News

Changes Under Way in Structure of Germanys Telekom

7/12/1998 8:00 PM Eastern

Frankfurt, Germany -- Business-news channel CNBC's
announcement last week that it is withdrawing its distribution from German cable systems
was only the tip of a mighty iceberg.

The reason CNBC gave to a German news wire for the retreat
was what the network described as an excessive carriage fee of "a couple of million
deutsche marks" (more than $US1 million) each year to Deutsche Telekom AG for space
on German cable slots.

The fees reflect one aspect of Germany's unique
situation, where pay TV networks must pony up more for their cable distribution than in
any other market of the world, and where they have to pay the fees to one provider that
controls access to most subscribers.

The fees have long been one of the most challenging aspects
for programmers trying to make a go of it in Germany, but Telekom said they are a
financial necessity for the massive telecommunications company to keep its cable
operations well-funded. Earlier this year, Telekom increased its carriage fees by as much
as 70 percent, which raised the ire of many programmers.

The fight over the hike in fees is just one facet of
important changes that are under way at Telekom, which will fundamentally change the way
that it does business as the result of a review that's currently being conducted. The
analysis is due to be completed by the end of this month.

Telekom is completely re-evaluating all operations of its
cable systems to arrive at a new plan to regionalize them and to sell off parts of the
smaller operations to outside investors.

In May, the German telecommunications gatekeeper confirmed
long-standing rumors that it would begin to parcel out ownership of its systems, which
dominate the German cable market. Even though Telekom has only about 5 million to 6
million cable homes under direct control, most subscribers in the country's other 16
million cable homes receive their TV signals via Telekom's backbone system. That
vital Telekom distribution is what comes at a hefty price to both TV and radio
programmers.

It's likely to take until early next year to see how
much control Telekom will actually retain over its cable operations and which new
investors in German cable will come on board.

Once the opportunity to invest directly in German cable
becomes a reality, German media analysts believe that there will be a rush to jump in.

"It is most likely that German cable presently is the
most attractive cable investment worldwide," said Stephan Goetz, CEO of CEA
Deutschland, an investment banker and consultant specializing in the cable industry.

Want to read more stories like this?
Get our Free Newsletter Here!
September
October

VR 20/20

The Times Center, New York, NY