Doubts Surround Future of German Operator

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Frankfurt, Germany -- The future of Germany's
second-largest cable operator was unclear following the sale of most of its parent
company's business, as its owners have decided to focus on another business segment.

Utility conglomerates Veba A.G. and RWE A.G. said late last
month that they agreed to sell their jointly owned o.tel.o Communications GmbH & Co.
to competitor Mannesmann Arcor A.G. so that they can concentrate on cellular telephony.

The sale includes its fixed-line telephony business, its
fiber optic network and its Internet business. That leaves an unclear horizon for
Telecolumbus, o.tel.o's 1.7 million-subscriber cable operation, which Veba and RWG
retained.

Last year, Telecolumbus accounted for 334 million deutsche
marks ($185 million) of o.tel.o's total revenue of DM435 million ($242 million).
There has long been speculation that o.tel.o would unload Telecolumbus. Now that it's
separated from o.tel.o's attractive fiber network, a sale appears more likely.

Veba chairman Ulrich Hartmann has only said that o.tel.o
aims to concentrate on mobile telephony. The company originally planned to connect
Telecolumbus' homes via its own fiber optic network -- a move that would have
provided it with a base of potential telephony customers.

But when Germany's telecommunications market was fully
deregulated more than a year ago, interconnection fees for access to incumbent Deutsche
Telekom A.G.'s "last mile" were much lower than expected. This provided a
lower barrier for competitors to enter the market, and it made o.tel.o's fiber optic
network a relatively expensive proposition.

The company got into deep water in its effort to compete
with Deutsche Telekom. It invested DM5.8 billion ($3.2 billion) over the past three years,
but it has seen only a small return.

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