Entrepreneur cuts to the chase in Germany - Company Operations

CommunicationsWeek International, April 16, 2001 by Emma McClune

PROFILE

Gerhard Schmid has captained a holiday resort and steered a German car rental company into first place. After deregulation he decided to start a mobile phone company, now the country's third largest.

For Gerhard Schmid, the man behind German telecoms upstart Mobilcom AG, the last decade has been a frenzied ride.

Prior to Mobilcom, Schmid was managing a holiday resort in the north of Germany. Before that, he was a sales and marketing executive for the Munich-based car rental company, Sixt AG, training courtesy of a business studies degree from the Universities of Nuremberg/Erlangen and Ravensburg in Germany. Today, he's the personality behind one of the most successful alternative operator stories in Europe, with a mention in the 1999 Forbes List of World Billionaires and a racing horse named "Mobilcom, It's Christiane."

Entrepreneurial curiosity, rather than an extensive background in telecoms, spurred Schmid to approach banks for a loan in 1991 as the German regulator forced the incumbent Deutsche Telekom to open the mobile market to competition. At that time-so the story goes--Schmid estimated that around 10 million people would be mobile phone owners by the year 2000. According to MobilCom public relations director Matthias Quaritsch, the banks initially refused the loan on the basis of an over-estimated market performance. "They told him to go back and rewrite the business plan accounting for half that figure, 5 million potential customers," said Quaritsch.

Today, 50 million Germans own a mobile phone. With a DM4.6 billion turnover last year, MobilCom is the number three player in terms of the more lucrative mobile contract customers, behind local incumbent Deutsche Telekom and Vodafone. Compared to Deutsche Telekom's annual turnover of DM12.2 billion from mobiles, MobilCom is still small fry, but its rise from mobile market entrant to UMTS player in the space of a decade has left behind many contemporaries, such as the recently bankrupted minute resellers Star Germany and TelDaFax.

And a lesson may be learned from Schmid's past with companies aiming for pole position. Volker Bergmann, who worked alongside Schmid in the marketing department of Sixt AG in Munich in the late Eighties, recalled a time when Schmid spearheaded an aggressive marketing campaign that effectively took Sixt from their position as the third-largest car rental company in German to the country's market leader.

With a 40% share in MobilCom--an ownership model unparalleled in the rest of the European telecoms industry--Schmid drives his staff to outperform all market expectations. "He is not a cool manager. Sometimes he's very emotional about a subject, but that's because he takes it all to heart," said Quaritsch, adding that Schmid never fails to crack a joke at the expense of market leader Deutsche Telekom during presentations.

One employee perk includes financial incentives for staff who complete the month without a day's sick-leave. And only 2.5% of MobilCom staff report unable to work due to sickness--less than half the national average. The company is headquartered in the small town of Budelsdorf in North Germany, twenty miles from the Danish border. It is an area Schmid fell in love with when he moved from his homeland Bavaria in the south to work for the north German holiday resort. Most staff commute in, so company cars are available to anyone who requires one.

MobilCom is now set to enter the big leagues. Last year, the company joined forces with France Telecom to create MobilCom MultiMedia GmbH, a 50-50 joint venture in pursuit of a German UMTS license. The venture was one of six which paid around [epsilon]8.4 billion (US$7.43 billion) each for a license, after which France Telecom scaled down its share to own 28.5 percent of the group MobilCom AG earlier this year.

More recently, securing a [epsilon]2 billion loan from France Telecom, of which Scandinavian vendors Nokia and Ericsson will indirectly supply [epsilon]1.6 billion, has secured MobilCom's financial footing in scaling the mountain of UMTS roll-out costs to come. Since MobilCom operates primarily as a minute reseller without a network, these costs are likely to weigh heavily with the young operator, although MobilCom is currently scouting for co-location agreements with other license holders in an effort to cut those costs back.

"MobilCom is a company with significant challenges ahead. It has to build its network and then migrate its customers onto it," warned Mark James, West European telecoms analyst for Nomura's London office.

But challenges are second nature to Schmid. Approaching his 49th birthday, and despite a notable lack of sport activities on his list of pastimes, the MobilCom boss is planning to run in a marathon race. "He's always thinking big," said Quaritsch.