Tim Höttges spoke to Deutsche Telekom shareholders in Cologne for the first time as the company’s CEO. He explained where DT stands, what the market looks like and he presented the strategic target of making DT the leading telecommunications provider in Europe.
The main points from his speech at a glance.
Höttges looks back: First: DT is growing again! Net revenue of the Group increased by 3.4 percent in 2013. Second: Telekom is a reliable partner. We again reached our forecast, achieving 4.6 billion euros in free cash flow. Third: DT is creating value. We increased your invested capital in 2013. Total shareholder return – i.e., the share price combined with the dividend – was 56 percent! This kind of result is only possible if everyone contributes. Big successes are the sum of many small ones. Every employee must be aware of and assume his or her specific responsibility. This succeeded in 2013. My warmest thanks therefore go to all 230,000 employees on Deutsche Telekom's staff.
The US business: T-Mobile US reported a net increase of around 2 million branded postpaid customers in 2013. And we are still being inundated with customers. In the first quarter of 2014, we added 1.3 million own-branded postpaid customers. The strategy of T-Mobile US has also been well received, including by the stock market last year. The enterprise value rose by 53 percent between April and December. The question now is, where does our U.S. business go from here? First, we are in a very good position. We have reduced the risks for the entire Group. T-Mobile US can now finance itself entirely independently and has access to the capital market of its own. The growth continues, but we are facing enormous investments in network build-out and spectrum. Experts therefore think it would be best in the long term if, in addition to AT&T and Verizon, there were a third major operator on the U.S. market. That provider would have lower costs, better network coverage – and could invest even more. The decisive point is the view taken by the U.S. competition authorities. If the market were to be streamlined, T-Mobile US would be in an excellent position.
The situation in Europe: If we compare the European telecommunications industry with those in other major economic regions, then we have every reason for concern. Internet data traffic is growing worldwide. And the revenues associated with it are also growing. But not in Europe. Today, if you look at the companies that lead the global market in devices, semiconductor chips, Internet services – you will no longer find a single European company. The dominance of U.S. and Asian enterprises already seems unassailable. If we now lose the infrastructure as well, we will lose our digital sovereignty. But things are developing in the opposite direction. Google is making inroads into our core business with its video telephony service Hangout. And no one can deny that Microsoft has been offering communication services for a long time with Skype, or Facebook with WhatsApp. In doing so, they gain access to customer data such as movement profiles and addresses. This data is then marketed as profitable advertising business. We would never be allowed to do this. I really do wonder: Why are Google and the rest not regulated in the same way as we are? And what contribution do these companies actually make to building the costly infrastructure?
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The situation in Germany: Cable providers are offering very aggressive prices. And in 2013, they won around 90 percent of all new broadband customers in Germany. Vodafone is expanding and, after taking over Kabel Deutschland, is developing into our largest competitor in the fixed network, too. And finally, O2 and E-Plus have plans to join forces. Then Germany will have three big telecommunications providers in future. So we have to ask ourselves whether the current, one-sided regulatory situation, which is penalizing us, still suits the market and competitive environment. I do not think it does. This is a case of double standards. Why is our network treated differently, although we no longer dominate the market in many areas? And although other big competitors are waiting on the sidelines for their chance? I call on politicians to take action.
A look ahead: The strategy: We are now facing the next industrial revolution, Industry 4.0: machine-to-machine networking, the collection and analysis of data and, as a result, the automated control of processes. And the raw material of this revolution is the data, which runs through our networks. We make the data available. And we are making the data usable.
We want to achieve this with the following four strategic focuses:
- Integrated network: We are already building an integrated network that unites all these technologies and works far more efficiently. A key factor is the changeover to the so-called Internet protocol. It allows us to simplify the network architecture considerably. Much of what is hardware today will migrate into software. That makes it easier to operate because hardware elements no longer have to be set by hand and replaced. In future, the network will also be controlled via the software – and will move into the cloud. This brings us closer to a pan-European network architecture that works across national boundaries. Parallel to this, we are also building out the existing infrastructure. In mobile communications, we are focusing first and foremost on our high-speed LTE network. For broadband expansion in the fixed network, we rely on a combination of optical fiber and what is known as vectoring.
- Best Customer Experience: We differentiate ourselves from our competitors through individually-tailored service. We have an anytime, anywhere presence with 750 Telekom Shops, a technical staff of thousands, our retail partners, and our free service numbers. Individual customer support puts us a big step ahead of the Internet giants. We must maintain these customer relationships and prepare ourselves for new needs. That is why we will spend almost 300 million euros on new IT in our customer service by 2018.
- Win with partners: We are building a partner system for innovative services – which our partners simply link up to in the same way as to a power strip. We provide the fast access to standardized interfaces. In the background, we take care of the billing, security, and transmission quality. This gives our customers direct and easy access to these services.
- Lead in business: Companies have to digitize their business models, connect machines and industrial plants, and analyze large volumes of data. We make it possible. Our corporate customers in Germany and around the world value this experience – and the strict data protection rules in Germany. Nonetheless, we were often not profitable enough in our business with corporate customers in the past. Now we rely to a greater extent on standardized modules. Building blocks. This is more efficient and cuts costs. For our customers – and for us. From 2017, we want to generate 50 percent of T-Systems' total revenue with standardized IT.
Höttges on the dividend: Last year, we reached our forecasts and are therefore upholding our dividend plan. We have kept our dividend promises every time in a tough environment, which has not been the case at many of our major European competitors. The Board of Management and Supervisory Board propose to this shareholders' meeting that a dividend of 50 eurocents per share be paid. This dividend is again tax-free for shareholders in Germany, who can once again choose to receive the dividend in the form of shares.