The purchase of the Otelo phone business from the German utility companies RWE and Veba will intensify the competition between Mannesmann, already one of the most formidable players in German telecoms, and the former state monopoly Deutsche Telekom, analysts said. Mannesmann overtook Deutsche Telekom as mobile phone market leader seven years ago, but it still lags behind the former monopoly in fixed-line communications.
Mannesmann announced late on Thursday evening that its Arcor unit was paying 2.25 billion deutsche marks (pounds 750m) for Otelo's fixed-line business. The deal includes Otelo's 400,000 customers, its 2,800 employees, its brand name and the on-line service germany.net. However, it excludes both Otelo's 60.25 per cent stake in the cellular business E-Plus and its cable unit, TeleColumbus.
"The network structure and customer bases of Arcor and Otelo complement each other well," Arcor said in a statement.
Veba said it would now focus its telecommunications activities on mobile services, and that E-Plus would reach profitability next year. Industry sources said Veba and RWE were considering using the Otelo proceeds to buy the 17 per cent E-Plus stake owned by the UK mobile group Vodafone.
The deal follows intense speculation about the future of Otelo, which was rumoured to have attracted a number of potential suitors.
Before Mannesmann's announcement on Thursday night, there had been widespread reports that the newly listed telecoms group Debitel was close to clinching a deal with Veba and RWE. Earlier, Mobilcom, another rising German carrier, said it had broke off talks with the two utilities.
The acquisition marks the second time Mannesmann has beaten German rivals in the race for a key domestic network. In 1996, it beat several bidders to a stake in the telecommunications network owned by the German railway. That gave Arcor the second largest fixed network in the country after Deutsche Telekom.