Deutsche Telekom: A Clear Future, Yet Uncertain Present

May.14.07 | About: Deutsche Telekom (DTEGY)

Deutsche Telekom (DT) posted serious problems in Q1. 58% drop in profits as landline customers leave in droves. Wireless business is up as large numbers of new customers are signed up. The future is clear, but not yet profitable.

The union is stuck between a large rock and a very hard place. The workforce DNA comes from a legacy of state ownership. Entitlements were entrenched. Now the world has changed. DT is privatized and fighting in the free market.

The union Ver.di seems to be fighting a scorched-earth, no-retreat type of war. The problem is there can be more more retreat. Backs are up against the wall and changes must be made.

The investor question will be what are the short term costs of labor disruption. Telecom investors have seen this before and the ending is eventually the same everywhere. Union lines do not hold. Management probably does not want to fan the flames of animosity, but they need to signal that they are serious about restructuring.

If the union holds them off and calls their bluff or even just makes them blink, the stock will lose credibility.

From the land of Nietzsche, one now wonders about "If it does not kill you, it will make you stronger."

DT 1-yr chart: