DT coughs up €550m cash  to remove balance sheet black mark.

Deutsche Telekom (DT) resolved a long-running dispute with Germany’s Bundesministerium für Verkehr und digitale Infrastruktur (Federal Ministry of Transport and Digital Infrastructure/BMVI) over Toll Connect, its troubled road-charging joint venture (JV) with Daimler and French company Cofiroute.

Fears of acute balance sheet damage from any government win in the dispute appeared to have
persuaded DT and Daimler to settle. Both agreed to stump up €550m in cash. The total settlement amount came to around €3.2bn, said DT, once previous payments to the German state were taken into account.

DT and Daimler each own 45% in Toll Connect. The remaining 10% is held by Cofiroute. DT previously indicated Cofiroute was part-protected from the dispute, with liability limited to €70m.

The full scale of DT’s potential liability over Toll Collect ran into billions of euros. The government pushed for huge contractual penalties and damages from the JV, which stood at €4.98bn plus interest, according to DT’s Annual Report for the year to 31 December 2017 (FY17). Toll Collect’s owners, in turn, were said to be pursuing around €2bn in fees withheld by the BMVI as part of the dispute.

The dispute dates back to 2004 when DT and automaker Daimler ran into difficulty collecting tolls. Their system, designed to automatically calculate fees using GPS tracking, was delayed for two years by technical glitches. A shortfall in toll income prompted the government to take the case to arbitration.

Green light from Höttges

Timotheus Höttges, Chief Executive of DT, breathed a sigh of relief that the Toll Collect shadow had been removed. Speaking at the Group’s Capital Markets Day, he labelled the dispute a “political disaster”, plus a time-consuming and expensive distraction. The battle had chewed up €60m in legal costs, he added.

Compared with the previous Capital Markets Day three years ago, Höttges appeared to judge that the Group’s balance sheet was now free from significant legal risk following the Toll Connect settlement. “All this [risk] has been cleaned up”, he asserted.

A DT spokesperson, speaking to Bloomberg, said the cash payment will impact neither earnings nor cash flow expectations (and DT had previously indicated it had put in place “adequate provisions” for risks from the dispute after a round of hearings in 2014). “ Deutsche Telekom examined the risks and opportunities associated with further pursuit of the arbitration process extensively, from both a legal and business perspective, and believes that the settlement is the best possible solution. ” — Thomas Kremer, Head of Data Privacy, Legal Affairs & Compliance, DT.

DT to exit Toll Collect,  but might loop round through the back door

Alongside closure of the dispute, it was confirmed — following earlier speculation (Deutsche Telekomwatch, #66 and #70) — that both DT and Daimler will withdraw from Toll Collect at the end of August 2018 when the current contract ends. The German government will then assume control of Toll Collect until a new operator is selected by March 2019. Daimler confirmed press reports that it does not plan to bid in the new tender.

It is unclear if DT will throw its hat into the ring for a second bash at Toll Collect, but there have been signs of continuing interest. In the FY17 Annual Report, released in February 2018, it indicated eagerness to secure another contract extension for Toll Collect, before the effort turned sour. “As the existing technology and development partner, we are in a strong position in the new tender process to submit a competitive offer to continue operation of the system, thanks to our detailed knowledge and expertise”, the Group said.

However, competitors are stepping up too. PPF Group, the investment vehicle of Czech billionaire Petr Kellner, was reported to be keen to make a bid for Toll Collect in collaboration with Sky Toll, a Slovak company. Italian transport group Atlantia has previously cited interest in usurping Toll Collect’s BMVI engagement (Deutsche Telekomwatch, #59).

While DT’s future involvement in Toll Collect is up in the air, road-payment remains a key area of focus for T-Systems (T-Sys). Road charging systems form one of the “Growth Portfolio” units created within T-Sys’ new organisational structure (see separate report), and the division has been developing multiple toll collection initiatives outside of Toll Collect (which appears to sit centrally within DT, rather than in T-Sys). These include an equivalent JV (Satellic) in Belgium, work within Austria’s toll collection IT systems, and a more recent tie-up with Daimler (and DKV Europe Service) to create a venture called Toll4Europe, that focuses on integration between national systems (Deutsche Telekomwatch, passim).

 

 

 

 

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Behind-the-scenes supplier-disruption project still alive, although DT appears to have dropped go-it-alone plans.