In Duisburg, in the heart of Germany's Ruhr valley, steelmaker Thyssen forges 10 million tons of steel sheets a year. But 15 miles away in Dusseldorf, the 103-year-old, $22 billion giant is trying something new--running a mobile-phone network. Chief Executive Dieter H. Vogel says that by 2010, telecom and related services may outstrip steel as the company's primary source of revenues. "We're putting our stake in the ground now," says Hans-Peter Kohlhammer, head of the new telecommunications division. "In 10 years, this industry could be bigger than autos. We'll invest whatever it takes."
Thyssen isn't alone. Old-line companies all over Europe are investing billions to transform themselves into tomorrow's telecom giants (table, page 122). They come from construction, water, chemicals, energy, rail, and steel, but they want to participate in what's becoming the world's largest industry. By 2005, market researcher Arthur D. Little Inc. estimates, telecom revenues will total $516 billion in Europe, vs. $390 billion for autos.
The size and deep pockets of the new players mean trouble for Deutsche Bundespost Telekom, France Telecom, and Telecom Italia. Instead of thinly capitalized startups, the phone monopolies face Europe's industrial giants. And the new players have impressive partners, including savvy foreign telecom companies such as the seven Baby Bells, which can bring knowhow, money, customers, and industry contacts. "Whatever we do, it will be with knowledgeable partners," says Kohlhammer.
"WRENCHING." Already, Thyssen has teamed up with German energy conglomerate Veba, BellSouth, and Vodafone to build Germany's third digital cellular network. Computer maker Olivetti has Bell Atlantic, German machinery maker Mannesmann, Pacific Telesis, and Sweden's Telia on board to launch Italy's second mobile network.
When these combines swing into action, "It will be wrenching" for the phone monopolies, says Kathy Burrows, senior industry analyst at market researcher Dataquest Europe Ltd. They stand to lose 15% of their markets by 2000, she figures. In Britain, where limited competition has existed since 1984, British Telecommunications PLC's share has fallen to 83% and could hit 75% or less by 2000.
The threat has finally galvanized the monopolies, which face a 1998 European Union deadline to open their markets. They are racing to cement international alliances, cut costs, and develop new multimedia services. None is hustling more than Deutsche Bundespost Telekom. It plans to start privatizing in 1996 by selling shares worth up to $12 billion. It's charging into the private corporate network market for multinationals via an alliance with Sprint and France Telecom. It has spun off units for such networks and for cellular phones, and it is leaping into multimedia with Europe's largest interactive TV pilot. "We are not waiting until 1998," says management board member Carl-Friedrich Meissner.
Changes are long overdue. Graham Hanson, British Telecom's director of strategy in Europe, says Germany and France "missed the boat" by not deregulating sooner, cutting staff, and launching new businesses. As a result, they "will suffer a much greater loss of market share," says Hanson.
The battle is already on in less-regulated markets such as cellular and private networks. In France on Oct. 7, a consortium led by construction giant Bouygues won the bid to run a third cellular network. In Germany, Mannesmann Mobilfunk and Thyssen's satellite service, Spaceline Communication, compete with the monopolies. The cities of Cologne and Dusseldorf are building their own networks to bypass Deutsche Telekom. "There's a gold-rush mentality," says Volker Hoffmann, chief executive at RWE Unitel, a subsidiary of $6.6 billion RWE Energie, a German energy conglomerate.
RWE already has 9,000 miles of phone lines and can reach more than 50% of the German population. It has upgraded a third of its network with fiber optics and is investing $1 billion to become the No.2 telephone company in Germany by 2000. In October, RWE Unitel purchased Preussag Mobilfunk for $259 million, netting 100,000 cellular customers as well as paging and satellite services. With Deutsche Bank and Mannesmann, it has launched corporate private network services, a venture that is expected to generate revenues of $60 million in 1994. RWE may also join Teledesic, a proposed $14 billion satellite project.
Even more ambitious are the plans of German oil, chemical, and energy conglomerate Veba. Germany's fourth-largest company, it aims to invest $4 billion in telecom over the next 10 years. Veba has an agreement with the German Federal Railway to lay fiber-optic cables along its tracks to challenge Deutsche Telekom. Both Veba and partner Thyssen own 28% stakes in Germany's third cellular operator, E-Plus Mobilfunk. Veba is a partner of Bouygues in the new French cellular network, and its telecom subsidiary, Vebacom, paid $160 million for 10% of Iridium, a global satellite telecom group led by Motorola Inc.
The monopolies are doing what they can to slow the revolution. They are stalling deregulation and using their clout to get a leg up in such new markets as cellular. France Telecom, for one, is using the high access fees it charges rivals to dominate the French mobile-phone market.
But once markets are truly open, the monopolies, saddled with a civil-service mentality, may be hard-pressed by the new rivals. "We simply have to be better and more customer-friendly," says RWE Unitel's Hoffmann. In Europe, that battle cry is long overdue.
THE NEW PLAYERS BOUYGUES: French construction company, with Cable & Wireless, Veba, and U S West, will invest up to $3 billion in a new cellular network. COMPAGNIE GENERALE DES EAUX: French water company invests $2.9 billion in a digital cellular network. RWE ENERGIE: German electric utility spending $1 billion to expand its telecom network. VEBA: German energy conglomerate investing $4 billion in a fiber-optic network, cellular services, and satellite services. THYSSEN: German steelmaker will spend "whatever it takes" to become Germany's No. 2 telecom operator by 2000. ENERGIS: British electric utility is investing $400 million to launch a telephone service on Britain's electricity grid. DATA: BUSINESS WEEK