The collapse this week of a planned take-over by T-Online, Deutsche Telekom's Internet subsidiary, of Britain's Freeserve Internet service provider, has sent Freeserve's shares into free fall. Following the sharp drop in the share price of Amazon.com, Freeserve's difficulty in finding a buyer appeared to confirm a growing conviction that investing in the Internet represents the fastest way to lose money since the over-expansion of the railways in the 19th century.

But the botched deal also highlighted Deutsche Telekom's lonely search for a partner that could transform the German telecommunications giant into a world-class player. Telekom's chief executive, Mr Ron Sommer, thought he had found an ideal match last year when he tried to merge with Telecom Italia. The merger fell apart at the last minute amid mutual recriminations - but not before news of the negotiations had effectively wrecked Global One, Deutsche Telekom's alliance with France Telecom and the US company Sprint.

Mr Sommer's hunt for an international partner is not driven by expansionist ambitions alone but by falling profits at home due mainly to price wars with a host of new telephone companies. Telekom's profits fell from a high of £4 billion (€5 billion) in 1998 to £2.5 billion last year as the company slashed prices to prevent hundreds of thousands of customers switching to its competitors.

The balance sheet would look even worse but for the fact that Telekom has been on a selling spree, offloading parts of its cable television network and selling much of its vast property portfolio in Germany. The company's financial director, Mr Karl-Gerhard Eick, acknowledges that such sell-offs will remain necessary for some time to come.

"The sale of parts of the company that are no longer needed and are worth billions will remain part of our budget planning for the next two or three years," he said.

Despite Telekom's poor business performance under Mr Sommer's leadership and the almost universal view among analysts that its shares are overvalued, each of the company's four share issues have been over-subscribed. Mr Sommer knows, however, that the only way Telekom can increase its profits is to create new growth areas and he has devised an ambitious strategy to achieve this aim.

Besides investing £800 million in upgrading conventional phone lines in Germany for broadband Internet access, Telekom hopes to expand its business in mobile telephony, data communication systems and the Internet. Armed with a war chest worth about £80 billion, Mr Sommer is looking for take-over targets in all of these areas, with a view to creating the most broadly based telecommunications company in the world.

While Vodafone's Mr Chris Gent focuses on mobile telephony, AOL's Mr Steve Case confines himself to the Internet and IBM concentrates on data solutions, Mr Sommer wants to do everything. His plan can only succeed, however, if the company expands internationally, and at present, less than 10 per cent of Telekom's profits come from outside Germany.

Since the collapse of the planned merger with Telecom Italia, the German company has become more strict in its criteria for potential partners, according to board member Mr Jeffrey Hedberg.

"A minority shareholding or a joint venture in which both sides have an equal say is out of the question for Telekom," he said.

Telekom has been wooing a second, potential partner from the Mediterranean recently, negotiating a possible merger with Spain's Telefonica. Most of the business details were agreed but the deal fell through when the two sides failed to agree on the site of the joint company's headquarters.

The Spanish refused to move to Bonn and the Germans would not consider going to Madrid. A compromise proposal to site the office in Amsterdam was rejected by the Spanish side.

Mr Sommer insists that, although Telekom is keen to expand abroad, it will not be rushed into making the wrong decision and he is considering a number of prospects in the United States that may become available in the coming months.

In the meantime, as Eircom's shares continue to fall amid bickering among the company's major shareholders, Mr Sommer's strategists may soon turn their acquisitive eyes towards Ireland.