Europe is losing in the race to secure digital riches – DT CEO

Despite politicians around the world declaring the importance of technology and insisting their nation is one of the world leaders in digital, Deutsche Telekom CEO Tim Hottges does not believe Europe is competing with the US and Asia.

This might seem like somewhat of a bold statement, but it is entirely true. The US, led by the internet players of Silicon Valley, have dominated the consumer technology world, while the China and Japan’s heavyweight industries have conquered the industrialised segments. Europe might have a few shining lights but is largely left to collect the scraps when the bigger boys are done feasting on the bonanza.

“Europe lost the first half of the digitalisation battle,” said Hottges, speaking at Orange’s Show Hello. “The second half of the battle is about data, the cloud and the AI-based services.”

In all fairness to the continent, there has been the odd glimmer of hope. Spotify emerged from Sweden, Google’s Deepmind was spun-out of Oxford University, while Nokia and Ericsson are reconfirming their place in the world. There is occasionally the odd suggestion Europe has the potential to offer something to the global technology conversation.

What has been achieved so far cannot be undone. The US and Asia are dominant in the technology world and Europe will have to accept its place in the pecking order. That said, lessons must be learnt to ensure the next wave of opportunity does not pass the continent by. A new world order is being written as we speak, and it is being written in binary.

If Europe is to generate momentum through the AI-orientated economy, it will have to bolster the workforce, create the right regulatory landscape (a common moan from the DT boss), but also make sure the raw materials are available. If data is cash, Europeans are paupers.

As it stands, less than 4% of the world’s data is stored in the European market, according to Hottges. This is the raw material required to create and train complex, AI-driven algorithms and business models. If European data is constantly being exported to other continents, other companies and economies will feel the benefits. More of an effort needs to be made to ensure the right conditions are in place to succeed.

Conveniently, the data collected through Orange’s and DT’s new smart speaker ecosystem will be retained within the borders of the European Union. There need to be more examples like this, forcing partners to comply with data residency requirements, as opposed to taking the easy route and whisking information off to far away corners of the world.

Another interesting statistic to consider is the number of qualified developers in Europe. Recent research from Atomico claims there are currently 5.7 million developers across the continent, up 200,000 over the last 12 months, compared to 4.4 million in the US. Everyone talks about the skills gap, though it seems Europe is in a better position than the US if you look at the number of professional developers alone.

Europe has lost the first skirmishes of the digital economy, and to be fair, the fight wasn’t even close. However, the cloud-oriented, intelligent world of tomorrow offers plenty more opportunities.

Netherlands falls to three MNOs as Europe approves T-Mobile/Tele2 deal

The European Commission has officially approved Deutsche Telekom’s acquisition of Tele2’s Dutch business, reducing the number of MNOs in the country from four to three.

For many through the continent this will be seen as progress, as the European Commission has previously viewed reducing the number of MNOs in a single market below four as sacrilege. With telcos across Europe looking for ways to justify the vast expenditures expected for 5G and the full-fibre diets demanding by governments in the fixed space, the prospect of market consolidation is an interesting one.

What is worth noting is this is a relatively minor acquisition. Merging DT’s Dutch business and Tele2’s only adds a relatively small increment, roughly 5%, to the newly merged business. T-Mobile NL would still remain in third position with a market share of 25%, while the European Commission has also questioned Tele2 NL’s role as an important competitive force in the Dutch market. Despite these conditions, this will certainly be viewed as progress for those who sit in the pro-consolidation camp.

“Access to affordable and good quality mobile telecom services is essential in a modern society,” said Commissioner Margrethe Vestager. “After thoroughly analysing the specific role of T-Mobile NL and the smaller Tele2 NL in the Dutch retail mobile market, our investigation found that the proposed acquisition would not significantly change the prices or quality of mobile services for Dutch consumers.”

Through the five month investigation, Vestager and her team decided the proposed merger was unlikely to lead to significant price increases due to the limited incremental impact Tele2 would have on the T-Mobile NL business, the transaction would not increase the likelihood of coordinated behaviour between mobile network operators as there is sufficient enough difference between and the business models, and finally, conditions for virtual mobile network operators due to the proposed merger would not have a serious impact on the level of competition. In short, dropping from four to three operators would not negatively impact the consumer.

Here is the question though; will this decision have any material impact on consolidation decisions elsewhere? Perhaps it might, but we suspect the European Commission will stick to the three operator rule where competition is more intense.

In listing its reasons for approving the deal, Vestager effectively said that Tele2’s Dutch business was small and irrelevant enough to the other players that it being swallowed up by one of them would not make any material impact on competition. In most other markets around Europe the fourth players have much more of a foothold in the market.

Take the UK for instance. Here, Three is the smallest of the MNOs, controlling roughly a 15% market share. On its own it can provide suitable competition to the three larger players, though if it was acquired the gain in total subscribers would have a material impact on market share. This alteration in the status quo could lead to the anti-competition doomsday scenario, or at least this is what the European Commission might believe.

Despite consolidation being a positive for the industry, scale means confidence to invest, operational efficiencies, notable procurement benefits and greater ability to generate ROI, we suspect the European Commission will stick to its four operator rule for most markets. The only exceptions will be in cases like this one, where the fourth player controls a minor market share which would have no material impact on a competitors standing in the market.

That said, this is a step forward for the stubborn European Commission.

DT/Tele2 tie up could smooth path to industry consolidation

For years the telco industry has condemned the EU’s approach to competition, though green-lighting DT’s acquisition of Tele2’s Dutch business could indicate a loosening grip on the idea of four operators.

According to the European Commission, each market should ideally have four operators to ensure the consumer has choice, though this has been challenged in recent years due to market economics. In short, the telcos do not feel they are making enough money to continue network investments and challenge the OTTs in capturing the digital economy fortunes. One way to balance the equation is consolidation, but regulators have consistently resisted. This might be changed according to reports in Reuters.

DT has been attempting to swallow up Tele2’s Dutch business to create a more competitive threat to the number one and two in the market, KPN and VodafoneZiggo. However, such an acquisition would decrease the number of national telcos from four to three, sacrilege in the eyes of the Brussels bureaucrats, though this vice-like persistence with four telcos might be loosening.

The decision is due on November 30, though rumours are circulating that a decision has been made and it will be in favour of the Germans. DT’s argument has been combined company would only have a 25% market share, still a way off KPN and VodafoneZiggo, therefore it would still have to challenge on price, and it seems the European Commission is buying the stance.

For rest of the telcos around Europe, executives are bound to be eagerly awaiting the official decision. Precedent is everything when it comes to regulations, competition and acquisitions. Merging these two players will give lawyers something to point to and ammunition to fight for market consolidation.

This has been a bugbear of the European telcos for some time; scale means investment. The larger the subscription bases of the telcos, the safer they will feel in terms of splashing the cash and upgrading networks. It might of course be nothing but a rouse to make more money and realise operational efficiencies, but when you look at the size of telcos on other continents you can see the argument; European telcos simply cannot compete with those in North America or Asia.

Of course what is worth noting is this is nothing more than a report for the moment. The official decision will emerge over the next few days, though the telco industry might finally be getting some ammunition to fight back against the OTTs.

DT writes €20bn cheque to target 99% 5G coverage by 2021

Deutsche Telekom has unveiled a ‘plan’ to make 5G a reality, including a commitment to spend €20 billion by the end of 2021 to roll it out.

Should the plan prove to be a success, DT plans to have 5G to 99% of the population by 2025, while geographical coverage would be 90%. The team believe these coverage ambitions are achievable for 4G by 2021.

“The digitalization of Germany is a challenge for our society as a whole,” said CEO Tim Höttges. “Our part is the networks. We take this responsibility seriously, which is why we are focusing on investment, innovation, and partnerships.”

To fuel the 5G ambition, DT has connected 22,000 of the 27,000 mobile base stations with fiber, and will be adding at least 2,000 each year through to 2021 to take the total up to 36,000. Not all of these stations will be equipped with 5G equipment to start with, though this is a part of the plan which is murkier. The less details available, the less accountable DT becomes we suppose.

5G is only part of the connectivity plan, with the fixed network getting its own upgrades. One of the first aspects of the plan is to initially install fiber to the curb, before extending the fiber to the home at a later date. This approach has been criticised, though DT has pointed out it is a fairer means to improve connectivity for a greater number of residents across the country.

“Of course we could have installed fiber to the home directly, but due to the shortage of underground construction capacity and the high investments needed, we’d only be serving 20% of households at most, instead of the 80% we do now,” said Walter Goldenits, CTO at Telekom Deutschland.

Progress is being made in Germany, the team have laid the 500,000th kilometre of fiber across the country this week, though it does still lag behind leaders in the European market. DT claims 250 Mbps are already available to around ten million households, while the ambition is to expand this footprint to 28 million by the end of 2019.

DT searches for fibre efficiency with Fraunhofer AI

Sometimes there are stories which come along and prove stereotypes can be true. In the search for efficiency, Deutsche Telekom is turning to artificial intelligence to help with its fibre rollout plans.

Partnering Fraunhofer IPM, DT has unveiled a pilot project where artificial intelligence will look at images and information gathered by a measurement vehicle, before deciding what the best way to dig trenches and lay fibre will be. The pilot will take place in Bornheim, near Bonn.

“The shortest route to the customer is not always the most economical,” said Walter Goldenits, Head of Technology at Telekom Deutschland. “By using artificial intelligence in the planning phase we can speed up our fiber-optic roll-out. This enables us to offer our customers broadband lines faster and, above all, more efficiently.”

The measurement vehicle is equipped with 360° cameras and laser scanners, and will collect roughly 5 GB of surface data per kilometre. Depending on the terrain, the vehicle can cover 50-80 kilometres per day, collecting information such as the location of trees, the type of ground which will need to be dug up and if there is street furniture which needs to be accounted for. When deploying new infrastructure, engineers have to ensure the environment is returned to the same condition as before; various scenarios can have different impacts. Sometimes it could be more time and cost efficient to go the long way around.

“Such huge amounts of data are both a blessing and a curse,” said Dr. Alexander Reiterer, project lead at the Fraunhofer IPM. “We need as many details as possible. At the same time, the whole endeavour is only efficient if you can avoid laboriously combing through the data to find the information you need. For the planning process to be efficient the evaluation of these enormous amounts of data must be automated.”

The neural network used for this recognizes a total of approximately 30 different categories through deep learning algorithms, including trees, street lights, asphalt and cobblestones. The applications can even identify whether the pavements feature large pavement slabs or small cobblestones, if the trees deciduous or coniferous, or whether the trees roots will impede the engineers during the project. Once all these factors have been taken into account, the existing infrastructure is assessing before decisions are made and an optimal route planned for the new fibre.

Such a project will capture the attention of many around the world. The rollout of fibre has been staggered and slow to date partly due to the expense. Of course, the raw materials are expensive, though digging trenches and laying the cable is an laborious, costly and slow process. Telcos will of course be looking for new ideas to keep the cost down, though governments will also be peering across as they increasingly demand faster deployments.

Back in April, the FTTH Council Europe unveiled research which demonstrated quickly some countries were progressing with fibre rollout, though it also shed light on how woefully terrible others are doing. Latvia led the way with 50.6% household penetration, though Ireland’s was down at 1.7%. The research did not include the UK, though Ofcom’s estimates put FTTH penetration down at 3%; definitely in the woefully poor category.

DT turns to biometrics for authentication and fraud detection

Deutsche Telekom has selected Nuance’s biometric technology to help the team offer customers simplified authentication processes when calling the customer service hotline.

Once the inevitable bugs have been worked out of the system, customers will be able to speak their requests naturally instead of navigating a complex phone menu, while the sound of their voice can also be used to confirm their identity. It is still early days, but the cumbersome process of typing in long account numbers and trying to remember complex passwords with a capital letter, number, punctuation mark and human sacrifice, could be a thing of the past.

“We’re proud to be leading the way as the first German telecommunications provider to deploy voice biometrics on our service hotlines and making this advanced technology available to our customers,” said Ferri Abolhassan, Managing Director Service at Telekom Deutschland. “We can identify our customers quite simply and quickly by the sound of their voices and there will be no more time wasted searching for contract numbers. The procedure is one of the most secure available.”

As far as stereotypes go, the DT management team must be giddy imagining how efficiently calls will be directed around the customer service centre.

“It is no secret that consumers today have higher expectations and demands for the type of service they receive from the companies they do business with,” said Robert Weideman, GM of Nuance’s Enterprise Division. “Our conversational AI solutions enable Deutsche Telekom to power more natural customer service conversations and deliver individuals the help they need quickly and securely.”

Although there will of course be sceptical customers who will rigidly stick to the old cumbersome ways, those who embrace the technology will simply have to say ‘Bei der Telekom ist meine Stimme mein Passwort’ (which means ‘At Telekom my voice is my password’ in English) to identify themselves. It’s simple and efficient, the way customer services should be.

Voice biometrics work by digitizing a profile of a person’s speech to produce a stored model voice print. Each spoken work is reduces to segments composed of several dominant frequencies called formants, with each segment subsequently having several tones that can be captured in a digital format. The tones collectively identify the speaker’s unique voice print, which the Nuance technology will allocate to a specific customer.

Aside from reducing call times and improving the experience when attempting to find the right department, the technology can also help prevent fraud. The voice print itself is similar to a finger print in that they are unique to individuals. While no system is ever going to be 100% fool proof, the voice print certainly does sound more secure than security questions, the answers to which can be worked out by effectively profiling a potential victim.

AT&T is a company which has faced complications in this area recently. Michael Terpin is suing AT&T for $224 million following the theft of $23.8 million in cryptocurrency tokens which were transferred out of his account following a SIM swap con. To do this, the fraudsters would have had to gain access to Terpin’s account by answering the security questions. Getting around these questions has become somewhat easier in recent years, as more user information has become available through social media.

In theory, fraudsters could research what the answers would be by look at Facebook interests, employment history on LinkedIn or holiday snaps on Instagram. Security questions are hardly the most creative and this is an area most companies should look at addressing. Using a voice print to authenticate the identity of customers should remove a substantial amount of the risk associated with such con jobs.

While this is an interesting and useful development at DT, it is slightly behind on the times. Voice biometrics have been used by numerous organizations, with Royal Bank of Canada, Santander, TalkTalk, and Vodafone Turkey among those who have each enrolled more than 1 million customer voiceprints after implementation. That said, it is a nice development.

DT blames dodgy results on toll roads

Profits might have plummeted but that hasn’t stopped Deutsche Telekom from raising its full-year outlook as subscriber gains in the US business drags the rest of the group forward.

Total revenues for the last three months stood at €18.367, down 2.8% year-on-year, though profit nose-dived to €495, a decrease of 43%. The team has blamed this drop on a one-off payment of €600 million to the German government, settling a long-running legal dispute over the delayed implementation of a truck toll system DT designed with Daimler. Without the fine, profits would have increased by 3%.

“We remain firmly on track,” said CFO Thomas Dannenfeldt. “The trends in Germany and the United States are positive. At our European subsidiaries, we are again posting sustained growth.”

Looking at revenues in the individual markets, Germany declined by 0.9%, while the US accounted for a drop of 4.5%. Across the rest of Europe, revenues rose by 1.3%, while the Systems Solutions business unit increased by 42.2%.

The main success of the business here is in the US, T-Mobile US is continuing to make positive steps forward stealing market share from competitors, and also the convergence strategy across Europe. Across the last twelve months, the number of customers opting for convergent products rose 48% to 2.7 million.

The hot topic for investors and industry onlookers remains to be the merger with US competitor Sprint. No new information has been offered, though the sluggish regulatory process might be a tricky one. Similar deals have of course been rejected by watchdogs in years gone, though with the unpredictable nature of the Trump administration, who knows which direction it could go.

An evolution in integration – the smart home is on the rise

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this piece Thomas Rockmann, VP Connected Home at Deutsche Telekom, argues that the smart home may finally be set to deliver on its many promises.

For many years, the smart home promised more than it delivered. Today those promises are being delivered on in so many ways, and consumer interest has risen accordingly. A recent research report from Parks Associates found that 17 percent of US broadband households own an Internet-connected entertainment device and a smart home device, with an additional 13 percent of consumers owning both a connected health device and a smart home device. A massive 48 percent of US consumers plan to buy at least one connected home device during 2018, representing a tidal wave of adoption – a 66 percent rise year-on-year.

That enormous increase has had a wide range of impacts – it has driven sales, of course, it has expanded investment, and it has also triggered extremely rapid market evolution. This evolution is creating an incredibly broad range of devices, but also refining product and market focus at an astonishing rate. The results are clearly visible in the market today, both in the shape of new and dynamic products and services, but also in the gradual phasing out of legacy technology – such as smart home hubs.

Already, buyers of some smart speakers (such as the Amazon Echo Plus) get a Zigbee smart home hub already baked in, and this integration of hubs into other devices continues apace, placing the original, single use smart home hub squarely on the endangered list. Deutsche Telekom recognised this trend some time ago, and began actively rolling out software upgrades way back in 2017 to consumer routers across Germany, so that the popular Speedport Smart router can control Deutsche Telekom’s end-customer offer Magenta SmartHome devices.

A particularly dynamic area is AI-powered smart speakers – a new report from YouGov found that one in ten Britons now own a smart speaker, up from just one in twenty in Q3 2017, and over a third (34 percent) say they interact with other smart devices using their speaker. One of many applications here are home alarm systems, which are increasingly being integrated with voice-enabled AI products. A recent analyst report found that the share of voice-operated alarm systems is expected to increase at a compound annual growth rate (CAGR) of 7% from 2017 through 2022.

Indeed, the newest home hub from Centrica-owned Hive (the Hive Hub 360), has an inverse take on the integration trend, building in an 360-degree audio detector, enabling it to be used as an intrusion detection alarm system straight out of the box.

AI continues to be the dominant technology trend of the moment, and is clearly in the driving seat in integration terms. At CES 2018, Samsung announced that the next generation of smart TV’s will ship with integrated voice AI, thanks to Samsung’s digital assistant, Bixby, which will control SmartThings-compatible devices, such as Ring doorbells and Philips Hue lighting. When you consider that Samsung sold 47.9 million TVs in 2016 alone, this has the potential to bring voice-controlled AI into the homes of millions over the next few years. The current crop of AI-powered smart speakers with integrated screens certainly indicates a direction of travel here.

At Deutsche Telekom, we have also been following the trend closely and recently announced plans to speed up the transition to voice-enabled AI during 2018, with the launch of an own-brand assistant and AI-enabled consumer speaker product to control smart home devices and services such as EntertainTV.

A key underlying trend behind the product launches is that consumers continue to refuse to engage with complex sales pitches, reams of spec figures and wild claims. Any developing market has its fair share of these elements, but the real successes in the smart home market have been those products or services that offer a simple, low barrier point of entry to the market. This credo has become increasingly important as the space evolves and becomes more complex, and the increasing levels of integration in the market will be subject to the same requirements. Integration for the sake of it will not prove successful, and neither will proprietary ‘walled gardens’ be well received in the long term.

Open standards are essential in the smart home market. They enable enterprises to collaborate and work towards a more dynamic and powerful ecosystem, but also mean that the end consumer can readily recognize products that fit together, removing the guesswork or need for them to conduct intensive technical research. The result is a richer ecosystem from a business perspective, but also a more trusted and recognizable one, thanks to open standards.

It is an exciting time in the smart home market. The almost organic evolution that is taking place as we speak will bring many fascinating new products to market, and some of these will prove very successful. Integration, open standards, and innovative thinking will hold the key – let us embrace the future collaboratively!

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DT moves to clarify T-Systems strategy

Following reports that Deutsche Telekom is cutting 10,000 jobs from its T-Systems division, the operator thought it was time to make an official statement.

Late last week the news leaked out that DT’s global services division was going to lose a quarter of its workforce. The division has apparently been struggling for a while and Adel Al-Saleh was brought in as CEO at the end of last year to sort things out. As is so often the case, it seems the first part of his strategy is to slim down his organisation and have a general reshuffle.

“Our strategy is in place: We are aligning ourselves to eleven portfolio units, we have initiated four change initiatives and are now implementing the plans,” said Al-Saleh. “This will turn T-Systems into a digital service provider for our customers. We will spend triple-digit millions per year on the growth areas, because the transformation of the company must not jeopardize our success where we are strong.”

The strategy has been somewhat paradoxically named ‘investing while saving’. This sounds a bit like what Ericsson has been saying for a year or two about returning to profitability while being careful to keep investing in R&D. This is a tricky but important balance as you can’t just cut your way to long-term growth; you need to sow the seeds for the future too.

Continuing the doublespeak theme the announcement confirmed that 10,000 jobs worldwide will be ‘affected’, with 4,000 ‘relocated’ and 6,000 ‘reduced’. The underlying narrative is all around efficiency, simplification and sorting the wheat from the chaff, including the elimination of no less than five management levels. The mere fact that T-Systems is able to do that speaks volumes about how badly-run it has been to date.