It's Ron Sommer Calling--Again

By Charles Wallace/Berlin Sunday, July 23, 2000
    • It's one of Europe's longest-running business soap operas: Will German phone giant Deutsche Telekom finally take the plunge in the U.S. market? Ron Sommer, who heads the $200 billion company, needs a U.S. beachhead to make his former monopoly a global telecom player. And he has $100 billion for acquisitions burning a hole in his pocket.

    Yet Sommer has fumbled a string of proposed corporate marriages. Last year he failed to pry Qwest Communications loose from a merger with US West. Before that he tried to merge with Telecom Italia but lost a humiliating battle to a much smaller Italian rival. In the process, Sommer managed to alienate his partners at France Telecom, torpedoing a four-company alliance.

    Just last month, when Sprint's proposed merger with WorldCom was blocked by antitrust regulators, Sommer sent a marriage proposal to Sprint, where he already has a 10% stake. No dice. The plan was immediately attacked by a group of U.S. Senators who vowed to thwart any effort by DT, which is 58% owned by the German government and not exactly renowned for being customer friendly, from taking control of Sprint. Their position has angered the European Union, which calls it a violation of a 1997 global-trade deal and is threatening to retaliate.

    The heat is turning up now because Sommer has turned his affections toward VoiceStream Wireless, reportedly offering $53 billion in stock and cash for the Bellevue, Wash., firm. That works out to a pricey $20,000 per customer, high enough to send DT's stock plunging 9% last week. Still, VoiceStream may be worth it. "To fulfill its global ambitions, Deutsche Telekom needs a stable position in the U.S. market," says analyst Holger Grawe at German bank WestLB, adding that the supply of U.S. companies is limited. DT reportedly hired a Washington law firm last week to lobby Congress. Sommer may be interested in making another pass at Qwest because he still needs a data network in the U.S.

    With 3 million customers, VoiceStream is the largest U.S. wireless service that uses the same GSM standard as European phone companies, making it easier for DT to deliver integrated global services like Internet access on mobile phones. But that won't make it much easier for U.S. customers to roam the globe. While the standard is the same, the frequency isn't. You'll need a dual-band phone, or else you'll have to take the chip out of your phone and put it in a European one to make calls from overseas.