LONDON - Klaus Zumwinkel caused a considerable stir throughout corporate Germany last week when he quashed speculation that he was about to trade in his job as the head of Deutsche Post World Net, the sprawling national mail monopoly, to move into the hot seat at Deutsche Telekom, Europe's biggest telecommunications company.
But a closer look shows it was no contest. The lumbering postal business is on the verge of becoming a high-growth sector as the main players move aggressively into new businesses like logistics, express delivery and distribution while the telecom market is a frontline casualty of the new-economy meltdown.
Europe's postal market didn't merit analysts' attention because it operates largely in a claustrophobic environment of state-ownership, monopoly and political interference. The telecom business, by contrast, was feted as a sure-fire winner on the back of a surging stock market, the seemingly unstoppable march of new technology and the dizzying success of mobile telephony, one of the very few industries in which Europe had a significant lead over the U.S.
Europe's telecom firms paid over $100 billion for licenses to operate 3G [third generation] mobile networks just months before their shares went into freefall and technological hitches delayed the rollout of new handsets and services. By comparison the postal companies spent a pittance to create global logistics and parcel delivery operations -Deutsche Post has invested just over $5 billion - to challenge the effective American duopoly of United Parcel Service and FedEx Corp.
This has produced a classic tortoise-and-hare outcome. Few could have foreseen the end result of the Dutch government's decision to privatize and split up the country's postal and telecom monopoly in the 1990s - the former growing into TPG, a leading player in the global logistics market, the latter crashing perilously close to the edge after a wild spending spree focused on 3G mobile telephony.
For the moment at least, transport is trouncing telecom, and that's most likely why Zumwinkel, a 59-year-old former McKinsey consultant, is staying put.
Deutsche Post and TPG aren't typical of Europe's postal industry which is still held hostage by governments who delay and dilute pan-European deregulation. And not all diversification strategies have succeeded: while France's La Poste is just about keeping in sight of its German and Dutch counterparts, Consignia, the United Kingdom's state-owned postal service, is losing nearly $2 million a day and its heavy investment in European operations has yet to pay dividends.
For now, Deutsche Post is setting the pace with a recent string of deals that underscores the fact it hasn't run out steam as its pursues its eventual goal of becoming a European version of UPS, only bigger. It moved closer last week when its courier unit, DHL Worldwide, acquired a 30 percent stake in Hong Kong airline Cathay Pacific's cargo unit, Air Hong Kong, to take on UPS and FedEx in the fast growing Asian market. Deutsche Post paid around $600 million in July for Lufthansa Cargo's 25 percent stake in DHL, boosting its holding to just over 75 percent and is currently negotiating for the rest of DHL's shares.
As full postal deregulation nears, Zumwinkel is set to unveil a radical strategy to grow the mail business outside Germany - "Over the next five years we will be active in all European countries," he says - and has a war chest of around $1 billion to make to make it happen. The first deal likely will be the purchase of a 25 percent stake in the soon-to-be privatized Danish post office, a move that will open a gateway into Scandinavia and the Baltic markets.
Deutsche Post is still tidying up the mess from the old monopoly days. It was recently ordered by the European Union to repay nearly $850 million for illegally subsidizing its unprofitable parcel business. At the same time, the company will cut 10,000 jobs since the government's recent decision to cut postal rates is expected to weaken earnings by $1.5 billion over the next five years.
Deutsche Post's metamorphosis is part of a massive restructuring and consolidation by European transport as it belatedly attempts to maximize the benefits of the single market launched in 1993. And there's more to come: Britain's P&O is expected to put its European logistics business on the block soon and Deutsche Post and TPG likely will be among the bidders, possibly alongside UPS.
So even as Europe risks losing its edge over U.S. telecoms, it looks to draw ahead in transport.
Another good reason for Klaus Zumwinkel to stay put.
Bruce Barnard is the European correspondent for The Journal of Commerce Online.