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RWE and Veba give up their vision of becoming major German players

German conglomerates RWE and Veba finally conceded defeat yesterday in their attempts to become major players in the liberalized telecommunication markets in Germany.

After pulling out of the fixed network joint venture Otelo in the spring, they have now agreed to sell their joint stakes in the mobile phone operator E-Plus to France Telecom.

When Veba chairman Ulrich Hartmann announced in the early 1990s that his company was diversifying into telecoms, his goals were ambitious -- alongside electricity, oil, chemicals and logistics, he wanted to build up telecommunications into a fifth core business area for the group. And Hartmann promised that his company would go into the next millennium as the leading telecoms operator in Germany after Deutsche Telekom.

RWE had also set its sights high: in the mid-1990s it announced it was planning to invest four billion marks (2.05 billion euros, US$2.2 billion) in telecoms by next year, create 5,000 new jobs and become one of the leading players in Germany.

Thyssen, the steel giant, also hoped to move away from heavy industry and into the new high-tech, high-growth area of telecommunications when it secured the second private mobile phone license in Germany for E-Plus in which it then held the major stake of 30.1 percent.

And with the imminent deregulation of Europe's telecoms markets, there was a veritable "gold rush" in the sector, with a whole range of alliances and cross-alliances springing up. Veba and Thyssen joined forces in E-Plus with British group Vodafone and US company BellSouth. Veba also teamed up separately with Cable and Wireless in Britain. RWE, for its part, linked up with British Telecom and VIAG in VIAG Interkom.

RWE and Veba then hitched up in the area of fixed telephony via Otelo.

But investment was costly, the start-up losses heavy and the initial euphoria proved short-lived.

So when the German market was fully liberalized at the beginning of 1998, Otelo quickly proved unable to keep up with its rivals. E-Plus also failed to perform as hoped: while it originally expected to turn a profit in 1997, heavy losses and vicious competition continued to slash margins and weigh on earnings.

The advent of the euro also drastically changed the industrial landscape, spawning one mega-merger after the other. And diversified groups were forced to make choices, realign their portfolios and sell off non-core or unprofitable businesses.

Thyssen decided to concentrate on steel and merge with rival Krupp.

RWE, the biggest power group in Germany, decided to do what it did best and focus on energy, especially in view of the recent liberalization of the electricity markets in Germany.

And Veba opted to tie-up with VIAG and concentrate on energy and chemicals.

The two partners began to look for possible buyers earlier this year. The first major step came in April, when Mannesmann Arcor snapped up Otelo.

And RWE and Veba finally said goodbye to telecoms yesterday with the sale of their combined stake of 60.25 percent in the mobile phone unit E-Plus to France Telecom for 7.4 billion euros (US$7.9 billion dollars).

Veba will receive 3.8 billion euros for its stake and RWE 3.6 billion euros. The deal values E-Plus at a total 15.3 billion euros.
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