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Deutsche Telekom Extends CEO’s Contract Until 2016

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Deutsche Telekom CEO Rene Obermann
Rene Obermann, chief executive officer of Deutsche Telekom AG. Photographer: Jacob Kepler/Bloomberg

Dec. 16 (Bloomberg) -- Deutsche Telekom AG, Europe’s largest telephone company, extended Chief Executive Officer Rene Obermann’s contract by five years so he can see through a growth program that runs until 2015.

“We will use high-speed networks and innovative products to tap new growth areas for the group, offsetting the decline in the tightly regulated areas,” Obermann said in a statement today. “The next few years are all about pushing ahead with the transformation of Deutsche Telekom.”

Obermann’s contract was extended today by the supervisory board until the end of October 2016. The CEO, 47, said in March that the sales mix will change “significantly” in the years to 2015. The company aims to make money from increasing data traffic on smartphones and other devices that can surf the Web, to make up for a decline in sales from fixed line services.

The company’s “Strategy 2.0” plan calls for businesses that in 2009 accounted for less than a quarter of sales to contribute nearly half of revenue by 2015.

“This is clearly a vote of confidence,” Heike Pauls, a Commerzbank AG analyst, said via phone. “It’s good that they ensure continuity in management in light of their longer-term targets, which by the way I think are quite ambitious. I’m rather skeptical that they can reach them.”

Since Obermann was appointed CEO on Nov. 13, 2006, Deutsche Telekom shares have lost 27 percent. Germany’s benchmark DAX index rose 10 percent in the same period. Today, the stock rose 0.2 percent to 9.84 euros in Frankfurt trading.

U.S. Subsidies

Obermann “combines an understanding of the market with determination and the will to strike a balance between different interests,” Deutsche Telekom supervisory board Chairman Ulrich Lehner said in today’s statement.

Deutsche Telekom said last month that third-quarter operating profit and sales dropped as the company had higher costs to win U.S. clients.

Obermann has increased subsidies for mobile phones in the U.S. to lure customers from rival networks. The T-Mobile USA unit was late in offering smartphones and in rolling out a faster network, losing customers to Verizon Wireless and AT&T Inc., which offers Apple’s iPhone.

In Germany, Deutsche Telekom has offered Apple Inc.’s iPhone to attract customers. The company was the sole operator for the iPhone in Germany until local rivals started selling the device.

Obermann’s new contract is subject to new regulations on management board remuneration that were approved at the shareholders meeting in May 2010, the company said.

Investigation

The Bonn prosecutor’s office said today it has so far found nothing incriminating against Obermann in an investigation into alleged bribery in Hungary and Macedonia. The prosecutors declined to comment on a report by Rheinische Post that the probe will be closed soon.

The case, which is also being investigated by U.S. securities regulators and the U.S. Department of Justice, concerns Deutsche Telekom units in Hungary and Macedonia. The prosecutors are investigating whether bribes were used to prevent Macedonia from opening the nation’s telecommunications to competition and raided the private homes of Obermann and other people in late August.

There are claims Obermann told the CEO of the Makedonski Telekom unit he would only approve dividend payments if the nation’s telecom market remained closed, Manfred Balz, Deutsche Telekom’s management board member for legal affairs, told reporters in September.

Balz said at the time that the allegations against Obermann are false and that he expected the probe against him to be closed “swiftly.”

Obermann is one of eight suspects in the investigation. Deutsche Telekom spokesman Mark Nierwetberg declined to comment on the probe via phone today.

To contact the reporter on this story: Ragnhild Kjetland in Frankfurt at rkjetland@bloomberg.net

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net

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