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SEPTEMBER 22, 2003
Europe's Telcos: What Will Work -- and What Won't Europe's telephone companies -- especially the older incumbents -- must still master the most essential "structure crisis" of their existence ("Europe's telcos: What to do with all that cash?" European Business, Sept. 1). For example, Deutsche Telekom has to downsize staff in the next years by more than 50,000 people -- approximately 25%. Most of them have long-term contracts (or are civil servants) and cannot be fired. One solution for DT management is the foundation of a personal service agency (PSA), which should work like a company-owned placement agency for employees and an agency for temporary work for inbound and outbound orders, but doesn't. If DT does not find a reasonable and economic solution for its downsizing problem, it will have an additional annual cash-out for personnel expenses of more than 2 billion euros. This is not shown in the official figures of their operating business units but charged to Deutsche Telekom and all DT shareholders. That could reduce the current equity ratio of DT from about 30% to less than 19% and more in the next 10 years. It is easy to assume that for other old European incumbent telcos the situation is similar. A look behind the figures might reveal that the big cash stream may be reduced. Paul J. Sparwasser Bonn Andy Reinhardt states: "All carriers face the prospect of long-term revenue decline because of saturated markets and falling tariffs. The only way to stem the tide is to roll out profitable, innovative new services and promote them like crazy." Having worked in telcos for a long time, I suspect carriers have a more complex view of the future. Everybody can use voice services, while innovative services (such as mobile Third Generation) are appealing for limited segments of tech-oriented and modern lifestyle clients. Corporate services generate a very small amount of traffic compared with consumers and require additional investments on top of existing networks, easily increasing the unit cost of such services up to 100%. Improvements in traffic, revenues, and profitability, leveraged on huge customer bases, outpace the results of many expensively developed and promoted innovative services. Innovative services can be a "must-have" in carriers' portfolios, but there are many signs these won't be the cash cows of the future. Andrea Masnata Milan Why the Big Three Won't End Up in Japanese Hands In "Detroit's Big Three are heading for a pileup" (Economic Viewpoint, Sept. 1), Jeffrey E. Garten asserts that the companies' most intractable problem is the huge unfunded pension liabilities and that the auto industry is bound to end up "predominantly Japanese-owned." He is wrong on both counts. The Big Three's most intractable problem is that they all, with the exception of selected Chrysler models, make big, unexciting, gas-guzzling cars that the rest of the world (and ever more Americans) simply do not want to buy. America may have been built -- and still runs -- on cheap gas, but fuel is pretty expensive in the rest of the world. A de facto loosening of fuel efficiency standards, as the U.S. has seen over the past several years, may give Detroit short-term relief, but in the long run this laxness renders their products unsellable to the rest of the industrialized world. Mr. Garten's assumption that the Japanese will end up "predominantly" owning American auto-manufacturing assets is simplistic and at least 10 years out of date. Every Japanese manufacturer save Honda Motor suffered heavy losses throughout the late '90s, and many had close brushes with bankruptcy. As a result, Ford now owns 33.4% of Mazda Motor, and Renault of France owns 44.4% of Nissan Motor. DaimlerChrysler owns 37.2% of Mitsubishi Motors Corp. and 43% of heavy-truck manufacturer Mitsubishi Fuso (in addition to owning Freightliner in the U.S.). Moreover, Mercedes-Benz builds cars in Tuscaloosa, Ala.; BMW its sport-utility vehicles in Spartanburg, S.C. The latest models from Peugeot and Citroën are hugely popular in the subcompact and compact segments, those most favored among European urbanites and cost-conscious drivers. BMW's Mini Cooper (itself the sole relic of BMW's costly takeover of Rover) is a big hit in both the U.S. and Europe. Jeff Zalkind Berlin 
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