Deutsche Telekom Seeks to Dominate East Europe Markets

Deutsche Telekom AG, fresh from a string of acquisitions, plans to become the market leader in all of its central and eastern European markets by 2018 as it buys assets and upgrades networks.

“There will be a big revolution in every country” as the carrier blends landline and mobile networks to deliver improved phone and Internet services to win customers, Claudia Nemat, who heads European operations outside Germany, said in an interview in Macedonia’s capital of Skopje.

Deutsche Telekom has returned to buying assets outside its home country as Chief Executive Officer Timotheus Hoettges bets on a rebound in demand from the Baltic Sea to Crete. The target for dominance means the company will have to increase market share in countries including Romania and Poland and step up challenges to rivals such as Orange SA and Polkomtel Sp. z o.o., which is owned by billionaire Zygmunt Solorz-Zak.

The German company agreed this week to buy out minority shareholders of its Czech unit for $1.1 billion. Bonn-based Deutsche Telekom also offered to buy an additional 10 percent stake in Hellenic Telecommunications Organization SA from Greece, people familiar with the talks said last month. Nemat declined to comment on plans for further acquisitions to support her strategy.

Deutsche Telekom rose 0.3 percent to 12.09 euros at 2:03 p.m. in Frankfurt, taking the advance to 43 percent in a year.

Music Streaming

Macedonia is Deutsche Telekom’s first European market where all customers, on landlines or mobile links, send voice and data traffic through a unified digital infrastructure. The shift to this “all-IP” network improves voice quality and allows users to upgrade connection speeds and push up data caps at the click of a mouse. Customers can also instantly book and receive additional services such as music streaming.

“I always compare this process to the transition from horse carriages to cars,” Nemat said. “It’s fundamentally a different type of technology and production model. This has huge advantages for customers but also cost and time to market.”

The new technology gives Deutsche Telekom potential for savings, Heike Pauls, an analyst at Commerzbank, said in a phone interview today.

“It’s a credible strategy that leaves room to significantly cut costs,” Pauls said. The IP network should make Deutsche Telekom “less vulnerable to macroeconomic elements as it has an excellent way to reposition assets. The target of 2018 is realistic” for the company to achieve these goals, Pauls said.

European Revenue

Deutsche Telekom’s renewed push comes after revenue in the European segment has slid for years, including a 5.8 percent drop in the nine months through September, as consumers struggled with the fallout of the economic crisis. Deutsche Telekom is adding landlines in countries including Poland and the Czech Republic through its agreement in November to buy Warsaw-based GTS Central Europe.

As of December 2012, only Deutsche Telekom units in Greece, Hungary, Croatia and Macedonia were undisputed leaders in their local markets, according to a company presentation.

The company also has to split ownership and cash flow with other shareholders in several markets. Holdings in eastern Europe include a 59 percent stake in Hungary’s Magyar Telekom Nyrt, 51 percent in Croatia’s T-Hrvatski Telekom d.d. and 51 percent in Slovak Telekom AS.

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