TELECOM Digest OnLine - Sorted: T-Online Cuts DSL Rate in Half

T-Online Cuts DSL Rate in Half

Lisa Minter (
Wed, 22 Jun 2005 08:50:25 -0500

By Boris Groendahl

Deutsche Telekom's Internet unit is cutting prices for DSL high-speed
Internet access in half to stop rivals, including Vodafone's German
fixed-line arm, eating away its market share.

T-Online International Chief Executive Rainer Beaujean told Reuters in
an interview on Tuesday he would cut rates from July to protect its
and Deutsche Telekom's grip on the lucrative broadband Internet

Vodafone's Arcor unit stepped up an already fierce price war earlier
this month, undercutting T-Online's prices by as much as 80
percent. Rivals and United Internet had cut rates and
increased marketing since March.

T-Online will reduce the monthly rate for its best-selling DSL
flat-rate tariff to 14.95 euros per month, from 29.95 euros for the
current best-selling flat-rate tariff.

"If we notice that our competitors would like to end the price war
they've started themselves, that's the right moment for us to say,
'Here we are,"' Beaujean said.

Germans flocked to sign up for DSL (digital subscriber line) after the
price cuts, and T-Online could not keep up with the pace with its old,
high fees in the second quarter.

"We observe a similar development of our customer base as in last
year's second quarter," Beaujean said. T-Online added 181,000 new DSL
subscribers in the second quarter of 2004, fewer than in the first
quarter of this year, when it added 295,000.

"But the key issue is that the market is expanding faster," unlike
last year, Beaujean said.

"As we're not only active in Germany, but in Spain and France as well,
we also know the trends abroad. We have learned in France that (market
leader France Telecom's) Wanadoo waited for too long. We learned from
that and act faster."


The move by Germany's market leader sent shares in Deutsche Telekom as
well as other Internet stocks into negative territory. Deutsche
Telekom fell 0.2 percent, United Internet fell 2.4 percent, and
freenet dropped 1.4 percent.

Internet providers are keen on broadband customers as DSL is cheaper
to provide and its users are more likely to download music or movies
over the Internet and use it for phone calls or other services the
providers can charge for.

To better compete for broadband customers, Deutsche Telekom is
currently fully taking over and re-integrating T-Online.

Not all rivals, however, are equally bad news for Deutsche
Telekom. United and freenet rent and resell DSL lines from the
country's dominant phone operator, so if T-Online loses customers to
them, they still bring in revenue at Deutsche Telekom.

But if customers defect to operators who own their own network, such
as Arcor and Telecom Italia's HanseNet, they are lost completely for
T-Online's parent.

Beaujean said that is where things are headed: "More and more, our
competitors are the network operators."

T-Online will cut and streamline less popular tariffs, too, by up to
60 percent.

The new rates are available for existing as well as new customers,
leading overall to a revenue shortfall of 400 million euros this year,
Beaujean said.

He had previously forecast 2.5 billion euros in revenues this year, up
from 2 billion euros in 2004.

He said his goal was still to reach his forecast for core earnings of
300 million euros, down from 472 million in 2004.

Copyright 2005 Reuters Limited.

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