Debate over Sommer intensifies

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

FRANKFURT, Germany (CNN) -- The controversy swirling around Ron Sommer has intensified as politicians and business leaders square off over the fate of the embattled boss of Deutsche Telekom.

German Chancellor Gerhard Schroeder -- who publicly backed Sommer in the past, -- has now washed his hands of the issue, saying any decision to replace the chief executive rests with the company's supervisory board.

"I'm not making any decisions in that matter," Schroeder said during a televised news conference. "The management [of Deutsche Telekom] needs the trust of the supervisory board and it has to be clarified if it has that."

Deutsche Telekom's supervisory board is expected to convene next Tuesday to discuss Sommer's future, although there is speculation a decision could be announced before that meeting.

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The Finance Ministry, which manages the government's 43 percent stake in Deutsche Telekom, has reportedly run out of patience and is demanding that Sommer step down.

However, the deputy head of Deutsche Telekom's supervisory board warned the government not to meddle in the company's business unless it was prepared to renationalise it.

"If they don't want that then they should please keep of it," Ruediger Schulze told Germany's ZDF television on Friday. "No one has been able to show that the manager or the top manager of Telekom has been guilty of failing to act or neglecting anything."

Government looking for replacement

Still, reports this week said the German government is already looking at possible replacements for Sommer.

As many as eight candidates have been approached concerning the chief executive's job, according to reports, but so far no one has agreed to take on the politically sensitive role.

Among those rumoured to be in the running are Michael Frenzel, head of tourism group TUI -- a personal friend of Schroeder -- and DaimlerChrysler executive Klaus Mangold.

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

"German elections will take place in September, and it seems that the weakness in DT's share price could become a political issue," investment bank Merrill Lynch said in a research note.

"In our view, a change in management might facilitate a more aggressive approach to DT's debt reduction programme."

Criticism of Sommer, 52, has been growing since he launched 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.

Revenue and stock price fall

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 two years ago, was worth 12.05 euros ($11.94) at the close of Frankfurt trading on Friday.