Deutsche Telekom Eyes Upgrade as Execs Leave

7/04/1999 8:00 PM Eastern

Frankfurt, Germany -- Deutsche Telekom A.G. said it plans
to upgrade its huge cable network, but the ambitions come amid the departures of two key
executives on the broadband front.

The company aims to upgrade its cable networks, which reach
17.5 million homes, to 862 megahertz from 450 MHz -- a project that will enable it to
provide two-way access to subscribers, Telekom board member Gerd Tenzer said at the
Medienforum NRW conference last month.

"We are ready to make the investment with our
partners," Tenzer said, referring to companies that could eventually buy into the
cable system. But these partners first need to be found.

Telekom opened bidding last month on a 75 percent stake in
the cable system. Telekom owns the cable system's backbone infrastructure but only about
one-third of the homes that it reaches.

So far, Telekom has settled on using its copper telephone
network, combined with its cable infrastructure, to provide two-way services to

Tenzer confirmed that Telekom plans to keep 25 percent of
the cable systems as part of the sale. Upgrades can begin only after new investors in the
cable system are known.

Competitors such as Germany's association of cable
operators, known as ANGA, fear that Telekom may use its remaining stake to further delay
the upgrading process in order to protect its telephone assets. Telekom is aiming to make
its telephone networks a broadband conduit by using digital-subscriber-line technology.

Microsoft Corp.'s Microsoft GmbH CEO Richard Roy said at
the same conference that any further delay in the cable-system sale could make attracting
new customers more difficult. "That's because more and more multimedia services will
be accessible via copper telephone lines or via satellite," Roy added.

Telekom head of broadband infrastructure Franz Arnold, who
is in charge of the cable sale, said DSL service wouldn't necessarily compete heavily with

"We are going to get maybe 250,000 subscribers for our
'T-DSL' service in the next couple of years. That is not enough to seriously compete with
cable," Arnold said. Telekom plans to launch its DSL service commercially later this

However, competitors' fears of a delay in the cable-system
sale were boosted again last month due to the departures of two of Telekom's top broadband

Torsten Kreindl left the CEO post at MediaServices GmbH,
Telekom's unit that oversees its cable-content business. At the same time, Rainer Hilpert
resigned as managing director of Kabel Deutschland GmbH, the company that oversees the
physical cable infrastructure.

Both companies were founded early this year, amid a wider
reorganization of Telekom's cable systems to prepare the sale. Specifically, the content
business was separated from the hardware business.

Telekom intends to keep 100 percent of the content business
while selling 75 percent of the cable network. Kreindl, who now is becoming a partner in
an Internet company, at one time oversaw all of Telekom's cable businesses.

Observers now believe that the executives' departures could
indicate a further delay in the sale of Telekom's cable assets. Both executives were major
backers of advancements at the company.

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