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Business

Saving Deutsche Telekom

The new chairman of Germany's telecom giant has an ambitious plan to drastically cut the company's debt by next year. Among the losers will be the company's marketing budget and its employees.

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"T" stands for trouble. Ron Sommer (left) and his successor Helmut Sihler.

After ridding itself of dynamic, but acquisition-happy Chairman Ron Sommer last week, Deutsche Telekom is girding itself for a six-month savings course that aims to cut the company’s 65 billion euro ($64 billion) debt to 50 billion ($49 billion).

Newly-appointed Chairman Helmut Sihler is reportedly confident he can pull off cuts at the beleagured German telecom giant. Deutsche Telekom, like many of its counterparts in the telecom industry, has fallen on hard times after overestimating the growth of the Internet.

Telekom spent billions on telephone licenses and expensive acquisitions, including the 33 billion euro purchase of American mobile phone company Voicestream at the height of the telecom boom.

Now it falls to Sihler, who helped transform a German laundry detergent company into international chemical concern Henkel KgaA, to set the ship right. Details of the plan have already been leaked out to the German newsmagazine Focus.

First on the chopping block, according to the report, is Telekom’s 1.9 billion euro marketing and advertising budget. Sihler and Co. have plans to trim the budget by 400 million euro down to 1.5 billion euro.

Shedding excess baggage

The company then must decide what assets it can sell. Top of the list are Telekom’s television cable network that Denver-based Liberty Media wanted to buy for 5.5 billion euro a few months back. Germany’s anti-trust office blocked that deal and Telekom will most likely get no more than 3 billion for the network now, according to analysts.

Then there’s Voicestream. Last week, Telekom re-launched the Voicestream brand as T-Mobile in Nevada and California. The acquisition of the sixth-largest US wireless company was part of Sommer’s ambition to spread the Telekom brand worldwide.

Now T-Mobile could very well be on the way out. Voicestream has been losing money and customers at a steady clip. After paying 33 billion euro for the company in June 2001, analysts believe Telekom can get, at best, 10 billion euro for it now.

Job losses a reality

Last, but not least, is Telekom’s workforce.

The German company employs 260,000 people worldwide. Focus said the board may trim the German workforce alone by 22,000.

But German law prevents Sihler from cutting too much in this area. At least 25 percent of the former state company are considered civil servants and therefore can’t be fired.

Many would most likely be happy to take the golden handshake Sommer will reportedly get. A recent report in the newsmagazine Der Spiegel said Telekom legally owes the 53-year-old a severance package of close to 15 million euro.

The outgoing Telekom chief reportedly took care of longtime confidant Jürgen Kindervater, the communications chief, as well, extending his contract by an additional five years just before his departure.

The extension, reported in Wednesday's Berliner Zeituung means a big pay-off to Kindervater should Sihler decide to get rid of him before his contract runs out.