A Big ‘Nein’ to Deutsche Telekom
Deutsche Telekom has become crazed over spending the loose change in its pockets. A few weeks ago, the company was reported to be considering an acquisition of Sprint. This week, Deutsche Telekom announced that it was buying VoiceStream Wireless for a deal valued at $50.5 billion.
This deal makes no sense financially: VoiceStream had a net loss last year of $455 million on revenue of $475 million. To acquire VoiceStream’s 2.3 million wireless subscribers, Deutsche Telekom will pay more than $20,000 per subscriber. A return of 10% on this investment over 10 years would require a yearly profit of more than $3,200 per wireless customer. This is impossible, particularly for VoiceStream, which has losses nearly as large as its revenues. Wishful thinking, hopes for the future and faith are fine for religion, but are no way to run a business, as Deutsche Telekom soon will learn if this deal goes through. But if the Germans want to throw away their money, let them.
There are policy reasons, however, to oppose this acquisition because Deutsche Telekom is, in effect, a subsidiary of the German government and is actively expanding and acquiring other telecommunication firms in Germany and around the globe. These acquisitions are being done in the name of globalization, but that is simply a politically correct term for the colonialism and imperialism of the past.
Many countries have claimed to privatize the former government monopolization of telecommunications. Yet much of the stock of the “privatized” telecommunication firms is owned by the government. In the case of Germany, more than half of the stock of Deutsche Telekom is owned by the government. This is partial privatization.
One problem with partial privatization is that it is in the best interests of the government to maximize the value of the stock of the partially owned telecommunications company. This means that the partially privatized company is treated favorably by the government. Another problem is that governments are reluctant to sell their remaining ownership and totally privatize, since such a massive sale would decrease the value of all the shares on the open market. Thus, governments are motivated to manipulate the value of such stocks. The stock of Deutsche Telekom thus is overvalued, since much of it is held by the German government and is not on the open market. It is this overvalued stock that will fund the proposed acquisition of VoiceStream.
Even partial privatization is to be preferred to the old system of complete government ownership and control of telecommunications. Yet the solution to the evils of partial privatization is total privatization, such as what happened with British Telecom. But France, Germany, Japan and Sweden are dragging their feet in achieving complete privatization of their former government monopolies of telecommunications. In the meantime, they should not be allowed market entry into countries that are completely privatized.
Partial privatization is not consistent with open markets and competition. Until Germany completely privatizes Deutsche Telekom, the company should not be allowed to have dominant ownership of any telecommunications firm in the United States--even if it about to lose its lederhosen in this deal.
