Nov 15, 2002 By David Mchugh Ap Business Writer 4 min read

BONN, Germany (AP) – Deutsche Telekom named its wireless division leader as the company’s overall chief executive Wednesday just as it announced the biggest quarterly net loss in its history, a staggering $20.6 billion. “I accept this challenge with my whole heart,” 41-year-old Kai-Uwe Ricke said at a news conference after the supervisory board made the widely expected appointment. Ron Sommer was ousted as CEO in July.

“There’s much that is good at Deutsche Telekom,” he said. “But there is much to change, and this must be done thoroughly and without compromise.”

He vowed to streamline Europe’s largest telecommunications firm by cutting costs, jobs and debt.

The company’s announcement of a loss of 20.6 billion euros ($20.6 billion) in the third quarter underlined the task ahead. The company’s quarterly loss was larger than the 3.5 billion euro net loss for all of last year, and compared to a 700 million euro loss in the third quarter of 2001. Revenue rose to 13.4 billion euros from 12.5 billion euros a year ago.

The loss was swollen by 20.3 billion euros in one-time charges due to reductions in the value of companies acquired in an expansion drive by Sommer.

The writeoffs were mainly an accounting exercise and don’t affect the company’s cash balance or its current operations. They also clear dangling liabilities from the balance sheet for the new CEO.

“We have a clean slate,” Ricke said.

But the writeoffs also underline the end of the tech boom and the dimmed prospects for the industry. U.S. firm WorldCom sought bankruptcy protection, German provider MobilCom is teetering on the edge and European competitor France Telecom is struggling under a similar debt burden.

Of the writeoffs, 8.4 billion euros were for the reduced value of acquisition T-Mobile U.S.A., formerly Voicestream, 9.6 billion euros for U.S. mobile phone licenses and 2.2 billion euros for the British license for the next generation of mobile phone services.

Prospects for the new service, called 3G, once spurred feverish bidding for licenses. But expectations have now been drastically scaled back in the current sluggish economy.

The company’s third-quarter operating earnings, which exclude one time items as well as financial items such as interest and taxes, were in positive territory at 4.2 billion euros, up from 4.1 billion euros a year earlier.

Though operating earnings give an incomplete view of a company’s finances, analysts use them to judge the state of a company basic business operations.

The nine-month net loss was 24.5 billion euros compared to a 1 billion euro loss in the same period the year before. Revenue for the first nine months of the year was 39.2 billion euros, up from 35 billion euros a year earlier.

The company said its cost-cutting efforts should help cut its 64 billion euro debt to 49 billion euros to 52 billion euros by the end of next year.

Ricke vowed to give more responsibility to the company’s divisions and said he might seek a merger partner for T-Mobile U.S.A. if a deal enhanced shareholder value – but ruled out a fire sale simply to cut debt.

The company also said it would drop 54,700 of its 255,000 workers by 2005, with new hiring bringing the net job loss down to 43,400.

The German government, which controls 43 percent of Telekom stock, pushed Sommer out due to dismay over the fall of more than 85 percent in the price of the company’s shares. Telekom board veteran Helmut Sihler served as interim replacement during a CEO search.

But Ricke’s choice is widely expected to mean continuing Sommer’s strategy of seeking growth internationally, especially in the United States, where mobile phone use has not reached the saturation levels it has in Europe.

As head of the T-Mobile unit, Ricke was closely associated with Sommer’s aggressive overseas expansion, which included the acquisition of Voicestream.

Ricke follows his father, Helmut, who was Sommer’s predecessor and headed the company from 1989 to 1994 when it was a state-owned monopoly.

The younger Ricke started his career as an executive assistant at media conglomerate Bertelsmann and then moved to mobile operator Talkline in 1990, rising to CEO before Sommer recruited him in 1997.

Ricke’s climb to the top was aided by his tenure at the company’s Germany mobile phone division, during which he led the division past competitor Mannesmann, now Vodafone, into the No. 1 position.

The company has fixed-line, wireless and Internet divisions, as well as a services business.

The choice of Ricke appeals to the employee representatives on the company’s board. Markus Frings, a spokesman for the ver.di union service workers’ union, said Ricke had been a “constructive” partner in negotiations as head of T-Mobile.

Employee support is key in running the company because 10 of the 20 supervisory board seats belong to employee representatives.

Deutsche Telekom stock rose on the day, trading up 4.45 percent at 11.73 euros ($11.79).