German fixed line incumbent Deutsche Telekom (DT) has revealed plans to reintegrate its internet unit T-Online, which it floated four years ago, with its own fixed line operations. It announced plans for a statutory merger with T-Online at the weekend, which will guarantee it 100% ownership; it currently holds 73.93% of the unit. The process will involve an exchange of DT shares for T-Online shares, and the operator has also decided to offer T-Online shareholders the option of a cash offer of EUR8.99 per share, should they prefer to sell their shares now instead of waiting for the completion of the merger. The deal will cost DT around EUR2.9 billion, one of its biggest transactions in years. When the deal is completed, expected by the second half of 2005, T-Online will be merged with DT’s fixed line unit T-Com, enabling the company to provide a triple-play offering of bundled voice, internet and TV services to customers. DT has witnessed rapid growth in its broadband services in recent years, and hopes that the tie-up will help it to capitalise on this.
Like many of its European neighbors, Germany has found that the internet is increasingly fuelling the revenues of fixed line operators, with an estimated 39 million people over the age of 14 using the internet on a regular basis, equivalent to 55% of the age group. Although around 80% of Germany’s estimated 23 million ISP subscribers currently use narrowband connections, the tide is turning and requests for broadband access rose 40% in 2003 to around 4.6 million. In May 2002 the European Commission (EC) launched an attack on DT, claiming that it was deliberately stifling competition in the broadband sector by maintaining high prices for local loop access and accusing it of abusing its dominant position. This led RegTP to take additional measures, reducing the costs for alternative operators. Since then the broadband market has seen competition intensify, with DT’s share gradually being eroded by an ever-increasing number of competitors – from 95% in 2001 to 92% one year on, and 89% by end 2003.