Position:CEO, T-Online International
Contribution: He put Europe's biggest ISP in the black
Challenge: Keep growth going with new sources of revenue, such as fee-based online music, video, and games
Deutsche Telekom raised a few eyebrows in late 1999 when it named Thomas Holtrop to head T-Online International, the German phone giant's Internet-access service. Holtrop was a fortysomething banker and a member of the management board of Deutsche Bank's Bank24 retail division. What did a guy in a pinstripe suit know about the Internet?
Turns out, he knew more than people gave him credit for. T-Online, Europe's biggest Internet service provider, crossed a milestone in the second quarter when it reported a small profit of $28 million before interest, taxes, depreciation, and amortization. The quarterly net loss was $46 million on sales of $361 million.
Still, that performance was enough for investors to start thinking of T-Online as a real business, not just a Net startup. "You're no longer valuing them by the number of subscribers and page views," says analyst Christopher Watts, who covers T-Online for Metzler Equity Research in Frankfurt. "You're now actually able to value them as a business generating cash flow."
LONG REACH. Holtrop's real test is still to come, though. As with all Internet services, the trick now is to open up new sources of revenue. Subscriber fees are vulnerable to fierce competition, while advertising revenue has declined for most media. To grow, T-Online and its peers must get customers paying for more of the information, services, and entertainment they get over the Internet. "The industry is in a phase of fundamental transformation," Holtrop said in a recent speech.
No one, including Holtrop, thinks the transformation will be easy. But T-Online may have a few advantages. One is its reach -- 9.5 million customers in Germany, far more than any other competitor. Moreover, parent company Deutsche Telekom is rolling out broadband access faster than any other telecom in Europe, with 2.3 million customers already signed. Holtrop and most analysts are convinced that superfast Net connections will allow providers to offer high-quality games, videos, and music that subscribers will be willing to pay for.
T-Online can charge subscribers via their Deutsche Telekom phone bills, an important advantage in a country where many people don't have credit cards. And that's where Holtrop's background as a banker may come in handy.
HELPING HAND. Investors aren't quite ready to storm back into Net shares. Metzler's Watts notes that T-Online still isn't giving investors a clear breakdown of its advertising and paid-content revenue, which together account for about 20% of the total. Moreover, Deutsche Telekom is still by far T-Online's biggest advertiser, and the parent also boosted T-Online's bottom line this year by buying a mobile Internet venture for $26 million.
Still, in a business where profit is almost a foreign concept, T-Online under Holtrop is starting to look like an e-business you can take to the bank. By Jack Ewing in Frankfurt