On 17 March, Deutsche Telekom (DT) announced the next stage of its strategic focus. Its “Fix – Transform – Innovate” strategy will run alongside its “Save for Service” program as DT positions itself as a “global leader in connected life and work”. Behind the announcement, DT also demonstrated that it has a clear tactical and operational plan for continuing to execute its transformation program.
Three years after the previous “focus, fix and grow” strategy was introduced, Francis Deprez, SVP of group strategy and policy for DTAG, announced that DT is ready for the next phase of its strategic direction, which it defines as follows:
- fix its mobile-centric assets, ensuring the robustness and efficiency of network infrastructure and businesses
- transform the business to ensure it leverages its integrated assets and builds networks and processes for what DT calls the “Gigabit society”
- innovate in the areas of connected life across all screens and connected work with unique ICT solutions.
DT’s new strategy is supported by seven core beliefs. Each is backed by a set of projects with defined operational and financial metrics, milestones, and KPIs.
- Infrastructure continues to form the basis for business.
- NGN and standardized IT will drive efficiency and success.
- The mobile Internet and online services present growth opportunities.
- Customers expect secure and universal access to all services from all devices.
- Cloud computing and dynamic computing offer major potential for growth.
- Intelligent networks support the transformation process in industries.
- A strong position in national markets is a prerequisite for success.
It’s unsurprising that DT sees its infrastructure as a key value asset; it comes as more of a surprise that it views its network as a means of price differentiation. We are unclear how this will play out in its national market where cable is widespread, or indeed internationally, where competition in the managed network services market is intense. Unquestionably there is value in the provision of an all-IP environment and an NGN able to deal with the “Gigabit society”, both through connectivity and an intelligent infrastructure based on standardized IT platforms and open APIs. DT aims to reduce its proprietary software and have 80% commercial, off-the-shelf ( COTS) penetration by 2015. This should see provisioning times improve and bring further benefits around consumer experience/satisfaction.
Mobile internet and online services opportunities will continue to prove a focus for DT; it is expecting to see combined revenues double in five years, contributing in excess of €12 billion to the company’s revenues. DT sees several routes to market for its online services including its own retail platforms Entertain and Home, APIs, and OTT. It is also looking at how the cloud can be further used to serve the SME community, and how to develop as a delivery partner for the health, media, transport, and energy verticals.
Tough decisions lie ahead
The most challenging of DT’s stated “core beliefs” is addressing the need for secure and universal access to all services from all devices. While many see the telco role diminishing to a LEAN (low-cost enabler of agnostic network) role supporting infrastructure only, DT sees itself as a SMART (services, management, applications, relationships, and technology) player serving the mass market. Extending its domain ownership to managing all devices in a multi-screen environment including laptops and TVs, as well as managing all content, is an ambitious strategy and will take time to execute. DT will need to articulate how it intends to deal with its third-party suppliers, and stand apart from consumer electronics companies looking to monopolize the connected home environment.
DT is also committed to reviewing its international businesses. Operating as number three or four, particularly in a mature market, can translate to unsustainable wafer-thin margins. The company’s decision to form a JV with Orange in the UK, for example, will move it from number four to number one in terms of subscriber numbers and revenues. The US is another market where DT needs to consider its options.
DT downplayed two themes here that have featured prominently with its peers; the role of its employees and the role of its partners. The German trade unions have met with success in protecting workers’ interests in the past. The integration of business units in Germany will need careful management. For suppliers, co-opetition is one consideration, but the reality of having a competitor in one market acting as a supplier in another area will be uncomfortable and raises the question of how DT will truly differentiate itself.