Forgiveness is better than revenge. That, at least, should be the view of those who think that Deutsche Telekom is getting T-Online on the cheap. As the chances of a legal challenge to the buy-out proposal are small, such deluded souls should sell their shares in the internet service provider whenever the price is above Telekom's cash-offer and invest the proceeds in Telekom itself.

There are problems with this approach. On any sane standard, T-Online is hardly a bargain and too small to have much of an immediate impact on Telekom's valuation. The bigger concern is that Telekom has yet to come up with a good reason for the move. As with most European incumbents, the crux of Telekom's domestic fixed-line woes is that revenues look set to decline faster than it can cut costs. T-Online's brand-name might help to sell pay-TV through phone lines. But Telekom's plans look sketchy and Germany is an extremely difficult market for premium TV. The regulator is also likely to force Telekom to offer any bundled offerings on a wholesale basis, which would further erode the financial benefits.

The contrast with France Telecom, which has put young Turks from the more innovative parts of its empire in charge of its internet business, is stark. While Monday's sale of a 6.3 stake in Telekom by state-owned development bank KfW should ease overhang fears for the medium term, Telekom has a lot to do to justify a re-rating.

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