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GERMANY: Phone Giant in Germany Stirs a Furor

by MARK LANDLERThe New York Times
May 27th, 2008

FRANKFURT — Germany was engulfed in a national furor over threats to privacy on Monday, after an admission by Deutsche Telekom that it had surreptitiously tracked thousands of phone calls to identify the source of leaks to the news media about its internal affairs.

René Obermann, chief of Deutsche Telekom, which tracked telephone calls by its board members to determine news leaks.

In a case that echoes the corporate spying scandal at Hewlett-Packard, Deutsche Telekom said there had been “severe and far-reaching” misuse of private data involving contacts between board members and reporters.

The disclosure, which was prompted by a report on Saturday on the Web site of the news magazine Der Spiegel set off a storm of protest from privacy advocates, journalists, and labor representatives at the company.

The German government, which effectively controls Deutsche Telekom through a 32 percent stake, demanded a thorough investigation, describing the spying operation as a “serious breach of trust.”

Prosecutors are looking into the case at the request of Deutsche Telekom. In its own investigation, the company said it discovered that its security department apparently hired an outside firm to track phone contacts between members of its supervisory board and several reporters in 2005 and 2006 — a tense period when the company was shaken by waves of layoffs.

“By handing over information to the prosecutor, we’re using the sharpest knife we have to solve the problem,” said a company spokesman, Mark Nierwetberg. “We’re not in any way trying to hide anything.”

With its use of outside contractors and its focus on the communication between boardroom and newsroom, Deutsche Telekom’s case is eerily similar to that of Hewlett-Packard, the computer equipment company based in Palo Alto, Calif., which hired investigators to obtain the private phone records of journalists who covered the company.

It is also the latest in a spate of privacy scandals in Europe, ranging from the Internet posting of the tax records belonging to 38 million Italians to the confidential financial information on about 25 million people in Britain, which was lost by tax authorities on two computer disks.

Privacy issues carry a particular resonance in Germany, where people have been zealous in guarding personal information ever since the state-sanctioned snooping of the Nazi and Communist regimes.

The German government has fought a lengthy battle for the legal right to conduct surreptitious online searches of computers belonging to people they deem suspicious during terrorism investigations. Experts said the Deutsche Telekom case may raise new hurdles to expanded state powers.

“No one likes to hear that people are using their mobile phone records,” said Lutz Hachmeister, director of the Institute for Media Policy in Berlin. “It gives one the sense that Big Brother can watch you and hear you.”

This is not the first time that journalists have been spied on in Germany. In 2006, a Parliamentary report accused the federal intelligence agency, the BND, of conducting systematic surveillance on some reporters. The government of Chancellor Angela Merkel ordered the agency to stop.

The BND came under scrutiny again recently when the government confirmed that it had paid an informant more than 4 million euros ($6.3 million) for a disk containing stolen bank data on hundreds of Germans who evaded taxes by steering cash to the Alpine principality of Liechtenstein.

In an odd link between these scandals, the most prominent person arrested so far on allegations of tax evasion is Klaus Zumwinkel, the former chairman of Deutsche Telekom’s supervisory board.

Germany companies have suffered through a season of scandal: Siemens, the engineering and industrial electronics company based in Munich, caught up in allegations of bribery, and Volkswagen, tarnished by payoffs to union representatives.

Deutsche Telekom’s spying strikes a chord among ordinary Germans because it remains the dominant provider of fixed-line phone service here despite the inroads made by rivals in recent years.

“This company has special access to the records of its customers,” said Michael Konken, chairman of the German Journalists’ Association. “That means it has a special obligation to be trustworthy.”

Mr. Konken said he was satisfied by the response of Deutsche Telekom’s chief executive, René Obermann, who referred the company’s findings to the state prosecutor in Bonn on May 14. He also hired a law firm in Cologne to do an independent investigation.

Deutsche Telekom said it acted after receiving a letter in April from an outsider who had been hired to track the phone records of the 20 members of the supervisory board. By law, the company’s board is evenly split between representatives of shareholders and employees.

It was not the first time that Deutsche Telekom uncovered spying. In the summer of 2007, the company said, executives were tipped off by an insider to a single case of misuse of private data. Deutsche Telekom said it shook up the management of its security department, bringing in a retired senior security official from the German interior ministry to oversee it.

For Mr. Obermann, the scandal adds an enormous new challenge to an already difficult job. He was named chief executive in late 2006, after the spying was reported to have occurred, though he did work for Deutsche Telekom before that, running the wireless unit, T-Mobile.

Shares of Deutsche Telekom rose slightly on Monday, which analysts said may reflect relief that the scandal does not appear to involve the current management. Mr. Obermann has worked to limit the damage to the company, telling the mass-market paper, Bild, that the “personal data of our millions of fixed-line and mobile customers was secure.”

The spying, people at the company said, did not involve listening in to phone conversations, but rather tracking calls made by members of the supervisory board and hunting for matches with numbers belonging to reporters. To identify those, Deutsche Telekom hired a data-mining firm in Berlin. For much of 2005 and 2006, Deutsche Telekom was in the midst of a painful cost-reduction program led by its previous chief executive, Kai-Uwe Ricke. Reports of layoffs circulated regularly on news wires and in newspapers, often before they were announced.

“When the layoffs were leaked, which they always were, it caused huge outrage from the unions,” said Theo Kitz, an analyst at Merck Finck & Company, who follows Deutsche Telekom. “It was always assumed the leaks were from the labor side of the supervisory board.”

Labor leaders at Deutsche Telekom did not return a call seeking comment. Lothar Schröder, a member of the supervisory board and a leader of the company’s main union, ver.di, said in an interview with the German newspaper Die Welt, “If the accusations are confirmed, it is an enormous scandal.”





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