line telecommunications, mobile communications, information-technology services, and Internet. These, like the company's U.S. business with mobile-communications group Voicestream, were not up for discussion.

But investors are now expecting 72-year-old Sihler to introduce more stringent efforts to cut costs, particularly personnel costs, and reduce Telekom's massive debt mountain. And analysts estimate that he will be able to cut up to 20,000 jobs in the fixed-line services alone.

Meanwhile, Handelsblatt has learned that although Ron Sommer will not be offered a severance package, he will be paid all salaries taking him up to the end of his contract in May 2005, a total of up to 9 million euros excluding stock options. Shareholder-advocate groups said such an arrangement would amount to a 'veiled severance package'.

Sommer, 53, resigned during a supervisory board meeting on Tuesday. But reports suggest that with Telekom shares' dramatic decline in value threatening to become an issue in September's general elections, Chancellor Gerhard Schroeder's government pushed for his resignation. Some three million Germans own Telekom stock.

On Wednesday, the government continued to attract criticism for its apparent interference. In remarks directed at both the governing Social Democratic Party and opposition conservatives, Michael Rogowski, president of the BDI industry federation, said it was wrong for politicians to meddle in business affairs.

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