While waiting for one daughter to return my car so I can go visit another, I've searched the archives for a speech by DT's Dr. Sommer where he outlines his company's global strategy. (In case anyone thought my Sprint comment came out of thin air.)
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Speech by
Dr. Ron Sommer,
Chairman of the Board of Management,
Deutsche Telekom AG
On the occasion of a Luncheon hosted by the American Enterprise Institute
Washington, D.C.
June 11, 1998
- The spoken word shall prevail -
Ladies and Gentlemen,
First of all I would like to thank you very much for inviting me to speak to you here today.
The subject I have chosen is: Deutsche Telekom - Facing the Challenges of a Global Telecommunications Market.
In my speech, I would like to give you a brief overview of the challenges presented by today's global telecommunications market and to describe how Deutsche Telekom is facing up to them.
On my last visit here in Washington almost exactly a year ago, I indicated that 1998 would be an important milestone in the development of the telecommunications industry around the globe. This supposition was based on the liberalization of almost all the telecom markets in Europe and on the fact that the World Trade Organization agreement on liberalization of telecom markets came into force early this year.
Now, just six months later, the force of competition is making itself felt everywhere. Never before were the chances and opportunities for dynamic growth on the global telecommunications market greater than they are today.
The telecommunications sector is already a business of colossal size. Worldwide revenues in this industry reached some $US 960 billion last year, with by far the greatest part of this revenue being achieved with telecommunications services. This year this market will reach the trillion mark - with a sharp upward trend.
What are the forces driving this dynamic development on the global market?
There are four sources giving this phenomenal development its impetus:
1. the globalization of the economy,
2. technical progress,
3. growing customer needs and
4. the liberalization of markets.
The globalization of markets has increased considerably in the last few years. World trade figures, for example, rose by 7.7% in 1996. It is the United States and Germany in particular, the countries with the world's highest export figures, who are profiting hugely from this trend (in 1997, exports rose by 10.5% in Germany and 12.5% in the US). The global division of labor requires an ever more efficient exchange of information between all those participating in the market, something that can only be achieved with the help of telecommunications.
The last decades have already seen telecommunications shrinking the world into the much-quoted global village. This trend will gather momentum and gradually encompass all social groups. The information society is being born!
The second force behind the enormous growth in telecommunications is the phenomenal speed with which technology in this sector is moving forward. The potential of telecommunications networks like those that Deutsche Telekom has established and expanded in Germany and around the globe has seen unparalleled growth in the last few years. People now take digitization of telecommunications networks almost for granted. Thus, for example, 83% of all fixed networks in the OECD countries had already gone digital by 1995. Voice and data communications over the Internet, introduction of the new ADSL technology, which is turning the good old copper cable into a fast line, and integration of fixed network and mobile telephony are prime examples of this lightning development.
Ladies and Gentlemen,
The third driving force is the growing needs of our customers.
For companies in practically all sectors of industry, the end-to-end use of telecommunications to control business processes is becoming a key strategic factor for competitiveness in regional, national and, of course, in global markets. Those who fail to capitalize on information in today's markets will be taught a lesson, not by life, but by our competitors.
Companies are therefore demanding telecommunications solutions which can handle these global processes and which come, ideally, from a single source.
It is not only in the world of business but also in private households that the use of modern multimedia telecommunications services will play an ever more important role.
Through the convergence of previously independent sectors of industry, totally new markets known as TIME markets are emerging. This term stands for Telecommunications, Information technology, Multimedia and Entertainment. The combination of these markets leads, on the one hand, to new services being offered, something which is only possible in this form as a result of previously separate markets merging. And, on the other hand, existing services will also mature with help from other market segments. In future, companies from the information technology and media sectors such as IBM, Microsoft, Sony, TimeWarner will be competing with telecommunications companies for customers in these new markets.
This is the shift of focus that will change the character of the telecommunications market.
Ladies and Gentlemen,
Another major driving force for the telecommunications market is the increasing liberalization of markets that were formerly dominated by state monopolies.
In Europe, the course for liberalization in telecommunications was set later than in the US. In the meantime, however, the way to free telecommunications markets has also been approved on that continent. Notably, it was Germany's Telecommunications Act that built a legal framework which is undoubtedly one of the most liberal in the world. In the meantime, the go-ahead has been given for liberalization all around the globe. The many reports of mergers and partnerships between telecommunications companies are just one indication of this.
Ladies and Gentlemen,
Within this magic square of the globalization of markets, technical progress, growing customer needs and liberalized markets lie the challenges for telecommunications companies in the 21st century.
How is Deutsche Telekom facing up to these challenges?
Ladies and Gentlemen,
Deutsche Telekom took up this challenge at a very early stage. Since the early 90s, we have pursued one objective: to transform our company from a national provider of a state infrastructure service into a global, customer-oriented corporation.
With revenue of DM 67.6 billion, we are the number 1 telecommunications provider in Europe and number 3 in the world. Since 1990 we have invested over DM 160 billion in Germany's digital network. At the same time the state left us with the privatization inheritance in the form of debts amounting to DM 125 billion which we have managed to reduce to DM 86 billion. Last year alone we were able to raise productivity per employee by 12.5%.
Today we are Germany's only full-service provider, and one of the few in the world able to provide its customers with a complete range of modern communications services: · Deutsche Telekom is the largest online provider in Europe
· offers a system solution to suit all forms of electronic commerce
· is embarking into new territory with pilot projects, for example with Internet telephony
· and will soon be offering an integrated system for mobile and fixed network communications
This requires a good technical base. And Deutsche Telekom's networks are among the most modern telecommunications infrastructures in the world.
We are also taking an active stance in competition. In Germany, Deutsche Telekom has to hold its own in one of the most liberal markets of its kind.
The latest figures show that 140 licenses for network and voice telephony services have already been granted with another 90 applications for licenses pending. After just six months we can conclude that competition works! This development would not have been possible without the support and substantial preservices provided by Deutsche Telekom.
Deutsche Telekom made its contribution towards functioning competition with tremendous network investments amounting to about half a billion deutschmarks and with high staff commitment: Right on time on January 1, 1998, Deutsche Telekom made competition-relevant services available in Germany for the very first time: these were number portability for customers changing to a different network operator, preselection - the permanent presetting of another network operator, and individual selection of the network operators for long-distance calls on a call-by-call basis.
Germany is thus the first country in Europe to offer this full line of services. Furthermore, Deutsche Telekom also ensured that, right on schedule on January 1, 1998, new competitors were able to use our networks via interconnection and unbundled local loop.
These 'one-sided' preservices, which illustrate more clearly than any words could how much Deutsche Telekom welcomes the competition, did not prevent the regulator from making his decisions to date only to Deutsche Telekom's disadvantage. While keen observers such as the FCC have noted the positive developments in German competition, the Regulatory Authority impinges on entrepreneurial freedom with decisions that are difficult to understand. We will be taking all the necessary steps to protect the interests of our shareholders against what we consider to be unfair behavior.
Our goal is to use attractive prices, new, trendsetting services, a variety of products for individual solutions - and, above all, to ensure more support and customer orientation in order to put ourselves in a position to face the competition.
But this alone is not enough to enable us to play in the first league - and right at the top of it - around the world.
Telecommunications is a global market and, as one of the global players in this market, our corporate strategy focuses on the ongoing development of our activities in promising foreign markets and also on the expansion of international networks.
At the heart of our globalization strategy is our partnership with France Telecom. The alliance has been consolidated by the election of each Chairman onto the partner's Supervisory Board.
Another central element of our international activities is our partnership with the US carrier Sprint and France Télécom in the Global One joint venture. This enterprise is an impressive example of the potential of a US/European cooperation in the high-tech telecommunications sector. With a network of 1,200 locations in over 65 countries, Global One serves more than 30,000 business customers.
Our commitment in the international arena is rounded off by our activities in southeast Asia, which, I must stress, are not jeopardized by the current economic crisis in that region. Companies who want to become global players cannot confine themselves to the continents of Europe and North America, and cannot ignore the Pacific tiger states. The tigers will be up on their feet again one day, and those who were first to invest in the region will be the first to profit from it.
Close cooperation and the joint opening up of new growth markets by bundling the assets of different partners, such as with our Global One partners, are necessary so that we can help our customers implement their strategies in the international arena.
The key factors of Deutsche Telekom's international strategy include a strong presence on the US telecommunications market. There are good reasons for this:
First: At around $ 200 billion, it is the biggest national telecommunications market of all. 80% of today's electronic commerce is handled in the US; 60% of all Internet users live here.
Second: A large number of multinationals have their headquarters in the US. A global player like Deutsche Telekom must have a firm footing in this market, if only for this reason.
Third: The close knit of economic dependencies between the US and Germany opens up enormous business opportunities for German and US telecommunications companies. Bilateral trade figures were around $ 67 billion in 1997. Over 1,400 German companies have established subsidiaries in the US.
It is vital to remember that the US market is still the market where most of the innovations in the telecommunications and information sectors happen. We are, for this reason, one of the founding sponsors of the Stanford World Internet Center in Palo Alto, which provides a facility for the advancement of information technology, Internet and Internet-related businesses and applications.
That is not the only reason: the US market is also one of the most competition-intensive markets in the world. And so we are glad that, with US Sprint, we were able to win a strategic partner who already occupies an excellent position in this market. Our strategic alliance with Sprint is consolidated by our 10% holding and by our joint partnership in Global One. Deutsche Telekom is giving lasting support to the vision and strategy of Sprint, namely to become an integrated, full-service provider.
Ladies and Gentlemen,
We accept the challenge of global competition. As a strong telecommunica-tions provider we face the future with great confidence, a future which we want to shape actively - to the benefit of our customers, our industry and our country!
Thank you. I now look forward to our discussion.
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And another release noting their interest in G1 and Sprint:
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May 27 1998 -- Deutsche Telekom AG and France Telecom are to participate in the capital restructuring being undertaken by the US company Sprint, the third largest long distance telecommunications company in the USA, in order to maintain their overall 20 percent voting rights.
To this effect, Deutsche Telekom and France Telecom will buy newly issued shares (series 3 PCS tracking shares") of Sprint stock in the PCS mobile communications operations, in an aggregate amount of approximately $US 100 million. In addition, the two leading telecommunications companies in Europe will purchase from Sprint additional shares of Series 3 PCS stock on the occation of the listing of Sprint PCS and will retain their original shares representing an interest in both of Sprints principal activities prior to the restructuring. Depending on the overall volume of the PCS offering, this investment will be in an aggregate amount of betweeen $US 125 and $US 250 million.
Deutsche Telekom's and France Telecom's representation on the Board of Sprint will remain unaffected by these measures.
Sprint is to take over the stake in the mobile communications company PCS currently held by three cable partners (TCI, ComCast and Cox Communications) and combine it with certain licences and activities it already holds to create the new Sprint PCS Group.
In a second step to be taken later this year, Sprint plans to introduce Sprint PCS on the stock market. After this restructuring of the company, Sprint stock will be traded in two separate stocks on the stock market. The mobile communications operation will be represented by the Sprint PCS stock and Sprint's remaining activities (including its local and long distance operations, directories, and distribution bussinsses, emerging businesses and Global One joint venture) by the Sprint FON stock. These measures are still subject to approval by Sprint's shareholders.
Deutsche Telekom and France Telecom welcome Sprint's restructuring and the resulting capital measures as they will increase Sprint's operational strength. Furthermore, these moves will give Sprint the control of PCS business - a major product and growth segment for Sprint. In addition, these undertakings are intended to increase the shareholder value of the company and therefore its European partners stakes.
Deutsche Telekom and France Telecom operate in a global alliance with Sprint. Via the international joint venture, the three companies are present in over 65 countries around the world and provide global telecommunications services to multinational customers around the world, around the clock.
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And, finally, the GlobalOne ATM release:
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Global ATM: Global One offers international ATM service
Seamless broadband service to be launched in 13 countries
October 15 1998 -- Global One, the international joint venture of Deutsche Telekom, France Telekom and Sprint today announced the launch of a seamless Global ATM service via one of the largest and most advanced ATM-based networks in the world. Global ATM will initially be offered in 13 countries: Belgium, Canada, Denmark, France, Germany, Ireland, Israel, Japan, the Netherlands, Sweden, Switzerland, United Kingdom and the United States. Further countries will follow throughout 1999. Customers can now place their orders for special telecommunications solutions with Global One, Deutsche Telekom, France Telecom and Sprint.
As a seamless service jointly offered by Deutsche Telekom, France Telecom and Sprint, Global ATM provides international customers a very high-speed, broadband solution allowing various types of data services and voice to be carried simultaneously on a single network. As ATM bandwidth can be dynamically assigned between Internet, other data services and voice over one network, Global ATM customers benefit from lower costs and increased service availability. "Global ATM is the ideal solution for multinational companies that have outgrown their frame relay and private line networks," said Gary Forsee, President and CEO of Global One. "Global ATM can dramatically improve the performance and reliability of most corporate telecommunications systems."
Global ATM operates on one of the world's largest and most advanced ATM-based networks which will be deployed in more than 200 cities in over 46 countries by the end of 1998. Installation of the Global One international ATM-based backbone began several months ago. Last May, with the first phase of the network operational in 24 countries, Global One started offering Global Frame Relay via ATM. Meanwhile over 1,000 customers have already opted to entrust Global One with their communication needs. A range of other voice, data and Internet protocol solutions via the new ATM-based network will be announced in the coming months.
Customers of Global ATM can rely on a secure network monitored 24 hours a day, 365 days a year. Network automation systems provide around-the-clock fault protection. The network carries out automated proactive monitoring, automated testing and diagnosis, and automated corrective actions. These features are backed up by the support organizations of Deutsche Telekom, France Telecom, Sprint and Global One, respectively. Their seamless back office services include receipt of order, provisioning, billing and 24-by-7 customer support.
Global ATM facilitates extremely high transmission speeds of up to 155 Mbps. Lower speeds from T-1 (1.544 Mbps) can be tailored to specific customer needs. Two Global ATM categories of service provide efficient, cost-effective support of both time-sensitive and time-insensitive applications over the same network. The CBR (Constant Bit Rate) category of service supports applications such as voice and private line applications, both of which require tight timing and fixed bandwidth, whilst the VBR-nrt (Variable Bit Rate -- non-real time) category of service supports "bursty" applications such as LAN interconnections.
Customers receive their Global ATM solution from a single point of contact that handles all their requirements (one stop shopping). As with all other Global One products, the parent companies Deutsche Telekom, France Telecom and Sprint will market Global ATM to large, multinational corporations and world-wide organizations in their respective countries whilst Global One will market the service globally outside Germany, France and the USA.
The launch of Global ATM highlights the pioneering role of Deutsche Telekom, France Telecom and Sprint in ATM technology, both with regard to research and actual market deployment. The three companies are members of the ATM Forum, a 600-company industry association helping to develop world-wide ATM networking standards. Collectively, the three companies have over 15 years of commercial ATM experience and a proven track record as ATM market leaders.
Together Deutsche Telekom, France Telecom and Sprint represent over US$80 billion in annual revenues. The three companies supply a total of 93 million business and residential customers with data, wireless, on-line, Internet, cable-TV and value-added services.
Global One, the world-wide joint venture of Deutsche Telekom, France Telecom and Sprint offers a single source for the solution of voice and data needs of businesses, carriers and consumers around the world. Global One has over 1,400 points of presence in more than 65 countries and had 1997 revenues of over US$1.1 billion.
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