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November 10, 2005

Deutsche Telekom accuses Spain over unfair subsidiaries

In a sign that Deutsche Telekom AG will not easily forgive Spanish telecoms giant Telefonica SA for its acquisition of UK-based mobile operator O2 Plc for 17.7bn pounds ($31.3bn), it accused Madrid of unfairly subsidising foreign acquisitions by Spanish companies.

By CBR Staff Writer

According to the Financial Times, DT is studying whether any help over tax in the takeover of O2 by Telefonica SA contravened EU law.

DT chief executive Kai-Uwe Ricke said Telefonica’s ability to write off the goodwill of the planned 26bn euros ($30.53bn) deal thanks to exceptional Spanish tax rules highlighted Europe’s skewed competitive environment, and was an important factor in deterring DT from making a counter offer.

He also cited price and potential regulatory difficulties in the FT article.

Deutsche Telekom believes that Telefonica will be able to write off goodwill of 11bn euros ($12.92bn) against tax bills and reduce payments to Spain’s exchequer by 4bn euros ($4.69bn) or 15% of the price for O2, the FT said.

Telefonica’s move for O2 came months after DT was forced to denied reports that it is still interested in acquiring the UK operator. At one stage, it was considering a partnership with the Dutch carrier Royal KPN NV, to lead a takeover bid for the operator.

O2’s move to Spanish ownership now allows Madrid, Spain-based Telefonica to realise its long-held ambition to break into the highly competitive UK market as well as to re-enter Germany. Telefonica abandoned Germany in 2002 after failing to build a third-generation mobile operation there.

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