Between Innovation and Growth - The Strategy of Deutsche Telekom

The telecommunications industry is highly competitive. As an international company, Deutsche Telekom faces the multifaceted challenge of adapting to the respective markets and at the same time pursuing a comprehensively successful strategy. Thomas Weiler, Vice President Innovation Strategy at DTAG, explains how Deutsche Telekom achieves this through constant innovation and continuous development.

When Amazon announced that it would offer Prime customers mobile tariffs in the future, several shares, especially those of DTAG, plummeted. What was the reason and how can the company protect itself in the future?

As an industry, we have generally been anticipating deals like this for a long time. Nevertheless, we were surprised by the sharp swing among investors. It also highlights our dependence on T-Mobile US. Innovation is key to being prepared for such developments. However, this does not mean defending the status quo, i.e. our current control points, for better or worse - especially not against the interests of our customers. For example, if at some point it is more convenient to take out tariffs via a third-party provider, we should embrace this and see it as an opportunity for other forms of distribution.

Nevertheless, we want to avoid becoming a low-margin utility business that customers only interact with when something doesn't work. To differentiate ourselves from other telcos, we are developing experiences that are fun and services that are based on connectivity, but are not just perceived as a feature. Because we assume that connectivity will surround us like oxygen in the future.

What role does innovation play in a growth strategy if a clear focus on its core business is enough for T-Mobile US to grow? Can too much focus on innovation even be detrimental?

Compared to DT, T-Mobile US is still in the development stage. Due to the special market situation in the USA, it started in an attacking position and was able to grow quickly. Accordingly, it was necessary and right to change the focus. In the first step, innovations took place particularly in the areas of service, processes and marketing and less on the product side. However, I assume that this will change in the future, for example in the area of fixed wireless access.

The different focus of T-Mobile US and DT means that we can benefit from each other optimally. The T-Phone that we launched in Europe, for example, is based on a product and the associated economies of scale of T-Mobile US. In return, we provide our colleagues with our experience around a convergent home experience, specifically as part of our "RouterOS" program, in which we bundle our development capacities for home gateways.

In my view, innovation cannot really be overemphasized, but of course you can invest in the wrong way. The telco industry has certainly invested more wrongly than rightly over the last decade. In particular, cross-MNO initiatives such as "Joyn" proved to be a total disaster. But it would be sad if this discredited innovation as a whole, because an industry that stops innovating on the customer side has given up on itself.

What innovation strategy could Telekom choose in order to grow? By clearly focusing on the core business, like T-Mobile US, by focusing on a specific growth area, like Telus, or by focusing on strategic investments, like Softbank?

An innovation strategy always depends on the specific context of the company - as is the case with the examples mentioned. Softbank is first and foremost an investment company that also operates as a telco. The Canadian company Telus has consistently identified a local market opportunity and driven it forward with organic and inorganic measures over many years. Success is therefore the sum of various strategic decisions, but of course also a bit of luck.

DT's individual position is the result of our strategic strengths, our footprint and our investment profile, among other things. Accordingly, we do not copy an archetypal approach, but have our own clear innovation strategy along our entire value chain. Through investments in infrastructure, innovations in networks, products, services and new business models, implemented through a high degree of in-house development and with partners.

In your opinion, are Deutsche Telekom's investments in innovation appropriately valued by the capital market?

For our investors, we are more of a dividend stock than a growth stock. Particularly in the area of product innovations, one can assume - without any cynicism - that our investors predominantly do not want to see any wild, i.e. cost-intensive and risky adventures. Conversely, however, we have the opportunity to surprise positively if we succeed in opening up new product categories and revenue streams on a sustainable basis. To do this, however, we as an industry should stop making big announcements and instead invest our energy very modestly in development and business development.

How is Deutsche Telekom dealing with the current developments surrounding the topic of AI?

Basically, I assume that AI will have an impact on every form of activity. We are already using it widely within the Group and in future the technology will offer many opportunities along the entire value chain. To this end, we are currently building a Group-wide competence center, our AICC, out of the product area. This is where we bring together experts to leverage these rare skills in the best possible way. The AICC is not just a program that develops prioritized AI solutions and use cases, but also plays an enabling and advisory role for all functional areas. In the long term, we want to empower all employees to work with the latest technologies and drive innovation in their field. However, to keep up with the pace in this and other fields, it is not enough to accelerate linear processes. Rather, we need to build network-like, decentralized structures, because true innovation often arises unplanned at the intersection of very different developments

Despite convincing ideas and technical feasibility, innovations often fail to scale up. What is the reason for this phenomenon, especially in the context of large companies?

For me, innovation consists of equal parts invention and implementation. In innovative teams, there will always be those people who have brilliant ideas and others who are good at communicating and selling these ideas to others. On the implementation side, there are typically functions such as marketing, sales and service. However, these are often managed differently - they optimize existing processes and have different goals, risk appetites, incentives and cultures. This makes it difficult to bring new ideas to customers. This is why large companies such as Deutsche Telekom have to use special tools to hack their own operating system, so to speak. For example, through smaller units and teams that can carry out rapid opportunity validation in order to test ideas on the market quickly. Through VC-like founding processes that pragmatically provide capital for new ideas outside of official planning. Or through external venture builders to deliberately test models with a different risk profile outside the Group.

Thank you very much for your time and your answers!