I've loved playing Monopoly since I was a kid. Something about frantically snapping up assets, then simply squatting as other players unavoidably pay you cash, seems too good to be true.

In the real world, it is too good to be true. Governments in the U.S. and the world over have been keen about limiting and outright destroying monopolies. You need only look as far as the breakup of AT&T (NYSE:T) in 1986 or the European Union's recent demands and fines against Microsoft (NASDAQ:MSFT) to see what I mean.

German telecommunications giant Deutsche Telekom (NYSE:DT) has been taking a few turns in the Monopoly jail cell as well, most recently when Germany's regulatory watchdog, the Federal Network Agency, ruled that the company must allow competitors to use its coveted broadband network infrastructure.

How to slay a giant
The recent action calls for Deutsche Telekom to open up its new, high-speed broadband infrastructure to competitors, giving them the right to offer services in the same markets as the German incumbent. This includes its superfast fiber-optic network and VDSL infrastructure, which supports services such as broadband Internet, Internet-based television (IPTV), and video on demand.

This recent decree by Germany's regulatory body is only a small piece of a much larger picture. The European Union (EU) has been vocal in the past few years about too little competition in some telecommunication markets of its member countries. The EU even went as far as suing Germany earlier this year in response to a law passed that exempted Deutsche Telekom's high-speed broadband network from regulation, in effect keeping competitors off the network. The recent action by the Federal Network Agency is seen as an effort to reverse course and appease the demands of the EU.

Anti-competitive roots
With its headquarters in Bonn, Germany, Deutsche Telekom is not only the largest telecommunications company in Germany, but also in the entire European Union. The company was formed in 1996, when the former state-owned monopoly Deutsche Bundespost was split apart in an effort to privatize its markets. With its sheltered roots, it's no surprise that the company is struggling with open competition in a more capitalistic environment, even more than a decade after going private.

The main issue facing Deutsche Telekom is the influx of competition into markets it was used to having all to itself. Plus, nimble competitors employing new technologies that allow cheap Internet telephony, such as eBay's (NASDAQ:EBAY) Skype, have eaten into its customer base. The company has been struggling to find ways to cut costs and stay profitable in the new competitive environment, but continued dissatisfaction with operations has led to the board forcing out two CEOs in the last five years.

The pains of privatization
Deutsche Telekom's problems are aptly reflected in its financial performance over the past couple years:




Net Revenue (billions)




Free Cash Flow (billions)




Total Narrowband Lines (millions)




Source: Deutsche Telekom. Results based on today's exchange rate of 1 Euro = 1.34807 $U.S.

In 2006, net revenue growth was only 2.9%. Growth in international wireless markets, one of the few bright spots, helped temper the 2.2 million landline customers the company lost, mostly in its home market.

But perhaps the most telling financial indicator is Deutsche Telekom's dwindling free cash flow, which plummeted 27% in 2006 and 24% in 2005. Essentially, competing companies are eating away at the premium profits the company used to enjoy on its service offerings.

Deutsche Telekom's stock performance has been lackluster as well, returning investors virtually no capital gains over the past three years. After a huge run in the go-go 1990s, the stock plunged back to earth and still sits below its original IPO offering price in 1996. Investors' lone comfort? The company has maintained a dividend yield of slightly more than 5% in the last few years to offset the miserable performance.

With an eye on realizing value from a struggling giant, U.S. private equity firm Blackstone Group bought a 4.5% stake in Deutsche Telekom a year ago for $3.6 billion. With a seat on the supervisory board, the company has pushed for reform at Deutsche Telekom in order to better compete in the global market.

Where's the value?
Value-oriented investors -- even some here at the Fool -- have been circling Deutsche Telekom for a while, wondering whether the beaten-down shares present a compelling opportunity. With the company in the midst of major reforms, however, significant risk still exists. Deutsche Telekom cut its earnings forecast for 2007 again in January, citing the brutal competitive environment.

For investors looking at foreign telecoms, Motley Fool Global Gains selection SK Telecom (NYSE:SKM), which has seen climbing returns on invested capital despite a saturated market, may be a more compelling play. With all the turmoil at Deutsche Telekom, I'd advise watching this stumbling giant with a measure of patience.

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Fool contributor Dave Mock always picks the car token when playing Monopoly and has a penchant for the cheap properties -- Baltic Avenue, baby! He owns no shares of companies mentioned here. Microsoft is a Motley Fool Inside Value recommendation. eBay is a Motley Fool Stock Advisor recommendation. Dave is the author of The Qualcomm Equation. The Fool has a disclosure policy.