Global Economics

Germany Rocked by Telekom Spying Scandal


An anonymous fax leads to accusations that Deutsche Telekom was monitoring board members' and journalists' phone calls. A criminal investigation may result

German telecommunications giant Deutsche Telekom stands accused of having monitored telephone calls of business journalists, board members and shareholders. An anonymous fax may result in a criminal investigation.

Had it not been for the money, there is a good chance that the entire "unsavory story"??s a senior executive at German telecommunications giant Deutsche Telekom AG called it last week??ould never have come to light. Most of all, though, it was a fax that revealed the story??nd exposed an absurd concoction of economic spying, power-hungry megalomania, paranoia, and a complete disregard for the freedom of the press.

The fax arrived at the company's headquarters in Bonn about four weeks ago, addressed to the head of Telekom's legal department. And the threatening undertones seemed difficult to ignore, especially given the words that appeared at the end of the three-page document, which SPIEGEL has obtained: "You should not underestimate my aggressive potential and my staying power."

It was, at the very least, a reckoning in two parts: The head of a Berlin management consulting company, from whom the fax came, was calling on Telekom's head lawyer to contact him without delay. The goal, he wrote, was to achieve "a controlled termination of our business relationship protected against indiscretion." At the same time, the letter was the formal end to long-term activities that apparently served one overriding purpose: to spy on German business journalists, members of the supervisory board and senior company executives, including monitoring their telephone communications with one another.

Journalists, Board Members and Shareholders

The company itself, led by then CEO Kai-Uwe Ricke and monitored by a supervisory board headed up by then Deutsche Post CEO Klaus Zumwinkel, is accused of being behind the alleged spying. And the Berlin consulting firm, whose chief executive sent the April 28 fax, was hired to carry it out. The goal of the "Clipper" and "Rheingold" surveillance programs, as well as other "secondary projects," the fax makes clear, was to "analyze several hundred thousand landline and mobile connection data sets of key German journalists reporting on Telekom and their private contacts."

But that wasn't all. The same procedure, according to the memo, was repeated with "several supervisory board members on the employee side"?for a total period of one-and-a-half years."

Other spying campaigns had already been "specifically planned and assigned," including "the surveillance of one of your shareholders, a company headquartered in New York." This is likely a reference to Telekom shareholder Blackstone. Moreover, the letter continues, the office of an "important business journalist," had been infiltrated by a mole who had reported "directly to corporate security" at Telekom for several months. The head of the security company leaves no doubt that "the projects, even by intelligence standards, can be described as unusually broad and sophisticated."

All of this, according to written allegations, was ordered "directly by management (in close cooperation with the then chairman of the supervisory board) and paid for directly by the chairman of the board, through the office of the supervisory board." But apparently not all fees were paid and a dispute eventually erupted.

It is still unclear how much of the alleged spying operation is in fact true. Telekom confirmed that it has turned the matter over to the public prosecutor's office. Company representatives, citing the ongoing investigation, have declined to comment on details of the case but said the operation was apparently coordinated with the supervisory board and its chairman. "We take this situation very seriously. We will do everything within our power to support the prosecutor's office in its efforts to conduct a thorough investigation," says current Telekom CEO Ren? Obermann.

A Host of Criminal Charges

Lothar Schr?der, Telekom's chief union negotiator and deputy head of the supervisory board, who may have been a target of surveillance himself, is outraged: "If the accusations are confirmed, it would be an unprecedented breach of trust and an unbelievable scandal, and those responsible for it should be brought to justice as quickly as possible." Schr?der nevertheless said that he was convinced the current management is interested in a speedy and thorough investigation.

Obermann reacted immediately when the security department first became aware that something was amiss. The head of security was replaced and the entire department was completely reorganized. In addition to reporting the incident to the chancellery and the Finance Ministry in Berlin, Obermann forwarded the entire case to the office of the public prosecutor in Bonn. The task that office now faces is to determine who may have been guilty of what crimes in the period between 2005 and 2006?? period when Obermann's predecessor Ricke was still in charge of the company. Investigators are still examining the extensive Telekom material and have not yet launched an official investigation.

But such an investigation, company officials believe, is only a matter of time. Even if only a fraction of the allegations are true, the company could face a host of criminal charges, ranging from violation of the secrecy of telecommunications to bribery and even extortion.

There were many indications last week that at least some low-level spying must have taken place against several labor representatives and members of the supervisory board, including Wilhelm Wegner, the head of the group works council. There was also mounting evidence that agreements had in fact been made with the Berlin-based company that contacted Telekom in February to demand payment of supposedly unpaid invoices ranging in the six figures. Moreover, there are indications that former CEO Ricke and his Supervisory Board Chairman Zumwinkel were frustrated that reports of confidential board meetings were repeatedly leaked to the press.

Trouble Was Brewing

The Berlin consulting firm was allegedly hired in the spring of 2005 to explore where the leaks could be coming from. The firm was asked to compare the telephone records of members of the supervisory board with those of well-known business journalists who reported on Telekom.

The snooping campaign against the head of the works council happened in a turbulent phase for Telekom. Following the dramatic plunge of Telekom's stock from a high in March 2000, CEO Ron Sommer resigned in July 2002 under pressure from the German government, a major shareholder in the company. Ricke took over the post in November. He reorganized Telekom management and turned his back on his glamorous predecessor's global visions. With his tough cost-cutting measures and the sale of several divisions Ricke, whose father had also run Telekom in the past, returned the company to financially sound footing.

Even analysts and shareholders began to respect the awkward and graying Ricke. But trouble was brewing inside Telekom. Employees were becoming increasingly concerned about job security. In early 2005, Ricke had announced that Telekom would have to cut at least 8,500 jobs a year in the future.

Part 2: Searching for the Moles

When members of the works council began mentioning a figure of roughly 45,000 jobs that the company planned to eliminate by 2008, the service workers' union Ver.di became involved. Ver.di made its deep opposition to the job cuts clear when it referred to Telekom's plans as "clear-cutting," "an outrage" and a "scandal when it comes to employment policy."

Ricke relented. The members of his executive board??specially Ren?? Obermann, head of the mobile division at the time, and Walter Raizner, head of the landline division, T-Com??ere already deeply suspicious of one another, and treated each other as rivals more than colleagues. The discord made it all the more attractive for the press to report on internal meetings.

The environment in which the company was operating changed dramatically during this period. The landline business faced growing competition from small upstart providers, leading to sharp declines in prices and sales. The boom in fast DSL Internet connections had only just begun and had yet to yield the anticipated results. Even the mobile telephony business was no longer achieving the growth rates of earlier years. But while major European competitors adjusted to the new realities by gradually breaking down the classic barriers between mobile telephony, landlines and the Internet, senior executives at Telekom headquarters in Bonn were unable to agree on a strategy for the company. The constant endless meetings didn't help, ending, as they often did, in half-hearted solutions poorly suited to solving Telekom's problems.

The direct consequences were customer flight, crumbling earnings and an ongoing decline in the company's stock price. Criticism of the company grew even further when US investment group Blackstone bought a slice of Telekom in 2006.

Speculation over replacement of the indecisive Telekom CEO began circulating in the press, fueled by internal memos from meetings of the executive and supervisory boards that could only demonstrate one thing: that Ricke was indecisive and wavering. His tenure as CEO quickly came to an end after that. Supervisory Board Chairman Zumwinkel forced the hapless chief executive to resign and replaced him with Obermann.

'As Full of Holes as Swiss Cheese'

That was in November 2006, the date when Telekom now assumes the spying came to an end. The author of the fax from Berlin, on the other hand, claims "we can prove that we were still involved in the 'Clipper' project after November 2006." The fax says one only need to ask people like Zumwinkel or Ricke.

At the end of last week, both executives sharply denied having had any knowledge of specific eavesdropping activities. But former CEO Ricke also did not deny that Telekom, during his tenure, repeatedly tried to find leaks within the company. "Telekom," said Ricke, "was as full of holes as Swiss cheese." According to Ricke, internal documents were repeatedly leaked to the public, especially during the second half of his term, "some of which contained information that could affect the stock price"??bout planned acquisitions abroad, for example, or planned job cuts.

Speaking to SPIEGEL last Friday, Ricke said: "We discussed this often in the executive board, and we decided to take active steps to combat it." In consultation with Supervisory Board Chairman Zumwinkel, the corporate security department, which was then headed by Labor Director Heinz Klinkhammer, was "many times assigned to complete the necessary investigations."

Several steps were taken to expose the informants, including applying individual, secret codes to all executive board documents. Occasionally, documents containing false information were distributed before executive board meetings, the goal being to determine "which pieces of information are reaching which press organizations."

In some cases, the corporate security department "hit pay dirt after some detective work." Ricke, however, insists that he was unfamiliar with the methods that the department's several hundred employees used, emphasizing: "I never gave illegal orders at the time, and certainly never asked anyone to eavesdrop on telephone connection data."

A spokesman for Zumwinkel issued a similar statement: "A supervisory board director cannot give instructions to employees of the company. The alleged storage of data occurred, if at all, without the consent of the then supervisory board chairman." The spokesman went on to say: "It's a good thing that the alleged procedures and incidents are being investigated."

Required by Law to Protect Confidentiality

Both men have said that they are not willing to rule out the possibility that the eavesdropping campaigns existed. They also insist that they had no knowledge that anything illegal was taking place.

Telekom's underhanded use of data is being exposed at a time when the government is holding the Bonn-based company to extremely high standards, in terms of both data confidentiality and trustworthiness. As of Jan. 1, all telephone and Internet providers in Germany are required to keep all connection data on file for six months. This reflects an EU decision reached after the 2004 Madrid terrorist attacks, as well as the wishes of German investigators. Otherwise, they fear, all evidence could already be deleted if they happen upon a suspect months after a crime was committed and then attempt to unravel the network of accomplices.

But this makes industry leader Telekom into something of a law enforcement arm of the state, now more than ever. And it makes it all the more embarrassing that the company is now under suspicion of having abused the wealth of data at its disposal.

Just how sensitive such data is, whether collected by Telekom or other telecommunications companies, was made clear by Germany's high court in March when it significantly narrowed the scope of new regulations governing data storage. Under the ruling, investigators can only gain access to the telephone records of suspects charged with serious crimes that carry a potential prison sentence of more than five years. In all other cases, Telekom is required to preserve the secrecy of its customers' data.

But now Telekom's old management has come under the suspicion that it was less than trustworthy for many years, and not just with the personal data of its own supervisory board members and executives. The attempt to match up the board members' and executives' phone records with those of journalists suggests a stunning disregard for democratic values.

Courts in the past have tightened the reins several times on investigators who were eavesdropping on journalists with the intent of uncovering their sources within government agencies and judicial bodies. Thus, for example, the German Constitutional Court declared the search of the Cicero editorial offices in 2004 to have been illegal. An attempt by authorities in the state of Saxony to use the telephone records of a Dresdner Morgenpost journalist in an investigation was likewise struck down.

And it was revealed in 2006 that the Bundesnachrichtendienst (BND), the German foreign intelligence agency, had illegally placed journalists under surveillance for years while searching for a mole in its own ranks. As recently as a few weeks ago, the federal government had to issue a public apology when it was revealed that the BND had lapsed back into its old practices with SPIEGEL reporter Susanne Koelbl.

It should have been clear to the Telekom executives that by scanning employees' and board members' telephone records for calls made to journalists, they were not just operating in a gray area, but in a forbidden zone. In that zone, putting too much trust in the head of a Berlin consulting is apparently a dangerous thing.

According to the letter from that company manager, the situation had become "extremely threatening" to him and his company. If his fax were to be passed on to third parties other than Telekom CEO Obermann, the company would have to "interpret it as a declaration of war," the manager wrote, adding that he does not wish to lose the opportunity to defend himself "in the media, if necessary."

He is likely to have that chance very soon.

Translated from the German by Christopher Sultan


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