Deutsche Telekom has presented its strategic plan for 2010-2015, aimed at developing new revenue sources and securing additional customers. At the same time its 'Save for Service' programme targets cost reductions and margin improvements.
The operator's presentation initially impresses with its thoroughness, but what else could we expect from Deutsche Telekom? In contrast, Telefonica's strategy announcement last week, on its bravo! plan for the period to 2012, was quite brief. A few solid PowerPoint presentations are one thing though, implementation and execution of the plans is another.
Looking at the financial performance, Deutsche Telekom, just as KPN, is struggling to achieve positive sales growth. Telefonica has more growth characteristics, but it's also barely beating inflation. The same as KPN has done since 2005, DT will have to focus on cost savings for the coming years. The question is whether the operator can succeed with this, given its large and cumbersome organisation, but there should be plenty of room for achievement. DT, similar to its peers, is also facing a number of network intitiatives, such as all-IP, HSPA, LTE and FTTH. Costs come before profits, but over the long term these innovations wil generate efficiency advantages.
DT has dreams of income from a number of new services. These are also directly linked to network investments. In addition to developments such as the 'connected home' and 'gigabit society', the German operator is looking at alliances with third parties, just as Telefonica announced. It's clearly hit home that the incumbents can better partner with OTT (over-the-top) service providers, rather than try and compete directly.
And finally, the concept of scale. In one of its slides, DT shows the positive correlation between scale and EBITDA margin. This proves the need for 'market-leading positions', according to the operator. DT has already reached that in a number of European markets: in Germany and Eastern Europe as the incumbent operator, in the UK via its joint venture with Orange, and in the Netherlands with its takeover of Orange. What remains is the US. T-Mobile USA's roll-out of HSPA+ will continue unabated, but the market specualtion over the future of the US operator and M&A possibilities undoubtedly also will persist. DT anticipates this by saying the focus will be on the existing footprint and its preference is for in-market consolidation. If it does come to a takeover, then the return must be at least 200 basis points more than the weighted average cost of capital. In other words, DT does not expect any controversial takeovers.
