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Friday, 21 January, 2000, 13:14 GMT
Profile: Mannesmann - turning pipes into phones

Mannesmann's head office in Duesseldorf

Just over 10 years ago, Mannesmann was a typical German manufacturing giant, based in Germany's industrial heartland, the Ruhr.

Mobile merger battle
Mired in low growth and about as nimble as a supertanker, the firm was heavily dependent on the ups and downs of the steel market.

Today, Mannesmann is at the forefront of a technological revolution, transforming itself into one of Europe's leading telecom providers.

Mannesmann has turned out to be that rare beast, a company that successfully straddles the worlds of old industry and the high-growth service sector.

Revolutionary roots

Seamless tubes were once the mainstay of the Mannesmann business
The roots of the firm's success go back to another technological revolution, when in 1885 Reinhard and Max Mannesmann invented a method to produce seamless steel tubes. Five years later they set up their company, soon moving from Berlin to Duesseldorf.

These pipes were a crucial component of the modern industrial revolution, used for everything from building oil pipelines to the pipes used in mass production factores.

From day one, Mannesmann was a firm with global ambitions. Factories in Germany exported to Western and Northern Europe, a Welsh factory supplied the British Empire and North America, works in Austria delivered tubes to Russia, Eastern Europe and the Mediterranean.

From coal to steel

During the first half of the 20th century, Mannesmann turned itself into a vertically integrated steel company.

Mannesmann began to diversify its business in the 1960s
It mined the coal to fire its own steel mills, sold the finished steel products, and expanded into the production of engineering equipment.

After World War II, the Western allies ordered a break-up of the company, the steel tube business, the mining operations and the steel and engineering business. But just three years later, Mannesmann was one again.

During the 1970s, the company began a careful diversification. It first added a string of engineering firms to its portfolio, and by the late 1980s began to move into the automotive business.

Mobile Mannesmann

Mannesmann's call centres service Germany's largest mobile phone network
The firm's biggest transformation, though, began in 1990, when Mannesmann was awarded Germany's first private mobile phone licence.

Two years later, the Mannesmann D2 network was operational, and quickly established itself as the market leader, beating the former phone monopoly Deutsche Telekom into second place.

The firm focused its business on four areas - engineering, pipes, automotive and telecommunications - and sold off everything that did not fit in.

Telecoms soon became the top growth area.
  • Mannesman joined up with Germany's rail network to create Arcor, a landline phone business. It later acquired a majority in the firm, putting it into prime position when the country's phone market was fully liberalised in January 1998.
  • Joint ventures with Olivetti in Italy led to the creation of mobile phone network Omnitel and landline operator Infostrada, and later took full control of both firms after Olivetti moved on to prey on Telecom Italia.
  • In France Mannesmann bought a stake in phone company Cegetel, making it a partner of media and water conglomerate Vivendi.
  • Austria's tele.ring was next on the shopping list, followed by Britain's Orange, which was bought in October 1999 for 20bn.

Mannesmann boss Klaus Esser believes that the combination of landline networks and mobile phones is unbeatable
In 1999 alone, Mannesmann spent $44bn on acquisitions.

The firm is now Europe's leading private sector phone operator and controls two of Europe's three largest mobile phone companies.

The firm's strength is that - unlike Vodafone - it owns a controlling stake in most of these companies.

Turnover turnaround

Mannesmann's revenue streams reflect the changes.

In 1980 the tube business accounted for 54% of turnover, engineering for 41%.

Ten years on earnings had doubled, but revenue from steel tubes was a mere 28% of turnover, while engineering accounted for 48% and automotive business for 14%.

In 1998 the picture had changed dramatically again. Turnover was three times that of 1980, but tubes brought in only 12%. Automotive was up at 29%, engineering down to 35%.

The new telecoms division had surged to account for 24% of earnings.

Employing 116,000 staff, the company's 1998 turnover weighed in at 19bn euros.

This daring transformation made Mannesmann a stock market darling, but a niggling question remained: What have steely things and mobile phones in common?

Mannesmann's chief executive Klaus Esser has promised to address this issue. He wants to split the company into two separate entities, an announcement he made well before Vodafone made its bid for his company.

Mannesmann's automotive sector has seen strong growth in the 1990s
"Engineering & Automotive" will continue to do Mannesmann's 'old' business, while "Telecommunications" will be the firm's high-growth spin-off.

Mannesmann's headquarters are still located in the centre of Germany's rust belt, the Ruhr area once dominated by steel and coal. But Mannesmann has rejuvenated itself, like much of the region.

But despite its German roots and its Duesseldorf headquarters, Mannesmann is not a truly German company anymore.

While Vodafone's bid for Mannesmann's may have aroused a lot of passion in Germany, most seem to have forgotten that 60% of the firm's shares are already owned by investors from abroad.

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