Deutsche Telekom to slash charges as competition bites

TELEPHONE CHARGES are set to tumble in Germany after Deutsche Telekom, the former state monopoly which is Europe's largest phone company, warned that it would introduce "aggressive" price cuts sooner than planned.

The cuts are a response to intense competition for long-distance calls. New companies have successfully grabbed market share from Deutsche Telekom since the market was opened up in January.

Signs that the competition was beginning to bite showed in Deutsche Telekom's third-quarter results, released yesterday. In the three months to September, sales rose just 1.6 per cent.

"The unchanged sales in the third quarter is the result of the loss of market share in long-distance calls to competitors." the company said.

"For this reason Deutsche Telekom will bring forward planned aggressive price cuts in the next few weeks. This will be coupled with acceleration of cost-cutting measures."

The company refused to confirm reports that it planned to slash some long-distance rates by as much as 50 per cent. All changes to Deutsche Telekom's rates have to be approved by Germany's telecom regulator.

Unlike other former state telecom operators, Deutsche Telekom has kept prices high, betting that customers would be reluctant to switch to other providers. This has allowed a brace of aggressive competitors to poach its residential and business customers in the long-distance market.

Analysts have estimated that the company has lost 10 per cent of the long-distance market in the 10 months since competition was unleashed. Some estimates are as high as 30 per cent.

Other companies, such as Mobilcom, Otelo and Viag Interkom (a joint venture partly owned by British Telecom) have all attracted customers.

Meanwhile, local operators such as Colt, the London-listed group, have grabbed market share by targeting large telecom users in major business centres such as Frankfurt.

"Deutsche Telekom's prices are still among the highest in Europe and their competitors, quite rightly, have taken advantage," said Ian Johnston, an analyst at J P Morgan, the investment bank.

Shares in Deutsche Telekom fell 1.4 per cent to 44.75 marks.

The company had more success in attracting companies to its mobile phone and online services divisions. The number of mobile phone subscribers rose by 36 per cent to 5.2m. Customer numbers at T-Online, the internet service provider, rose 26 per cent to 2.4m.