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Deutsche Telekom CEO Calls for Network-Cost Sharing

Rene Obermann, chief executive officer of Deutsche Telecom AG. Photographer: Denis Doyle/Bloomberg
Rene Obermann, chief executive officer of Deutsche Telecom AG. Photographer: Denis Doyle/Bloomberg

Feb. 29 (Bloomberg) -- Deutsche Telekom AG, Germany’s largest phone company, said joint investments in laying cables are necessary to remain competitive as Europe’s debt crisis threatens profit at the region’s telecommunications operators.

Deutsche Telekom, which last month agreed to lease fiber lines connecting wireless base stations to Telefonica SA’s O2 unit in Germany, is open to teaming up with other competitors as declining revenue and high investments are hurting profit margins at the fixed-line business, Chief Executive Officer Rene Obermann said in an interview at the Mobile World Congress in Barcelona.

Bonn-based Deutsche Telekom has budgeted 10 billion euros ($13.5 billion) to improve its German network for the three years through 2012, including investments in a faster wireless system based on the long-term evolution technology. Obermann joins Vittorio Colao, CEO of Vodafone Group Plc, in calling for the sharing of investments as regulators balk at consolidation.

“Significant co-investments particularly in the fixed-line business are even more important than the wireless side,” Obermann said yesterday in an interview with Bloomberg Television. “Wireless still has better returns from revenues than fixed lines given the huge investments to deliver upgrades in fixed lines.”

Financial Pressure

Telecom Italia SpA, Italy’s former phone monopoly, is also considering cooperating with rivals to relieve the financial pressure brought by a shrinking national economy, its CEO said.

“Whatever makes sense from a commercial point of view, whatever makes sense in terms of sharing costs should be looked at carefully,” Franco Bernabe said yesterday. “We definitely don’t rule out looking very deeply at the most advanced level of cooperation. That’s already being done and can be improved.”

Telecom Italia added 0.4 percent to 88 euro cents at 9:35 a.m. in Milan. Vodafone slipped 0.8 percent to 171.05 pence on the London exchange. Deutsche Telekom gained 0.7 percent to 8.87 euros in Frankfurt.

Deutsche Telekom, which failed to sell its U.S. wireless business to AT&T Inc. last year, is struggling to prop up profit as T-Mobile USA requires additional investments and most of the company’s eastern European units lose customers as governments implement austerity measures.

’Resistance’

Investments must be shared by all industry players from the top phone operators to content providers and customers, Obermann said, adding that amortization of those investments is getting more difficult as more efficiencies are sought.

“We have an increasing need of capital investments and we also have an increasing need for efficiency because customers won’t pay endless amounts of money for connectivity,” the CEO said.

Vodafone, the world’s largest mobile-phone operator, also operates fixed-line networks in three of its largest European markets, Italy, Spain and Germany.

“There is still a resistance to the concept of open networks, not in mobile but in fixed networks,” Colao said this week, referring to the three countries.

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

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

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