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René Obermann was on Monday installed as Deutsche Telekom’s new chief executive as the European telecommunications group signalled he would pursue a similar cost-cutting strategy to his predecessor in a bid to revive its fortunes.
Analysts and bankers saw Mr Obermann as a figure of continuity with Kai-Uwe Ricke, who resigned as DT chief executive after investors led by Blackstone, the private equity firm, complained about the group’s flagging performance. Mr Obermann, who was head of DT’s mobile operations, is expected to implement Mr Ricke’s plans for 32,000 job cuts by 2008, and to outsource a further 45,000, which has provoked conflict with Germany’s trade unions.
Mr Obermann was given “full backing” to implement DT’s restructuring plans, according to one person briefed on the meeting on Monday of the group’s supervisory board that confirmed his appointment.
The person added that Mr Obermann would proceed with the existing plans for job cuts. “It could be a few thousand more or a few thousand less, but it will be essentially the same number,” he said. Klaus Zumwinkel, chairman of the DT supervisory board, said Mr Obermann should focus partly on “raising the share price”.
DT’s shares rose 2.5 per cent on Monday to close at €13.45. The shares have increased by 13.5 per cent in value since Mr Ricke’s appointment in 2002, compared to 34.1 per cent at BT and 69.2 per cent at Telefónica.
DT issued a profit and revenue warning in August, and Mr Obermann said the group had to manage “this difficult balancing act” between cost cutting and improving service to customers.
“We have to turn around every cent twice,” he added.
Blackstone, the private equity firm that bought a 4.5 per cent stake in DT in April, had been pressing for a new chief executive, and wanted consideration of people from outside the group.
It sought assurances that Mr Obermann would proceed with the restructuring plans, said one person familiar with Blackstone. The firm is also pressing for disposal of some of DT’s non core assets, added the person.
Angela Merkel, Germany’s chancellor, said the government had “an interest in the success of Deutsche Telekom”. However, Berlin is wary of massive job cuts at DT that may be needed to revive the group’s share price.
One person close to Peer Steinbruck, the finance minister, said: “If Obermann can cut costs by 40 per cent, he will send the share price soaring. But this is not do-able …politically and it is not do-able legally.”
Mr Obermann is expected to make some management changes. One person familiar with DT said Walter Raizner, head of the group’s fixed-line phone division, was likely to go.