French, German Telco Alliance Declared "Dead"

Make no mistake about it, the Franco-German affair between the two countries' major telecommunications companies is over.

France Telecom SA today confirmed that it will sell its two percent stake in Deutsche Telekom AG -- currently valued at about US$2 billion [B] -- and has publically stated that the erstwhile partnership between the two companies is dead.

Separately, Spanish Telefónica de España SA denied rumors today that it is in merger talks with Deutsche Telekom AG.

Deutsche Telekom and France Telecom last November each purchased a 2 percent share in one another to strengthen their existing alliance. France Telecom paid 8.2 billion [B] francs (at the time, roughly US$1.5 billion [B]) for 2 percent of Deutsche Telekom, based on a discounted price per share from an average taken before the deal was completed.

The once rosy partnership between the two former state monopolies took a turn for the worse in April, when Deutsche Telekom launched a failed bid for Telecom Italia SpA without first informing its French partner. France Telecom responded with an arbitration suit, claiming breach of contract.

France Telecom can't sell its Deutsche Telekom shares immediately because of clauses in the original share purchase, said spokeswoman Estelle Rozine, but will be able to do so some time next year. "It depends on how the value of the stock goes, but the idea is to recuperate our investment," she said.

The French carrier's chief financial officer, Jean-Louis Vinciguerra values the shares at about $2 billion [B], she added, confirming that Vinciguerra told a German paper that the cooperation between the two companies is "dead."

Deutsche Telekom spokesman Hans Ehnert said his company has no comment on France Telecom's actions. Deutsche Telekom's decision whether or not to sell its shares in France Telecom will be independent of any action on the French company's part. "We make such decisions based on shareholder value," Ehnert said, declining to comment further.

As far as the future of the companies' joint venture -- Global One Communications Inc. -- is concerned, Rozine noted that "it's a distinct company" with its own agenda and future. "Global One has nothing to do with this," she said. "The unfortunate thing is that we are partners with someone in whom we no longer have confidence."

Global One is an alliance between Deutsche Telekom, France Telecom and Sprint Corp., which offers voice, data and IP-based services primarily to multinational business customers. The venture is said to have been losing more money each year since its creation in 1996 and in March had to deny rumors that the alliance was about to collapse.

Last month, Global One's president and chief executive officer Gary Forsee said he'll leave the company's top job, as just the latest in a series of events that has sparked speculation that the alliance is on its last legs.

France Telecom, meanwhile, also continues with its international expansion. Yesterday the French company announced its purchase of a $1 billion [B] stake in telephone and cable network operator NTL Inc. in an effort to consolidate its market share in the U.K. telecommunications arena. In other news on Monday, the company announced that Itineris, its mobile phone service, now has 7 million [M] subscribers or nearly half of the French market.

Separately today, Telefónica spokesman Edward Hollin this morning denied rumors of merger talks with Deutsche Telekom. Deutsche Telekom's Ehnert said his company has no comment on rumors.

A deal with Telefonica would hardly be out of character for Deutsche Telekom, given that its chairman, Ron Sommer, has openly stated his intentions to acquire companies outside of Germany. The carrier also has the means for expansion: last month a Deutsche Telekom share offering brought in some 11 billion [B] euros (US$11.5 billion [B]), which will be used both to increase Deutsche Telekom's competitiveness and to expand its international presence, the carrier said.

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