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 market.
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 freenet.de 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."
SHARES FALL
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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