Mr. Cost Cutter is given pink slip

Your Money

November 19, 2006|By Andrew Leckey | Andrew Leckey,Tribune Media Services

What happens when the chief cost cutter gets cut?

Chief Executive Officer Kai-Uwe Ricke of Deutsche Telekom AG assumed that firm's top post in 2002. It is best known in the U.S. for its T-Mobile cellular service hawked by actress Catherine Zeta-Jones.

Ricke recently announced a plan to cut more than 30 percent of his firm's production costs by 2012. This extended staff reductions he'd already begun in order to trim its heavy debt load.

"By 2010, we intend to be Europe's largest telecommunications company in terms of revenue and earnings and be the leading service company in the industry," Ricke said.

Then Mr. Cost Cutter got a taste of his own medicine: Ricke's supervisory board forced him to resign. They'd had enough.

Like the scores of employees he'd sent packing, Ricke himself was deemed deadwood. Outmoded. Ineffectual. Yesterday's news. A footnote. See you around.

The straw that broke the camel's back was a 20 percent decline in the company's net income in the third quarter.

Results would have been worse if T-Mobile's growing U.S. operations hadn't helped offset the loss of a half-million fixed-line subscribers in Germany. Ricke is being replaced by Rene Obermann, who had been head of the wireless division. Out with the old, in with the new, in both technology and top executive.

Though T-Mobile has become the world's sixth-largest mobile-phone-service provider, Deutsche Telekom was one of the slowest of the large telecommunications firms to adopt new technologies. Like many giant U.S. utilities, it had happily lived off the largesse that came from being a primary regional provider.

Then came the precipitous decline of telephone land lines and the sudden rise of many small, aggressive competitors.

Ricke wasn't aggressive enough in cutting costs or in moving the firm forward, at least in the eyes of major investors and the German government, which controls one-third of its shares.

Deutsche Telekom shares, sold here as American depositary receipts, currently rate one "strong buy," one "buy," two "holds" and two "under performs" by industry analysts, according to Thomson Financial.

Cost cutting alone can't cure the ills of any company long term. Because vision and fast action are needed, some giant companies inevitably fall behind.

When that happens, even the cost cutter must look over his shoulder.

Andrew Leckey writes for Tribune Media Services.

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