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December 7, 2006

Deutsche Telekom shakes up management team again

The new CEO of Deutsche Telekom AG told investors this week that he intends to stick to the restructuring plans of his predecessor Kai-Uwe Ricke, and has reshuffled the board at the German carrier.

By CBR Staff Writer

Rene Obermann, the 43-year-old former head of T-Mobile, was appointed as chief executive of the entire group last month after Ricke resigned when he failed to gain the necessary support from shareholders disillusioned at falling profits, the dramatic loss of fixed-line customers, and continued delays to a 3.3bn euro ($4.38bn) cost-saving plan to cut 32,000 jobs by 2008, a move which immediately put Ricke into conflict with workers’ representatives on the board.

Obermann has inherited the same problems that Ricke faced, and will have balance the demands of two sets of shareholders. On the one hand are the trade unions that have a powerful presence on the supervisory board, and on the other are shareholders such as private equity group The Blackstone Group, which earlier this year purchased a 4.5% stake, and the German government, which still has a 32% stake in the carrier. It is thought that Ricke left after he lost the support of the latter set of shareholders.

Meanwhile, Obermann has begun to make his mark. Two executives have agreed to step down from the board. The head of personnel, Heinz Klinkhammer, has gone, as has the head of DT’s fixed-line unit, Walter Raizner.

Interestingly, Klinkhammer was the man dealing with Germany’s powerful unions, mostly notably the Ver.di services union, which has been behind most of the recent protests at the carrier over the job cuts. Raizner on the other hand was the man in charge of the unit (T-Com) that has lost more than 1.5 million fixed-line customers so far this year.

There is no replacement for Klinkhammer, whose role will be handled in the meantime by the CFO Karl-Gerhard Eick. Raizner has been replaced by Timotheus Hoettges, a sales and service executive with the fixed-line unit. Hoettges not only assumes responsibility for the broadband/fixed network strategic business area, but also for sales & services at T-Com and T-Mobile in Germany.

The former CTO at T-Mobile, Hamid Akhavan, has been appointed head of T-Mobile, to replace the role vacated by Obermann when he took over the top job.

Those who know me better know that I attach a great deal of importance to hiring the right people for management positions, said Obermann. Total customer orientation, entrepreneurial thinking, and innovative strength are particularly important to me in the new management of Deutsche Telekom. And these are present in abundance in my new team.

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Obermann wants to end divisional thinking at the carrier and wanted to define DT as one company with centralized decision-making. This is the second set of management changes at DT in the space of four months. In September Ricke had implemented a number of management changes to turn around the company’s fortunes in its domestic market.

Obermann said he is sticking to Ricke’s plans to cut costs by 5bn euros ($6.65bn) by 2010 and outsource 45,000 staff to various subsidiaries. Ricke announced these plans a week before he was ousted, and the cost savings were to be achieved by cuts in DT’s marketing budgets, and forcing units to share more resources.

The size of the workforce is one of Obermann’s most pressing problems. At the end of 2005, it was a massive 243,695. By June 2005 it had risen 2.6% to a fraction under 250,000, and then at the end of September, the workforce once again rose even further to 250,483 in total.

To make matters worse for Obermann, about a third of the workforce are civil servants, a throw-back to the privatization of the carrier in the 1990s. This means that under law, these civil servants cannot be fired, hence Ricke’s (and now Obermann’s) plans to move them to other subsidiaries.

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