February 2, 2012
I attended Trend Forum 2012 last week in Bonn, effectively an analyst day where Deutsche Telekom presented its innovation strategy. There was no focus on overall group strategy. Still, innovation matters greatly as part of the repositioning efforts of telcos. As the role of telcos in the value chain is weakening, largely due to increasing competition by over-the-top providers (OTTPs), telcos need to differentiate themselves increasingly via service provision and their ability to innovate quickly and prolifically. Failure to do so will cement their status as transport utilities for OTTPs.
Deutsche Telekom’s Core Beliefs focus on: a) building its platform business by partnering with software firms; b) leveraging the cloud by providing high QoS and secure connectivity; and c) leverage differentiating terminals through device management and customer experience provision. These Core Beliefs form the basis for pursuing its focus growth segments in digital media distribution, cloud storage, cross-device digital advertising, classified marketplaces, and mobile payment in addition to the core telco business. These targets match up well against our evaluation of best cloud markets for telcos.
A defining characteristic of next-generation network (NGN) infrastructure and the move towards cloud-based business models is openness. As a consequence, OTTPs increasingly deal directly with end customers across the network. Relationships between telcos and other members of value chain become more complex. Emerging cloud services by telcos need to become network agnostic to deliver cross-network solutions and ensure cloud interoperability. Deutsche Telekom has made significant progress in the recent past to adapt its strategy to these new telco realities.
Although none of the plans Deutsche Telekom described at the event were revolutionary by themselves, Deutsche Telekom credibly communicated its willingness to gradually adapt its business model to defend its position in the ICT value chain. For instance, Deutsche Telekom demonstrated its video conferencing offering, VideoMeet, which allows customers to set up video conferencing services on a pay-per-use basis, irrespective of the underlying video platforms, be it Polycom, Tandberg, or Skype — or which telco the conferencing partners use. As part of this offering, Deutsche Telekom focuses on the role of video-broker or intermediary. In our view, this broker role is at the heart of emerging telco business models and provides the basis for telcos to move into other areas like home area networking, connected car, online health, etc. Moreover, a public launch of a cloud initiative is planned for Cebit in March that will definitely strengthen DT’s position as a major cloud operator going forward.
On the downside, the event provided no insights into Group strategy and the big question about the future of T-Mobile US after the failed merger with AT&T. Similarly, there was little information about the exact interaction between Deutsche Telekom and its IT services arm, T-Systems. Both issues are of great significance for Deutsche Telekom’s ability to deliver on its plans: the future of T-Mobile US has significant implications for Group cash flow and thus investment capacity; the role of T-Systems within Deutsche Telekom affects Deutsche Telekom’s ability to develop IT and cloud-based solutions. To increase its credibility, Deutsche Telekom needs to address the broader picture of how it will fund its innovation agenda.