Today’s update to Deutsche Telekom AG’s (DTAG’s) business strategy is a development, rather than a reinvention, of the ‘focus, fix and grow’ approach the operator introduced in 2007. The plan recognises economic and market realities by emphasising the need to maximise efficiency and secure a leadership position in low-growth markets. It also acknowledges the paramount importance of infrastructure as a differentiator and the key role for the CSP as a service enabler.
Like the previous plan, DTAG’s newly restated strategy focuses on three main areas of activity:
- fix – improve the performance of mobile-centric assets
- transform – take advantage of the ‘one company’ initiative that has integrated fixed and mobile assets, and build networks and processes for what DTAG terms the ‘gigabit society’
- innovate – support DTAG’s vision of the connected life across all screens for consumers and connected work for business with unique ICT solutions.
DTAG has identified seven strategic principles to guide its efforts in achieving these aims (see Table 1).
| 1 |
Infrastructure continues to form the basis for business. The marked increase in data traffic demands ever faster networks and exceeds long-term price deterioration. Further sales opportunities originate from price differentiation. |
| 2 |
Next-generation networks and consistently standardised IT are crucial to efficiency and success. |
| 3 |
The mobile Internet and online services present considerable opportunities for growth. |
| 4 |
Customers expect secure and universal access to all services from all devices. |
| 5 |
Cloud computing and dynamic computing offer major potential for growth. |
| 6 |
Intelligent networks support the transformation process in industries such as energy, healthcare, media and transportation. |
| 7 |
Strong positions in national competition are a prerequisite for profitable business. |
Table 1: DTAG strategic principles [Source: Analysys Mason, 2010]
The 2010 strategy does not represent a radical change of direction. For the most part, it is a codification of many of the objectives that DTAG has set previously and started to achieve. This continuity is positive because it means that the company need not undergo any massive upheavals this year. It also indicates that DTAG’s strategy is broadly correct, so does not require an overhaul.
DTAG’s approach also recognises economic and market reality. Growth opportunities remain in DTAG’s footprint, but much of the group’s success will depend on its ability to improve efficiency. Making efficient use of existing assets is a key focus of the updated strategy. For example, the operator has merged its fixed and mobile operations in various territories, most notably Germany, and now intends to take advantage of the resulting convergence and cross-selling opportunities. DTAG is also exploring the potential synergies with the newly transformed T-Systems – particularly in terms of IT/telecoms integration and taking advantage of its strength in addressing vertical industries.
In low-growth markets, such as Western Europe, DTAG has identified that it needs to be either the leading or second-place player. In markets where it has not achieved this, it intends to do so through M&A. We have already seen evidence of this strategy – DTAG merged with Orange in the UK because its fourth-place position in this market was untenable.
The operator has identified the main growth opportunities for the next 2–3 years: content-based services (such as VoD) in the fixed market; and machine-to-machine, cloud computing and mobile broadband services in the mobile market. Data services accounted for just EUR4 billion of DTAG’s EUR65 billion revenue in 2009. The group aims to increase this to EUR10 billion by the end of 2015.
One of the main emerging themes has been DTAG’s acceptance that it has a strong role to play as the enabler of access to diverse services, rather than necessarily the provider of each service. Its My Community initiative exemplifies this. It allows mobile subscribers to first select the person they want to communicate with and then choose the communication method – for example, SMS, email or the messaging functionality of a social network. This puts the user, rather than the technology, at the centre of the experience. It is also impossible for over-the-top service providers to replicate, and therefore cements the MNO’s position in the value chain.
DTAG has recognised that infrastructure is its key differentiator and will be critical to its long-term success. The operator anticipates a 500% increase in fixed data traffic and a 6000% increase in mobile data traffic during the next five years. These growth estimates for mobile data are higher than those of Analysys Mason for the European market as a whole, but the implications remain the same: bottlenecks will be inevitable and networks will struggle in places as traffic volumes grow. As a result, there will be competition for scarce network resources. In that situation, the only way to control the user experience is to control the network.
The announcement does little to address legacy services, such as voice, individually. There is no mention of strategies for managing the decline in these services, other than plans to reduce costs and promote double- and triple-play packages. Other telcos have made recent announcements about HD voice, for example, while T-Mobile has been silent on the subject.