The European Commission started anti-trust proceedings against Deutsche Telekom on Wednesday. This spells more trouble for chairman Ron Sommer. He is already under pressure because Telekom shares have hit all-time lows.
At Telekom's last shareholder meeting, chairman Ron Sommer faced heavy criticism
The European Commission has opened anti-trust hearings against Deutsche Telekom. The former monopolist is accused of abusing the control it still maintains over local telecommunications networks in Germany.
Brussels says the fees Deutsche Telekom charges its competitors for access to its networks are illegally high. The European Commission believes Telekom is trying to squeeze out its rivals by offering cut-price services to consumers.
If found guilty, the German telecommunications giant could face a punitive fine of up to ten percent of its annual turnover. Telekom has two months to react to Brussels's charges.
Added pressure on Telekom chairman Ron Sommer
The European Commission's anti-trust hearings have further increased the pressure on Telekom chairman Ron Sommer. There are already rumors that he could be on the way out because of the bad performance of Telekom shares.
On Tuesday, Telekom's shareprice fell to an all-time low. It recovered slightly on Wednesday, but it's still well below its issue price.
When the stock was issued in 1996, it sold at 14 euro and 30 cents. It later peaked at over 100 euro. On Tuesday, the share price slid as low as 12.38 before it bounced back later in the day.
From boom to bust
When Telekom went public in 1996, the issue of the shares was preceded by an omni-present advertising campaign. Telekom ran TV and radio commercials with popular German stars. And newspaper advertisements and gigantic billboards across the country brought the message home even to those Germans who didn't watch TV.
The campaign was extremely successful: millions of Germans bought Telekom shares. For many of them, it was the first time they invested in the stock market. And since the markets were booming in those days, it seemed to them like an easy way to make money quickly.
Now that share prices have caved in, these Telekom shareholders are extremely disappointed. And they see Ron Sommer (photo) as the man responsible for the bad performance of Deutsche Telekom shares.
This week, rumors surfaced that even the German government is losing confidence in Telekom chairman Ron Sommer. The government holds a 43 percent stake in Deutsche Telekom.
It just might start to put pressure on Ron Sommer to start looking for a new job before his contract expires in 2005.