Competition leads to better service and communication products
If, once upon a time in Germany, you went looking for a secure job, you were well advised to sign up with Deutsche Bundespost. Working for them made you a civil servant. The Federal Postal Service held the monopoly on telephone service and was for a long time the second largest employer in the country. The employees’ security cost the company dearly. Soaring costs of wages and pensions and rigid structures allowed little flexibility. A modern telecommunications enterprise functions the other way round: It needs fl exible structures to constantly generate innovations in order to satisfy customers’ requirements and to prevail against business rivals in global competition.
The 1980’s saw a liberalization of the European telecommunications system and the early 1990’s the emergence of the internet. The Federal German government realized that both these new arrivals would require innovations – i.e. investments – on a grand scale. And the Deutsche Bundespost clocked up an annual deficit of 3 billion Deutschmarks. The result was the subdivision and subsequent privatization of the Bundespost in three sections – mail, telecommunications and banking. Telecommunications now came under the auspices of Telekom. Its logo, the magenta colored T, quickly became an icon.
That T was a giant – in chains. Because of strict regulations: To this day, the Federal Network Agency allocates frequencies and fi xes the fees for the rental of telecommunications facilities and networks, which belong to Telekom, to be used by other telecommunications companies. Which means: Telekom has to invest in infrastructure – which then is used by its competitors and, furthermore, it is obliged to provide telecommunications facilities in all areas of the country. And to this day, the German state owns 30% of the shares, making it Telekom’s biggest shareholder. There was never any doubt that transforming the state-supertanker of telecommunications into a private modern technology company would be anything but plain sailing. Indeed, it turned out, at times, to be a rough ride. The sale of stocks which took place in three stages in 1996, 1999 and 2000, triggered off a hitherto unknown share-hype. Many of those who rushed to buy the Tshare understood the potential of modern telecommunications but ignored the risks any privatization entails. When the monopoly goes, the competitors come in.
Privatizing, re-structuring
With increasing use of mobile telephony the Federal Network Agency put UMTS licenses up for auction in 2000 with the result that 50 billion € – more than in any other country – fl owed into the German state’s coffers. A second auction followed in 2010. Re-structuring requires watching many areas simultaneously: Customers, manpower, global expansion and innovation. Telekom took on the challenge. First, think of your customers. They are kings, serve them. Second, downsize staff – if you can: Today, 48,000 of Telekom’s 120,000 employees in Germany are still civil servants. Step three: Shop abroad. Telekom started going global in a big way. Nearer home, in Europe, investing in the Greek telephone company OTE turned out to be a smart move, as OTE opened Telekom markets in southeast Europe. Telekom holds 40 % of OTE which is today a profi table enterprise. In Great Britain, Telekom and France Telecom merged in 2010 to become the largest mobile network operator. Telekom is currently present in more than 30 countries.
In the US, Telekom purchased VoiceStream in 2001 and gave it its new name: T-Mobile USA. Ten years later, the company had become so attractive that American telecommunications giant AT&T offered $39 billion. Regulatory and legal constrictions prohibited the deal. But, as a break-up fee, AT&T paid $3 billion and agreed to allocate to T-Mobile USA frequencies for mobile communication as well as the use of its national roaming facilities. TMobile USA, with 33 million mobile customers and the largest HSPA+/ 4G network, is now the fourth biggest wireless carrier in the US. Which – good news for its 32,000 employees – continues to win the “Best Place to Work” award. USactivities still make for a quarter of the annual group turnover. Telekom generates almost half of its revenues abroad, mainly in the US. In Germany, Telekom has more than 23 million land lines and 35 million mobile customers. With a turnover of 24 billion € Telekom makes a reliable profit at home. The future is high-tech. Data volume is increasing at a staggering rate. The forecast is for 19 billion connections worldwide in 2016 (by comparison: 10.3 billion in 2011), whilst the number of internet users will rise to 3.4 billion people, roughly 45% of the world population. The volume in 2016 will amount to 1.3 zettabytes (1300 billion gigabytes). This requires committed investment in future infrastructure. Hence step four in the re-structuring process: Invest in new technologies.
By 2016, 50% of internet traffi c will be operated via WLANconnection. Telekom already provides the world’s largest WLAN network. Early on, Telekom started developing cloud facilities, storing and synchronizing data and making them accessible anytime anywhere. Here Telekom is renowned for its high security standards. Mobile internet, integrated networks and systems solutions also stand on the innovation agenda. Cloud computing will be of increasing importance in Telekom’s highly profi table T-Systems section too, providing ITC services for public institutions, corporations and businesses of various sizes as well as for health care.
One key to innovation is Telekom’s close cooperation with Israel. For 15 years now, Telekom has been active here. CEO René Obermann states why: “Israel’s economy is known for its creativity, which shows itself in technological strength and in the ability to innovate. Moreover, Israelis have an exemplary start-up mentality and are ready to take high business risks.” Obermann has just agreed to join the board of trustees of the German-Israeli Future Forum foundation.
Telekom is not only cooperating with small start-ups and large Israeli companies but also in fundamental research at Ben-Gurion- University of the Negev. Here Telekom operates an R&D-center with 100 engineers developing internet security technologies. Hacker attacks on the PlayStation network, on Lockheed Martin and the CIA should alarm everybody. Telekom warns of a scenario of a cyber event on the scale of Fukushima or of terrorists gaining control over an airport via the internet. This makes internet security a matter of highest priority.
Talking of innovation: Compared internationally, very few women make it to the top in large corporations in Germany. Telekom has understood that this means the neglect of an enormous potential. Hence Telekom has decreed that by 2015 a quarter of its top positions will be fi lled by women. And with Dr. Marion Schick (Human Resources) and Claudia Nemat (Europe and Technology) having already been appointed to the group board of management, it looks like Telekom will keep its word.
Within two decades, the musty German telephone monopolist has evolved into a shining global player. Once Telekom has completed the transformation from state-owned monopoly to hightech innovator, it can serve as model for former public enterprises.