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René Obermann, Deutsche Telekom chief executive, on Wednesday staked his reputation on reaching the telecoms group’s earnings target this year after surprising investors with a profit warning at the weekend.
“Another correction would not only be disagreeable but also very, very damaging,” Mr Obermann said, although he stressed the new management team was “very confident” that new target would be met.
The new chief executive’s public comments chime with opinions of top executives, voiced privately, that this year will determine whether Mr Obermann will succeed in turning the troubled telecoms company around.
Two months after taking the helm, Mr Obermann on Sunday said fierce competition and stubbornly high costs would squeeze Telekom’s profit by up to €1.2bn this year, lowering once-forecast earnings to €19bn.
The scale of selling of Telekom stock by investors and the ferocity of reactions from analysts appear to have taken Mr Obermann by surprise, although colleagues said this only showed the tough task facing the chief executive.
“Before [Sunday] I would have said René has a year to prove that he can do it,” one Telekom official said. “Now I think he needs to present [signs of a turnaround] in a matter of months.”
Adding to Mr Obermann’s difficulties is the fact that he still has no personnel chief to lead potentially explosive talks with labour representatives about outsourcing 45,000 staff to lower-paying service subsidiaries.
The chief executive said no candidate had yet been “finally found” and warned the process would “take a while”. Unions and shareholders on the supervisory board clashed over an initial nominee in November.
Mr Obermann and his team have spent the past eight weeks combing through Telekom’s financial data, and he plans to present a new strategy to boost service and sales as well as cutting costs at the start of March.
The financial review has led executives to complain internally that initial forecasts for 2007, made by then-chief executive Kai-Uwe Ricke, were “perhaps a bit too optimistic”, as one Telekom official said.
Mr Ricke had already started a new sales and service initiative in autumn. But the German government and private equity group Blackstone, Telekom’s largest shareholder, forced him to quit in November.
Mr Obermann on Wednesday blamed worse-than-expected sales of some new products introduced last year for the profit warning. In addition, competition this year was “markedly more aggressive” than expected.
But he said the German market for high-speed internet services was being divided up now, and Telekom had to invest money and accept lower profits this year in order to shore up market share for the future.
Deutsche Telekom shares were 16 cents lower at €13.42 in afternoon Frankfurt trading.