Deutsche Telekom seeks to grow through innovation

Ovum recently attended Deutsche Telekom’s Industry Analyst Trend Forum, which was the first of its kind. The event had a strong focus on innovation, and highlighted the best of the telco’s product and service initiatives, as well as how it is developing as a business to meet the challenges of a converged world. This comment outlines Ovum’s responses to the consumer topics that were on show.

Creating the right balance will be essential

Managing convergence is a tricky business, especially for large incumbent operators. For Deutsche Telekom (DT) the answer is to create a balance between driving the overall consumer group strategy and allowing each individual team the room to innovate and drive success in its own right. The telco is making some progress in the latter area, with early successes of varying scale around digital music, e-publications, online media centers, and TV. However, it will require strong leadership and vision for DT to truly maximize the opportunities that exist across all these groups. It must be careful to avoid being left with a group of stovepipe solutions.

One shift we did witness was DT’s increasing move towards the cloud, which is perhaps the result of bringing in new execs such as Thomas Kiessling and Gerry O’Sullivan, neither of whom comes from a traditional telco background. This is a bold move, and one that will pit them directly against some of the brands that they seek to leverage. DT believes that in the long term it will be able to differentiate by providing a superior overall experience through a high-quality platform. However, such qualities are hard to quantify, and often come down to consumer perception. Moreover, DT would be naive to underestimate just how powerful some virtual players will become.

Content is very important

Media forms a large part of DT’s future consumer strategy, and TV sits at the heart of that. Although it has had some success in other markets, it is still working hard to increase its domestic foothold in TV. DT hopes that Mr O’Sullivan’s arrival from BSkyB will change its fortunes in the home market, as well as continue to drive TV services in other territories.

However, TV is not the limit of DT’s ambitions. It also has a successful digital music service (Musicload) as well as an e-publications platform (PagePlace), and aims to launch an online gaming service in the near future. With a focus on offering more German-language content and creating the correct partnerships, DT may yet be able to play a bigger part, especially in German-speaking content markets.

A more open ecosystem

DT firmly believes in developing an open ecosystem. It is not that the telco is afraid to innovate on its own behalf; indeed, it develops many of its applications and platforms in-house. It has, however, become very open to working with partners if they can either speed up time to market or add brand credibility. Ovum expects DT to become a more agile, creative player with an increased focus on consumer choice, flexibility, and quality of experience. However, it remains to be seen what will happen to the telco’s profitability as it moves towards this more open way of working.

Connected home

It is always interesting to see how different operators define the connected home. Although media was mentioned in the first slide, for DT it is obvious that smart home applications really are at the heart of its strategy here. Again, unlike some other telco operators, DT’s approach is to develop a purely open platform that a range of partners can use to introduce smart home applications, which are today mainly focused on security and energy.

DT’s key differentiator is that it acts as a truly independent partner, meaning it does not compete in either the energy or security markets. It has an impressive list of partners already lined up, including Miele, E.On, and EnBW, with more apparently to come. What is not evident is how DT’s own retail arm fits into all this, or how the group as a whole can maximize the connected home opportunity from the retail as well as the wholesale perspective.

Consumer cloud

The consumer cloud is, of course, at the heart all of DT’s plans. The telco’s current focus, at least in its home market, is on media storage and management, despite the fact that it is not a profit generator in the consumer market. Again there is an open quality to its strategy, as DT chooses to open up its products to any consumer rather than provide a bolt-on to its broadband bundle. There are also signs of interworking: the media centre, for example, can be linked to the TV service.

To truly capitalize on all the opportunities, however, DT must look to innovate further, and create greater links between its independent product lines.