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To: Ian@SI who wrote (10835)	4/15/1999 9:29:00 PM
From: Glenn McDougall	Respond to of 18016

Competition at Home Pressures Deutsche Telekom to Expand Abroad By Marc Young German Correspondent 4/15/99 3:51 PM ET thestreet.com Like the schoolyard bully who runs away when he meets his match, Deutsche Telekom (DT:NYSE ADR), Germany's former telecommunications monopoly, is looking to other sandboxes. Engaged in a bruising price war with new, spry competitors, Telekom announced Thursday that it would try its chances abroad and sell close to 300 million new shares to make foreign acquisitions. Its shares promptly slid almost 8% to 38.1 euros in Dax computerized trading. Although the company has yet to name an overseas target, analysts say domestic market conditions leave Europe's largest telecom little alternative. Telekom was slow to react as its rivals snatched nearly a third of its long-distance business, and it didn't realize until the end of last year that it would have to slash prices to stanch the flow of customers it was losing. German consumers, cautious by nature, were lured into leaving the familiarity of Telekom by scrappy new competitors that heavily undercut DT's long-distance charges. Successive price cuts by the nimble upstarts like MobilCom, Mannesmann Arcor, TelDaFax and O.tel.o eventually prodded Telekom to chop rates by as much as 60%. The pain from DT's drastic cuts is now making itself felt. In addition to the share sale, Deutsche Telekom announced first-quarter net income had stalled at just over 1 billion marks ($570 million), and sales had dropped 7% in the first three months of the year. It could be worse, however. Some players have found they no longer have the stomach for the domestic slugfest. Two German utilities, RWE and Veba, sold O.tel.o to Mannesmann Arcor for 1.1 billion euros ($1.2 billion) two weeks ago. The purchase makes Mannesmann's unit the clear challenger to Deutsche Telekom's fixed-line services, as O.tel.o is in the process of building its own nationwide fiber-optic network, with the aim of taking on Telekom head to head. MobilCom, which has been one of the most successful new long-distance companies, and other similar firms continue to damage DT's bottom line, even without their own infrastructure. They piggyback their service onto Deutsche Telekom's network, enabling even reticent consumers to permanently switch providers to get in on the savings. "Things are tough in Germany -- they're losing market share. With the extra proceeds from the capital increase, they can look instead to do things abroad," says James McCafferty, a telecom analyst for SG Securities in London. McCafferty maintains a hold on the German giant. The sale of the new shares is likely to take place before the summer and has the potential to raise up to 11.8 billion euros ($12.7 billion) for the company. Although the U.K.'s Cable & Wireless (CWP:NYSE ADR) has surfaced as a potential takeover target, some analysts say Deutsche Telekom might choose to look to the U.S. market for acquisitions, after Sprint (FON:NYSE) said last month it wanted its Global One joint venture with DT and France Telecom (FTE:NYSE ADR) reworked. At the end of the day, wherever Telekom's foreign adventures take it, management will most likely just be relieved it's away from the cruel realities of the domestic market.