Sommer: An executive under fire

Sommer: Blamed for Deutsche Telekom's huge debt and plunging stock price

FRANKFURT, Germany (CNN) -- Ron Sommer, the embattled boss of Deutsche Telekom, could be the next high-profile European executive to fall from grace.

For weeks, rumours and speculation have been swirling that Sommer will soon resign or be pushed out -- the possible victim of his ambitious drive to acquire other companies and diversify the operations of the German telecoms giant.

Sommer -- like Jean-Marie Messier, the recently deposed chief executive of the world's second-largest media group Vivendi Universal (PEX) -- is under pressure to slash debt, piled up during his buying spree, return Deutsche Telekom (FDTE) to profitability, and halt the plunge in the company's share price.

"People loved egotistical aggressive chairmen in the rise of the TMT [technology, telecom and media] bubble and the acquisitions they made. The strategic moves they made were applauded across the sector," Andrew Moffat, an analyst at ABN AMRO, told CNN.

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"Unfortunately, we've gone into a bear cycle... people have been focussing on the traditional metrics of earnings generation and dividend yields, and those guys really aren't cut out for that."

Sommer's time at the top could come to an end as early as next week.

There have been reports that the German Finance Ministry, which manages government's 43 percent stake in Deutsche Telekom, has demanded that Sommer step down. Government officials -- including Chancellor Gerhard Schroeder -- have refused to comment on those reports.

There is also speculation that Deutsche Telekom's supervisory board will meet next Tuesday to discuss Sommer's future. "The whole issue around Sommer and the debate around him will have to be discussed," a source close to the board told Reuters.

Sommer, 53, has reportedly said he has no intention of quitting and is annoyed that his future is being discussed publicly.

A company spokesman declined to comment on the possible meeting when contacted by CNN on Wednesday.

Criticism of Sommer has been mounting after a multi-billion dollar spending spree to acquire U.S. mobile phone operator VoiceStream and high-speed mobile phone licences to operate high-speed third-generation (3G) services across Europe.

However, the introduction of 3G services has been delayed by weak demand and the global economic slowdown.

Deutsche Telekom is now labouring under a debt of 67 billion euros and has been looking to sell some of its assets to reduce debt. Sommer has pledged to reduce the debt to 50 billion euros by the end of 2003.

But debt is not the only problem facing the group.

In May, Deutsche Telekom posted its sixth quarterly loss as pretax profit at its fixed-line business halved. The loss widened to 1.8 billion euros in the first three months of this year from 358 million euros a year ago.

Another issue is the timing of the flotation of Deutsche Telekom's mobile phone unit, T-Mobile. The initial public offering, which is expected to raise 10 billion euros, was already delayed once last year and now is not expected before November this year.

However, Sommer has maintained that the timing of the flotation would depend on market sentiment in order to get a good value for T-Mobile.

"We don't have to make an IPO for financial reasons. We would like to do it for strategic reasons," Sommer told CNN in an recent interview.

"When the market recovers, and at one point it will recover, we will be ready and we will do it," he said. "We will not do a fire sale on the backs of our shareholders."

Deutsche Telekom's debt reduction plan also includes the sale of its cable television assets.

A 5.5 billion euro bid by Liberty Media of the U.S. was blocked in March by German regulators after Liberty rejected a demand that it upgrade the cable networks faster than originally planned.

Deutsche Telekom's stock, which peaked of about 104 dollars two years ago, was up 2 percent to 11.55 euros at midday Frankfurt trading on Wednesday.