Deutsche Telekom CEO Rene Obermann to Step Down End 2013

Deutsche Telekom AG (DTE) announced the surprise departure of Chief Executive Officer Rene Obermann at the end of 2013, capping a seven-year tenure at the helm of Germany’s largest telephone company.

Chief Financial Officer Timotheus Hoettges, 50, will assume the additional role of deputy CEO in January and fully take over from Obermann in 2014, the Bonn-based company said today after a meeting of its supervisory board. Obermann, 49, requested to step aside so he can return to entrepreneurial pursuits, the company said.

The decision came less than three months after Deutsche Telekom agreed to merge T-Mobile USA, a unit Obermann previously oversaw, with MetroPCS Communications Inc. (PCS) In Europe, a three- year debt crisis has left Deutsche Telekom struggling to return revenue to growth and this month forced the carrier to follow peers such as Telefonica SA (TEF) and France Telecom SA to cut its dividend.

“At some point, you have to let go: It’s part of the cultural change at this company that such a process is not carried out with a great splash but rather in an orderly manner,” Obermann said on a conference call. “I’m not sick of my job, I still got a year here and you can only do that if you’re fully committed to the job.”

Worst Performers

Deutsche Telekom shares gained 0.5 percent to close at 8.63 euros in Frankfurt. They have lost 2.7 percent this year and fallen about a third since Obermann took over from Kai-Uwe Ricke in November 2006. The company, whose biggest shareholder is the German government with a 32 percent stake, has a market value of 37.3 billion euros ($49.4 billion).

Telecommunications stocks were the worst-performing industry group in the Stoxx Europe 600 Index this year. Phone companies have to spend billions of dollars to upgrade networks while regulations in the region make it more difficult for carriers make money from users of smartphones and Internet services.

Explaining his decision to the supervisory board today, Obermann cited his frustration with efforts to get regulators to rethink the rules for the industry, said a person familiar with the matter who asked not to be named because the meeting was private.

Hoettges’ Role

By the time Obermann departs, he will have been with the Deutsche Telekom for 16 years, 11 of those as a management board member. The change will allow Obermann, whose current contract runs out in 2016, to “move closer to operational activities than would otherwise be possible for the CEO of an international corporate group and take on even more entrepreneurial activities,” Deutsche Telekom said.

Hoettges has been with Deutsche Telekom since 2000 and was credited for halting a slide in market share for the Internet business as head of the German fixed-line division.

He became the CFO in March 2009 and in that role, he was involved in the creation of the U.K. wireless venture with France Telecom (FTE), resolving a shareholders’ dispute over its Polish unit, and most recently in negotiating a sale of T-Mobile USA to AT&T Inc. (T) -- which was opposed by regulators -- and then the October merger with MetroPCS.

Obermann and Hoettges pledged this month, at an investor conference in Bonn, to return Deutsche Telekom to sales and profit growth by the end of 2014. That plan comes at the cost of 30 billion euros of network spending over the next three years, and a 29 percent cut in dividend over the period.

In the U.S., T-Mobile wants to return to growth by 2015, a challenge which will mean outselling Sprint Nextel Corp. (S) and nabbing customers from market leaders Verizon Wireless and AT&T.

Cable Rivalry

At home, Deutsche Telekom is trying to defend its fixed- line market share against cable providers including Liberty Global Inc.’s Unitymedia KabelBW. The carrier this week submitted a plan to Germany’s network regulator that would allow it to speed up existing lines and trim the pace of costly optical-fiber construction.

“I’m surprised as Obermann presented the company’s strategy on Dec. 6 and he’s now preparing to exit the company,” said Frederic Boulan, a London-based analyst at Nomura International. “But at the same time he’s been at the company for a long time and managing Deutsche Telekom is a tiring and demanding job. It will be a very smooth transition and I don’t think the overall strategy will change.”

ABC Telecom

Obermann joined Deutsche Telekom in 1998 and became a board member as well as head of T-Mobile in 2002. While he built the U.S. mobile division into Deutsche Telekom’s fastest-growing unit in the early years by offering e-mail devices such as the BlackBerry, the division is now struggling to halt customer losses to AT&T and Verizon Wireless.

Obermann’s career began when he co-founded ABC Telekom, a retailer of answering and fax machines, as a 23-year-old student at the University of Muenster in Germany. He ran the company from his apartment and later rented a 60-square-meter office with a double garage. At the time, ABC had several retail outlets and about 20 franchise retailers.

Hong Kong billionaire Li Ka-Shing’s Hutchison Whampoa (13) Ltd. bought ABC in 1991, after the company had grown to 20 million deutsche marks ($13 million) in annual revenue and 60 employees.

“The German business back then wasn’t that big and glamorous, but he was a real fighter,” Canning Fok, Hutchison’s managing director since 1993, said of Obermann in a 2005 interview.

When Obermann took over as Deutsche Telekom chief in 2006 at age 43, he was the youngest among the 30 CEOs of companies on Germany’s benchmark DAX Index. His total compensation last year was 3.27 million euros, data compiled by Bloomberg showed.

“I want to be closer to the basics, closer to the engine room, if you will,” Obermann told reporters today.

To contact the reporters on this story: Cornelius Rahn in Berlin at crahn2@bloomberg.net; Manuel Baigorri in Madrid at mbaigorri@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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