Deutsche Telekom

Hard Call

timotheus höttge dpa picture alliance oliver berg
Big changes beckon at Germany's telecom giant.
  • Why it matters

    Why it matters

    German telecoms giant Deutsche Telekom is considering major restructuring plans and may shed thousands of jobs in its home market by 2022 in order to remain competitive.

  • Facts

    Facts

    • Deutsche Telekom is struggling in its domestic market, up against tough regulation, fierce competition, changing consumer behavior and ever tighter profit margins.
    • Deutsche Telekom employs 68,300 people in Germany, compared to 20,000 in the U.S.
    • Rival Vodafone employs 14,000 people in Germany.
  • Audio

    Audio

  • Pdf

Members of Deutsche Telekom’s executive board, unit managers and employee representatives met last week to redraft the company’s future, particularly in Germany, where customers are heading to the competition in alarming numbers.

The talks, Handelsblatt learned, focused on restructuring and cost-cutting measures including a partial sale of the company’s IT services and consultancy subsidiary T-Systems and shedding thousands of jobs in its domestic market.

The official line from Deutsche Telekom is that “restructuring is a continuous process.”

Last week, at a press conference at the IFA international consumer electronics trade show in Berlin, Niek Jan van Damme, the head of Deutsche Telekom’s business in Germany, spoke of new investments, new products and new services to retain and win over new customers.

What Mr. von Damme neglected to note were the growing struggles he faces in his core market. The domestic unit faces tough regulation, fierce competition from Vodafone and other telecom service providers, changing consumer behavior and ever tighter profit margins.

number of staff at Deutsche Telekom in Germany seems to be relatively high but the many employees don't appear to be able to stem the loss of customers from its landline operations.

In the first half of 2016, revenues in Germany fell 2.8 percent to €10.8 billion ($12.1 billion), compared to the same period in 2015, meaning it contributed just 28.8 percent to overall company turnover. The group’s U.S. mobile phone subsidiary T-Mobile, by comparison, accounted for 45.2 percent of total revenue.

The U.S. business unit has significantly fewer staff than its German counterpart. In Germany, Deutsche Telekom employs 68,300 people, compared to 20,000 in the United States. Rival Vodafone employs 14,000 people in Germany.

The company has been trying to reduce its payroll. It cut 1,307 jobs over the year. Still, €500 million went to personnel at Deutsche Telekom’s German business in the first half of 2016. The cuts represent 1.9 percent of its workforce. Other European subsidiaries reduced employee numbers by 5.6 percent.

In other words, the number of staff at Deutsche Telekom in Germany seems to be relatively high but the many employees don’t appear to be able to stem the loss of customers from its landline operations. Some 2.4 percent of customers left its network in the first six months of 2016. Mobile revenues are under pressure too.

In August, chief executive Timotheus Höttges, who has headed the former state-run enterprise for just over two years, said the company had to better monetize its network infrastructure. To do so, it would have to try things out. But that takes time and the clock is ticking. Observers are concerned Deutsche Telekom won’t be able to keep up in the digital age. Decision-making processes are too cumbersome and the company’s old guard fights anything new, they say.

Still, Mr. Höttges is trying to inject new life into the company by taking the innovation division out of the hands of Deutsche Telekom Germany chief Niek Jan van Damme. Starting October, Europe boss Claudia Nemat will take over what Mr. Höttges calls the “major task.”

“The new board structure will help create the important conditions to successfully shape digitization,” said chairman of the company’s supervisory board, Ulrich Lehner, of the new appointment.

The company is also shedding business that no longer fits with its goal of becoming a leading provider of telecoms services. In August, it announced the sale of T-Online.de, Germany’s biggest online portal, as well as online marketing firm InteractiveMedia in a €300-million deal will advertising firm Ströer.

Meanwhile, Mr. van Damme is also coming under scrutiny, according to insiders. Company executives are discussing what other responsibility shifts could take place in Bonn, where headquarters is located. For some at Deutsche Telekom, the Dutchman, who has been head of the German department since 2009, is a “manager with a steady hand.” Too steady, say others.

 

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Ina Karabasz writes about telecommunications, IT and security issues for Handelsblatt. Peter Brors is Handelsblatt’s deputy editor in chief. To contact the authors: krarabasz@handelsblatt.com and brors@handelsblatt.com

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