Telefonica Picks Price-Cutting Maverick Dirks for Germany

By naming Thorsten Dirks to lead its enlarged business in Germany, Telefonica SA (TEF) is putting the country’s biggest mobile-phone company by customers in the hands of a maverick known for discounts.

Dirks, the 51-year-old chief executive officer of Royal KPN NV (KPN)’s E-Plus unit that Telefonica is buying, has undercut Deutsche Telekom AG and Vodafone Group Plc for years with 20 euro-a-month ($27) voice and data packages. He also bet on niche brands focused on students and ethnic minorities, such as Ortel and Ay Yildiz.

“He’s been in the market for an eternity and has turned E-Plus into a major player,” said Paschalis Choulidis, CEO of virtual operator Drillisch AG, a competitor which agreed last week to acquire 30 percent of Telefonica’s network capacity to help seal the takeover. “He knows what he’s doing.’

Telefonica yesterday won European Commission approval for its 8.55 billion-euro deal to buy E-Plus, combining the third-and fourth-largest German wireless operators. The acquisition gives Madrid-based Telefonica some relief from headaches over business in Brazil, its second-biggest market.

The Spanish carrier is struggling to meet demands by the Cade regulator to resolve conflicts of interest in Brazil with Telecom Italia (TIT) SpA. Telefonica owns a stake in Telecom Italia, which is one of its main competitors in the country. One way is for either company to give up its local holding.

Photographer: Jasper Juinen/Bloomberg

Thorsten Dirks, chief executive officer of Royal KPN NV's E-Plus unit. Close

Thorsten Dirks, chief executive officer of Royal KPN NV's E-Plus unit.

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Photographer: Jasper Juinen/Bloomberg

Thorsten Dirks, chief executive officer of Royal KPN NV's E-Plus unit.

Pushing Margins

In Spain, Telefonica is acquiring a cable television broadcaster to strengthen its position amid a battle for market share that has pushed the domestic mobile-phone industry’s profit margins down. Regulators told the carrier last month it had to cut how much it charges other Internet providers for the use of its fiber infrastructure.

Dirks, who wasn’t available to comment yesterday, is set to head the German operations following a completion of the deal targeted for the third quarter. He will work alongside Telefonica Deutschland Holding AG (O2D) Chief Operating Officer Markus Haas and Chief Financial Officer Rachel Empey.

‘‘It’s a great sign of strength for the new business that we have gained such top leaders,” Empey said on a conference call. “We picked managers from both companies so we can leverage their assets and become the leading digital telecommunications provider in Germany.”

Staff Lunch

Dirks, who is married with one son, mingles with staff for lunch at the E-Plus headquarters in Dusseldorf and tells employees they can call him on his mobile phone anytime, according to a person who has worked with him for years.

An electrical-engineering graduate, Dirks has worked in the phone industry for almost 30 years. He joined E-Plus in 1996, at a time when mobile telephony got under way in Germany, and was promoted to CEO in 2007. As board member of KPN in charge of international wireless operations, he helped the company dispose of assets in France and Spain.

Under his leadership, E-Plus focused on winning customers on a budget, helping it almost double its client count to 25.5 million. That left Telefonica’s German unit sandwiched in a market segment between the market leaders and E-Plus.

Dirks’s strategy to lure customers with low-price offers has come at the expense of profitability. Earnings before interest, taxes, depreciation and amortization accounted for 30.1 percent of sales last year, down from 37.9 percent the year before and 42.4 percent in 2011.

Cash Generation

Telefonica Deutschland shares rose 0.7 percent to 6.30 euros at 9:09 a.m. in Frankfurt. Its parent company was little changed at 12.56 euros in Madrid. KPN added 0.2 percent to 2.59 euros in Amsterdam.

As Telefonica pulls even with Germany’s traditional market leaders, it will rely on Dirks to show he can also bring in cash, said Stephane Beyazian, an analyst at Raymond James in London.

“The issue was that in Germany the business wasn’t cash-generative enough in a relatively difficult four player market,” Beyazian said. “If they deliver on the synergies they will have a much stronger cash-generative asset.”

To contact the reporters on this story: Cornelius Rahn in Berlin at crahn2@bloomberg.net; Rodrigo Orihuela in Madrid at rorihuela@bloomberg.net

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

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