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October 23, 1995

RWE BRAVELY TALKS OF GOING IT ALONE IN GERMAN TELEPHONY BUT AT&T WAITS IN THE WINGS

By CBR Staff Writer

While competition for a stake in Germany’s attractive and lucrative telecommunications market has sparked a series of strategic alliances, RWE AG, Germany’s largest utilities and energy conglomerate, is convinced it can go it alone. The only player without an international partner, RWE left Communications Network International GmbH recently, saying it did not need membership in the alliance to apply for licences to provide telecommunications services and networks in Germany. Although RWE has formally cut the ties, RWE chairman Dietmar Kuhnt has indicated his company may market network access to the newly-formed alliance (CI No 2,745). In August the consortium, a telecommunications provider made up of blue-chip companies Mannesmann Eurokom GmbH, Germany’s leading engineering and telecommunications group and Deutsche Bank, the country’s most powerful bank, signed a letter of intent with Unisource NV and AT&T Corp. Unisource has said it will form a joint venture with AT&T Corp called Uniworld. Analysts speculate that Communications Network will become a sort of distributor in Germany for Uniworld services.

Limited experience

A newcomer to the telecommunications market, RWE, through its fledgling wholly-owned subsidiary RWE Telliance AG, is determined to emerge the country’s number two telecommunications provider, Kuhnt said. While he refuses to reveal the total amount of telecommunications investments, RWE sources say the company expects RWE Telliance turnover to rise to $1,350m by 2000. For the period ending June 30, RWE reported a total turnover of $42,200m, up from $3,720m the previous year. To date RWE’s network covers around 40% of Germany. The goal, Kuhnt said, is to cover the whole country and not just major centres. To close the know-how gap between itself and its competitors, RWE has introduced an excellent hiring strategy, said Karlheinz Huber, managing director of the Frankfurt-based telecommunications consultancy Intercai GmbH. What they don’t have… they buy, Huber noted. Since it was founded in September 1994, RWE Telliance has attracted executives and engineers from telecommunications and technology companies including Deutsche Telekom AG, DeTeMobil GmbH, Siemens AG and IBM Corp. RWE also has gathered limited experience in the telecommunications market through its service provider Talkline GmbH, its radio communications company Terrafon GmbH & Co KG, its satellite communications provider Teleport Europe GmbH, its consultancy Lahmeyer Informationstechnik GmbH, its paging service Miniruf GmbH and its 38.5% stake in Gesellschaft fur Datenfunk mbH, a company formed to construct and market networks and telecommunications services. In May RWE went outside the German market to take a 10% stake in Austrocom Telekommunikationsdienste GmbH, a consortium that has applied for Austria’s second cellular licence. RWE also caused surprise late last month with news that it would be taking a 12.5% stake in computer manufacturer and retailer Escom AG (CI No 2,760).

By Peggy Salz-Trautman

Escom, which bought the rights to the Amiga multimedia personal computers, has 450 stores throughout Europe. Thanks to its last new shareholder Siemens-Nixdorf Informationssysteme AG, Escom has also increased its know-how in the areas of development and marketing, analysts note. The partnership, Kunht said, is a milestone because it will enable the company to expand further into the market for multimedia services and products. RWE has already applied for a licence from the Postal Ministry to launch a three-year multimedia pilot project called Multimedia Gelsenkirchen. If granted, RWE will use its network to provide services such as video-on-demand, teleshopping, telebanking and telelearning to the residents of the city of Gelsenkirchen. Through this alliance we also expect greatly to strengthen our marketing activities (of such services), said Volker Hoffmann, RWE Telliance board member. Hoffmann added it is a step that will take his company a long way to becoming a leading competitor to Telekom after market liberalisation. In return for selling RWE a 12.5% stake, Escom would receive the green light to take over around half of RWE’s service provider and telecommunications retailer Talkline. The deal would enable Escom to expand its offerings to include distribution of telecommunications and on-line services. RWE, Huber said, is wise to concentrate its energies on the German market at precisely the moment it is ready to bust. Indeed, energy companies have a new and increased importance and independence now that Post Minster Wolfgang Btsch’s has announced the decision to grant licences for both infrastructure and services. Before this announcement, companies were convinced they needed to guarantee both infrastructure and services and formed alliances which included players covering both areas. Now that the minister has changed his mind energy conglomerates like RWE realise they can market their networks and leave the services to telecommunications companies. The minister also surrendered last month to European Commission pressure to permit cellular operators to rely on alternative networks long before the 1998 deadline set for complete liberalisation of the German telecommunications market. While RWE is large, wealthy and owns more than 2,680 miles of cable covering over 40% of Germany, it would do well not to wait the pace of market deregulation, said Peter-Thilo Hasler, telecommunications analyst at the Munich-based Bayerische Vereinsbank. If any company can make it alone… it can, but it shouldn’t insist on trying, he said.

Necessary calm

Indeed, RWE will be facing a long line of alliances of established ventures including Communications Network. The chemical and utility company Veba AG is involved in cellular networks in Germany and France and has a 10.5% stake in Cable & Wireless Plc, steelmaker Thyssen AG is forming a joint venture with BellSouth Corp, German railway company Deutsche Bahn AG has indicated its intention to turn its nationwide network into one that supports telecommunications and utility, and energy conglomerate Viag AG has teamed up with British Telecommunications Plc. While RWE maintains it does not directly need an international ally, Kuhnt said he will examine the necessity of a global partnership with the necessary calm. He is negotiating with a number of telecommunications providers, including AT&T. This partnership, analysts suggest, would be an ideal partner and a coup for RWE. After all, an analyst at Dresdner International Research said, AT&T is in principle still free to choose. The agreement with Communications Network, though impressive, is vague and far from final. AT&T wants to use its ties with Uniworld to distribute its services but is not interested in direct equity in the venture. As a result, AT&T still needs an inroad into the German market – and RWE still needs an international partner.

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