The incumbent German telecoms operator Deutsche Telekom AG is in trouble. It has seriously missed the mark with its global strategy, with yearly profits up 84% at $1.8bn, short of the doubling of profits predicted by the company in May, and the news brought a 4.5% fall in the share price to $16.29. Telekom also warned that profits may be further reduced if the financial situation is Asia worsened, and its investments in the region have dropped in value by a frightening 75%. The reason for the failure was laid at the door of less than expected revenues from international ventures, especially the joint venture Global One, which also swallowed further investment of $586m. Telekom chief executive, Ron Sommer, has reacted quickly to try and fix the problem by firing the International Director Erik Jan Nederkoorn, who has left having only served two years of a five year contract. He was originally hired as a key executive in February 1996 to revitalize the ex-state sector monopoly company. He is the second key executive to leave in three months after Lothar Hunsel stepped down from mobile phone subsidiary T-Mobil, after it failed to catch market leader Mannesmann AG’s Mobilfunk GmbH. The company’s main problem is international telecoms venture Global One, the joint venture with Sprint Corp and France Telecom SA, which is expected to make a loss of around as $280m in 1997. The monolith, which has been used to recouping vast revenues from the lucrative German market without hindrance, is now facing the attack of a number of competitors. As soon as the European telecoms market was deregulated on January 1, Telekom managed to become involved in a sordid squabble with the new telecoms regulator over charges to new competitors, a possible sign that the company has inadequately prepared for European and international competition. Long-term, Telekom is hoping for international investments to produce revenues of around $7bn of its $36.6bn yearly revenues, but this target now looks wildly optimistic.
