COMPETITORS COME CALLING FOR DT'S GERMAN BUSINESS

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BERLIN-Sleeping giant Deutsche Telekom has $39 billion in 1993 revenue and the telecommunications market currently in its back pocket. But as the clock ticks toward the deregulation date of January 1998 and international companies gear up to move into its home market, Deutsche Telekom faces its biggest challenge ever in transforming from state monolith to a consumer marketer.

The goal: to defend its home turf against encroachers while expanding outside Germany to become a truly global competitor.

The company took its first step in that direction earlier this month, naming Ron Sommer, the former president-chief operating officer of Sony Europe in Cologne to the chairman's seat. The choice of Mr. Sommer, 45, who had been with Sony since 1986 and had focused there on marketing, distribution and support for 22 European countries, was inspired.

"In Ron Sommer, we have gained an experienced international entrepreneurial personality to manage what will probably be the greatest challenge in German business," said Rolf-Dieter Leister, chairman of DT's supervisory board. Mr. Sommer's reputation as a strong manager with a consumer background sends a clear message to potential rivals that DT means business.

And the rivals are many. Posts and Telecommunications Minister Wolfgang Boetsch said last month that Germany would place no limits on the number of new participants it licenses for telecommunication services, unleashing no less than 29 competitors.

A number of companies with global muscle are lining up, including British Telecom, uniting with German utility company Viag AG; Canada's Northern Telecom, in an alliance with Daimler/Benz Aerospace and German conglomerate Mannessman, already a powerful rival and a force to be reckoned with in mobile phones.

At stake is the $52 billion in revenue analysts expect DT to have under its belt by the year 2000. Germany, the largest market for telecommunications in Europe, is expected to post a growth rate of 8% in the category annually and to eclipse the automobile business as the country's largest industry.

But the biggest reason for multinationals' interest in Germany is its accessibility to the rest of Europe. European Union economists predict the continental telecommunications market will reach $150 billion this year and soar to $265 billion by the year 2000.

But DT will also have to make a major shift to provide more service to customers and carve out competitive rates.

"Telekom is a monopoly that is overstaffed and has a hell of a long way to go, but it also has a lot of time to restructure and they have pledged to slim down their employment rolls and the unions will cooperate," said an analyst close to the privatization deal.

Unlike its more modern foes, DT doesn't offer itemized phone bills without a hefty surcharge for the privilege. Toll-free call volume is extremely low and underdeveloped, with DT handling 110 million toll-free calls in 1993, the equivalent of two days' traffic in the United States for AT&T, which handles only 50% of the U.S. long distance service.

Moreover, a June 1994 study from Tarifice/Omnicom.Stevenage, a U.K. research company, of multinationals operating in European capital cities found that DT charged twice as much for its services as British Telecom in the U.K.

As the competition nears, the price gap is becoming more apparent among DT and its new competitors, particularly in the business service sector, which contributes 50% of the state company's revenue. Commerzbank, Germany's third largest bank, has already made the switch to WorldPlus, an AT&T subsidiary. "We save 25% with WorldPlus," said a spokesman.

DT will start price cutting in 1996 but only by 5% a year through 1998.

Another uphill battle will be to communicate the new responsiveness of DT to the public. The company started in January a ubiquitous image advertising campaign in newspapers, magazines and outdoor media from Speiss, Ermisch and Andere, Dusseldorf.

The ads have a space-age feel with the DT initials portrayed in a futuristic manner. The company uses several agencies for separate product-related efforts, particularly Lintas, Hamburg.

Advertising a new image isn't enough. DT will have to change its internal workings as well. A relic of its state ownership, 62% of its already bloated workforce are civil servants who can't be fired and are entitled to pay and benefits determined by the German government, not the company. But DT estimates it can eliminate 170,000 posts by attrition and retirement by the end of the century.

DT, meanwhile, is also setting its sights beyond Germany, teaming with France Telecom to buy 20% of Sprint, the No. 3 U.S. long distance carrier, for $4.2 billion. That deal, proposed last year, is still under scrutiny by the U.S. Federal Communications Commission. That comes on the heels of the December 1993 deal between DT and Ameritech to acquire 30% of Hungarian state telephone company Matav.

Privatization may also help the telecommunications giant move faster. An initial stake of about 20% of DT will be sold to investors next year and is expected to raise about $10 billion in the biggest stock offering in German history.

Even if DT doesn't change quickly, odds are that the company will retain its leadership in Germany, at least for the time being. DT's revenue is forecast to reach $52 billion by the year 2000, according to Deutsche Bank Research.

And history shows that privatized government entities tend to retain their strangleholds. Deutsche Bank figures DT can hold onto 73% of its market by the year 2001.

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Headquarters: Bonn

1994 sales: $45.5 billion

1993 sales: $39 billion

Leadership: Ron Sommer, Chairman

Director of Marketing: Matthias Weber

Ad spending:

Recent successes: Together with France Telecom, DT acquired a 20% stake in U.S. long distance carrier Sprint and separately owns a 30% stake in the Hungarian state telephone company toegther with

Ameritech.

Challenges: Weather new competition from 29 major carriers when the German market fully opens in 1998; upgrade its monolithic image among consumers; cut prices to be more competitive; expand internationally.

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