Deutsche Telekom Releases New Strategy, Seeks Growth from Data and T-Systems

Deutsche Telekom has presented a strategy for the company's medium-term development, labelled as "Fix – Grow – Innovate". Under the strategy, the company intends most of all to change the composition of its revenue base further away from traditional voice-based telecoms services towards new, data-based areas.

To facilitate the change, the operator has identified five growth areas, which it expects to generate nearly 30 billion euro (US$41 billion) of revenue by 2015, or nearly twice as much as currently.

1. Revenue from mobile data traffic is to increase from just below 4 billion euro to around 6 billion euro in 2012 and approximately 10 billion in 2015.
2. Internet offerings—such as on-demand download services for music, video, and games—are set to deliver 2–3 billion euro in revenue by 2015, compared with 800 million as of now.
3. The "connected home" offerings, which refer mostly to residential fixed broadband and IP TV, are to generate 7 billion euro by 2015, up from the current level of 5 billion.
4. Revenue from the corporate ICT solutions unit, T-Systems, is to amount to around 8 billion euro by 2015, an increase of more than 2 billion, driven particularly by dynamic services and cloud computing.
5. "Intelligent network services", referring to the segment of third-party applications that will be facilitated by the operator's networks and services, such as telemedicine, vehicle telemetry, and smart grids, are to generate total revenue of around 1 billion by 2015.

Outlook and Implications

• LTE, FTTH Investments in Germany: In its home market, Germany, Deutsche Telekom plans to push the strategy by investing around 10 billion euro between 2010 and 2012 in fibre-optic and mobile network equipment. Significantly, the fibre deployments will also involve fibre-to-the-home (FTTH), implying a change from the carrier's current, VDSL-based strategy; Deutsche Telekom expects to connect around 10% of all German households, or 4 million, to FTTH by 2012. This is meant to give a boost to the uptake of the company's IP TV offering, with Deutsche Telekom aiming to expand the IP TV customer base by 2.5–3.0 million by 2012 and up to 5.0 million by 2015 (see Germany: 21 January 2010: Deutsche Telekom Reaches One mil. IP TV Customers, Plans to Develop HD in 2010). On the mobile front, Deutsche Telekom will deploy HSPA+ across the country, planning to upgrade to Long Term Evolution (LTE) later, providing that it will have access to the needed spectrum.
• Smartphone Boost for T-Mobile USA: Having decided to try to resolve the difficulties of its U.K. business by the Orange tie-up, Deutsche Telekom has been expected to announce more details on how it intends to turn around its disappointing U.S. mobile carrier, T-Mobile USA. As per this, the strategy offers relatively little new, and the firm says it is convinced that the current strategy—moving the focus further to data services—is the right one. By 2012, T-Mobile USA is to cut the competitors' lead in the generation of monthly data revenue per customer by 60%, as well as to double the number of smartphones on its network by end-2012, to around 8 million in total.
• Stronger Reliance on T-Systems, Long-Term Bet on M2M: As a whole, the new strategy appears as quite incremental and predictable, reiterating mainly what Deutsche Telekom was geared to do already under its previous roadmap as well as what most telcos are going to do as well. What stand out, at the same time, are an increasingly strong emphasis on the ICT solutions arm, T-System (see World – Germany: 9 March 2010: T-Systems Joins SAP's Global Services Partnership, Plans to Focus on Enterprise Mobility), and possibly the strategy's fifth pillar, "intelligent network services". As regards the latter, in recent months Deutsche Telekom has been notably active in establishing various machine-to-machine (M2M) partnerships, and although the mid-term revenue prospects from these plans are rather modest they may give the company something of a first-mover advantage against other operators (see World – Germany: 2 February 2010: Deutsche Telekom Continues M2M Push, Announces Partnership with Telit Communications).