Veba AG, Germany’s biggest electricity generator and energy conglomerate, has its sights set on becoming the country’s second largest provider of telecommunications services, a goal that has analysts excited and executives at the nation’s carrier Deutsche Telekom AG frightened out of their wits. Veba, through its fledgling wholly-owned subsidiary Vebacom GmbH, is the first company to challenge Telekom’s monopoly grip on telecommunications infrastructure. Vebacom, founded in March 1994, is Germany’s only challenger with a functional infrastructure already in place. Indeed, analysts point out, if the German market were to be liberalised before 1998, Veba, through its Vebacom subsidiary, would be the only player in a position to offer a full range of telecommunications services. In 1994 Vebacom reported a turnover of some $315m and had a total workforce of around 1,000. Telekom’s profit and loss calculations were based solely on the premise that it would hold on to its cash-cow infrastructure business, notes Gartner Group vice-president Gerhard Sundt. Vebacom’s entrance, Sundt says, has changed all that. Ulf Bohla, chairman of the Vebacom management board, says his company’s goal is two-fold: to offer a full range of services and to put intelligence into its existing network. Having the infrastructure is not enough, Bohla says.
Head start
But, since applications and networks are converging, he adds, Vebacom does have a head start on competitors because it does not have to take the time to build its network from scratch. When the (Postal) ministry gives the signal we and our partners are ready to go, Bohla says. More important, Vebacom has a stake in the three key telecommunications areas: cellular telephony, corporate networks and telephone cable. Veba holds a 28.3% share in Germany’s third largest digital mobile telecommunications provider, E-Plus. It also has a 40% share in MiniRuf and 10% in Infomobile and a 15% share in Bouygues Telecom SA, all of which give Veba the capacity to offer users low-cost paging systems and cellular telephony. Through its 100% subsidiaries Concepta, Tele Colu mbus AG and Helvesat, as well its 32% share in Cablecom, it operates cable television networks in Germany and Switzerland. With the help of Meganet (75%) and INAS (100%), Veba ranks high among Germany’s corporate network providers. The company also holds a leading position in the value-added services sector through its 75% stake in Lion, a communications software house. In September 1994, Veba agreed to invest $140m in a 10% stake in the Iridium Inc global satellite mobile telephony consortium, in return for exclusive rights to market its services in much of northern and western Europe. Iridium, led by Motorola Inc and whose shareholders include Raytheon Co, Lockheed Martin Corp and Sprint Corp, plans to start launching its network of 66 low earth orbit satellites next year. Iridium’s goal is to offer mobile telephone services starting 1998 enabling subscribers to call worldwide using the same handset and number. In addition, Veba recently cemented its plans to co-operate with the federal railway operator Deutsche Bahn and applied for a Postal Ministry licence to supply a limited customer base with specialised services. The companies plan to form a joint enterprise to lay transmission lines along the rail and power supply networks. Finally, in January 1995, Veba and Cable & Wireless Plc signed a Memorandum of Understanding to combine the contintental European telecommunications activities of both companies. At the European level the joint venture will be known as Cable & Wireless Europe. In Germany the company will remain simply Vebacom. While Veba owns 55% of the venture and oversees management of the firm, Cable & Wireless will bring to the venture a much-needed inroad into the international business arena.
By Peggy Salz-Trautman
Other agreements to date are statements of intent, Bohla says. Ours is an alliance for the purpose of international business. Proof that both companies mean bu
siness is the fact that they are merging their most valuable assets, Bohla adds. Cable & Wireless Europe has said it will invest around $3,700m on the continent over the next decade. Parent company Veba also shook Germany’s complacent telecommunications market when it announced that the group plans to invest $4,500m in its telecommunications division between now and 2003. Analysts expect the venture to secure a 10% share of Germany’s telecommunications market – implying turnover of some $6,000m. The strategy it (the group) follows, Sundt stresses, is one of high risk and high reward. Worldwide, Bohla says, the aim is to connect to other carriers. In the UK, France and Germany, Bohla says, the venture is pretty well covered. Cable & Wireless, he adds, also has a superior presence in Asia. The problem, however, remains North America. The proper way to establish a strong international presence will be to develop self-sustaining businesses and to achieve synergies, Bohla notes. This approach will enable Vebacom and Cable & Wireless to maintain the elasticity necessary to react to changes in deregulation and guarantee international access and know-how. The question of how liberalisation of the German market will progress is still open – and one that Bohla charges has not been satisfactorily addressed by the telecommunications authorities. It is a critical issue, and what I have seen in documentation to date is devoid of any critical concern. While there is discussion of licensing on the basis of geographic regions or on the basis of specific telecommunications services, there is no clear indication as to what extent competition will be permitted nor is there any decision on the number of telecommunications carriers that will be licensed. Amid this confusion, Vebacom’s position is clear. It would be a disaster to deregulate only a part of Germany, Bohla says. That would effectively cut Germany off from the rest of the market because customers are interested in global services and global carriers. In short, such a move would be parochial and unacceptable, Bohla says. A player must be chosen, Bohla adds, who is in a position to serve a global market. Regional licences or insisting on fundamentally wrong criteria for competition would result in a period of turmoil never seen before, he warns. Until the course of deregulation is clear, Vebacom will continue to build up its presence and expertise in telecommunications services, ranging from telephony to private networks. A test bed of the Vebacom strategy is a pilot multimedia project called Infocity that is claimed to be unique in Europe. Although the members and the actual project management are yet to be named, companies including content provider Bertelsmann AG have already signed a memorandum of understanding. Other interested partners include Apple Computer Inc, Digital Equipment Corp, L M Ericsson Telefon AB, Nokia Oy, and Philips Electronics NV. A final list will be released in July. Participants in the project commit themselves to contribute know-how, rather than just make investments. You can’t just buy everything, Bohla says. Manpower and experience are important contributions.
Future-oriented
The project will concentrate on providing multimedia services to some 10,000 private and professional users throughout the state of North Rhine Westfalia, a densely populated state with diverse consumer demands. Provided the Postal Ministry grants the necessary permission, Infocity will begin operations in 1996. Bohla is confident the project will get the nod from the ministry, a development that would give the company a chance to develop attractive services and products long before the Telekom monopoly ends in 1998. Although no details have been released, Vebacom engineer Harro Welzel says Infocity is the most future-oriented project of its kind. It will go beyond video-on-demand to encompass information-on-demand, Welzel says. It will support personal computers as well as television set-top boxes and provide an Internet connecti
on. Universities, hospitals as well as companies and private individuals will have access to data other pilot projects have ignored. It will support home-based training, medical diagnoses and other truly innovative services, Wenzel says. Simple video-on-demand is limited in its appeal: Infocity is putting information in the hands of people that can really use it.
