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Telekom Board Meets to Talk CEO

July 16, 2002

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BONN, Germany (AP) _ Deutsche Telekom chief executive Ron Sommer’s job was on the line Tuesday as board members met to discuss removing him from the helm of the troubled German phone giant after days of politically charged wrangling.

Sommer, 52, faces mounting pressure to go after piling up debt in an expansion drive and presiding over a stock slump that has burned many small investors. About 3 million of them heeded government encouragement to buy the shares as the company was privatized beginning in 1996.

Telekom shares surged last week on rumors that Sommer would be replaced, but they plunged as investors reacted warily to reports that he may be replaced with a veteran insider, Gerd Tenzer. Supervisory board members of Telekom, Europe’s biggest telecom firm, met in small groups Tuesday ahead of a full meeting set later in the day.

Despite stinging criticism, Sommer has dug in against an effort by Chancellor Gerhard Schroeder’s government to get rid of him before the Sept. 22 elections. The government is Telekom’s single biggest shareholder with a 43 percent stake.

The 20-member supervisory board, split evenly between union and employee representatives, needs to muster a two-thirds majority to depose Sommer. A board subcommittee reportedly agreed last weekend on Tenzer, 58, the head of the company’s technology and networks division, as a compromise candidate.

Widely viewed as an interim replacement unlikely to shake up Telekom, he is a former post office official who joined Telekom’s top management when it split from the postal service in 1990. Several high-profile outside candidates reportedly refused the post, and news reports have described Tenzer as the only candidate the government could persuade employee representatives to accept.

About 200 Telekom employees demonstrated their support for Sommer on Tuesday in front of Telekom’s headquarters near the Rhine river in Bonn, the former West German capital. They blew whistles and held up signs against , one reading ``Without Sommer, things look dim.″

``We hope he stays,″ said Telekom worker Wilhelm Tigges. ``Anything else would not be good for the company.″

On Monday, Telekom stock closed down 15.16 percent at 10.30 euros ($10.22) on the Frankfurt exchange, its biggest one-day drop. But the shares recovered about 5 percent to 10.81 euros ($10.88) by midday Tuesday.

The value of Telekom shares has plunged by about 90 percent since a March 2000 peak at 100.85 euros. Amid the worldwide telecommunications slump, they hit an all-time low of 8.14 euros ($8.07) in June.

Sommer, a gifted and charismatic salesman, set out in 1995 to pump up Telekom from a stodgy state phone monopoly with a reputation for poor service into a world leader in phone and Internet services. He led its highly publicized 1996 stock market debut, selling stock-wary Germans on the idea of entering the then booming financial market.

Since then, however, he has piled up debts of $67 billion, buying U.S. mobile operator VoiceStream _ at what many experts say was too high a price _ and licenses for the next generation of mobile phone services that were auctioned off by the German government in a bidding frenzy in 2000.

With spending on telecommunications services and equipment in a worldwide slump, Deutsche Telekom lost 3.5 billion euros last year _ its first annual loss since privatization began _ and 1.81 billion euros in the first quarter of this year.

Under pressure from the conservative opposition, Schroeder has recently moved off his once staunch support for Sommer, though his spokesman Monday denied reports that the chancellor was directly involved in efforts to find a replacement.

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