Commentary: Telekom: Bonn Should Stop Sending Mixed Signals

It will be bad news for deregulation in Germany and Europe if Chancellor Helmut Kohl's government continues the way it has started out in privatizing Deutsche Telekom.

Scheduled for 1996, the sale of the huge state-owned phone monopoly to private investors has the potential to become a free-market showpiece. Privatizing Telekom also offers the government an unrivaled chance to set an example of corporate governance, just when German managers are debating the effectiveness of their country's boards.

Yet instead of loosening its grip in the final countdown to privatization, Bonn is increasing its domination of Telekom. That raises questions about whether competitors will find a level playing field in Europe's biggest market.

In the latest sign of Bonn's reluctance to let go, Posts & Telecommunications Minister Wolfgang Butsch chose to pack Telekom's new board of supervisors with political appointees and civil servants. Only five of the 10 directors Butsch had the right to nominate were independent.

Critics also see signs of backsliding in the sudden resignation of Telekom Chief Executive Helmut Ricke three days after Butsch's board changes. Ricke, who spent five years preparing the phone monopoly for privatization, insists that he resigned for "purely personal reasons." Yet speculation continues that he was fed up with political interference. Indeed, shortly after Ricke's departure, Butsch forced out of office Peter Bross, a top telecom ministry official. Bross was chief architect of the telecom liberalization program and a consistent advocate of fast-paced reform.

Kohl's Cabinet then muddied the waters even more: It endorsed Butsch's nomination of Gerhard O. Pfeffermann to the board despite vigorous criticism of the appointment. Pfeffermann certainly knows the telecommunications business. That's just the trouble: He is a top civil servant in Butsch's own ministry, responsible for issuing licenses and approving telecom fees and charges. As the phone industry deregulates and opens up to competition, it will be Pfeffermann who awards licenses to Telekom's new rivals. It's as if a top regulator at the Federal Communications Commission in the U.S. suddenly joined the board of AT&T.

The potential conflicts of interest have led one independent nominee, businessman Tyll Necker, to withdraw from Telekom's board of supervisors. Necker, the retiring head of the Federation of German Industry, had made it a precondition of his participation that Telekom's board should be above suspicion. "Telekom's future competitors," he insists, "must have trust that the regulators are taking a neutral position."

Yet Butsch told reporters he did not see what the problem was and promptly replaced Necker. Others in Bonn did see a problem. Insiders say a working paper circulated in the Economics Ministry at the time of the nominations pointed out the potential conflicts of interest. But it had little impact.

On Dec. 23, Butsch raised eyebrows again. He announced the award of the first license for a Germany-wide mobile-phone network in airplanes--to DeTeMobil, a Telekom subsidiary. DeTeMobil aced out private-sector bidders Mannesmann Mobilfunk of Germany and Britain's Mercury Communications Ltd.

FAVORITISM? Posts & Telecommunications insists DeTeMobil's bid won because it was the best. Maybe. But such actions could arouse the fears of other governments that Bonn is favoring Telekom over local and foreign rivals. Such suspicions will hardly help Telekom as it tries to go global. It wants an alliance with Sprint Corp. of the U.S., but American regulators will only approve the venture if they are convinced Germany is actually opening its markets.

Butsch may be able to call the shots for now, but in the long run he is doing the German economy no favors. Germany needs access to competitive telecommunications services. And the Kohl government cannot allow the perception to grow that mutual backscratching is an acceptable principle in German boardrooms.

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