Artificial intelligence to eat jobs at Deutsche Telekom

After cutting one in five non-US jobs in eight years, the German telco acknowledges that new tech will lead to further erosion.

Iain Morris, International Editor

October 10, 2024

5 Min Read
Deutsche Telekom CEO Timotheus Höttges at Capital Markets Day 2024
Deutsche Telekom's Timotheus Höttges: 'We made 5G a winning strategy.'(Source: Iain Morris/Light Reading, Deutsche Telekom)

Timotheus Höttges, the CEO of Deutsche Telekom, has good reason to look like the most animated boss in Europe's telecom sector. Back in 2014, the company he runs was "just another telco," he said during a press conference today. Worth about €60 billion (US$65.6 billion), it had a market capitalization that was €15 billion ($16.4 billion) less than Vodafone's. Today, thanks largely to its turbo-charged US subsidiary, it is valued at €131 billion ($143.2 billion), dwarfing all its regional peers. Vodafone has sunk to a pathetic €23 billion ($25.1 billion), a drop of nearly 70% in a decade.

"Today, we are already earning our capital cost on 5G services in the mobile network," said Höttges, a bendy strip of beige bisected by a thin black belt, on a video link from Germany. It is not the message typically put out by telcos, who routinely complain about the difficulty of making a return on their 5G investments. "It is a positive case already and therefore we are changing the narrative. We made 5G a winning strategy."

That, he insisted, is not just about the US, where T-Mobile has "blown out the lights" of AT&T and Verizon by using 2.5GHz spectrum, picked up via the merger with Sprint, instead of waiting for "more expensive" 3.5GHz frequencies to be auctioned. Outside North America, Höttges credits his investment strategy with a share gain of three to five percentage points in "almost" all the markets where Deutsche Telekom leads in 5G. "This is bringing revenue, and the revenue is bringing profitability," he said.

Indeed, Deutsche Telekom's estimate is that group service revenues have risen at an organic compound annual growth rate of 3.6% since 2020. What's striking is that profitability measures look even better. Basic earnings (after all sorts of adjustments) are up 6.9% and free cash flow by nearly 32%. Deutsche Telekom's return on capital employed (ROCE) was just 4.6% in 2020. This year, it expects ROCE of 6.5%.

Höttges is now targeting average annual sales growth of 4% between now and 2027, and he is determined to see profits grow even faster. Across the whole group, he wants to see basic earnings rise by 4% to 6% each year. And outside the US, where the sales target is for growth of 2.5% to 3%, he reckons a 3% to 4% earnings increase is achievable.

'Workforce to be continuously adjusted'

Perhaps unsurprisingly, then, the terms automation and artificial intelligence (AI) feature prominently in the various slides and statements issued for this week's capital markets day (which really takes place across two days). Other telcos often play down the impact of new technology on headcount, insisting AI is merely a tool for the worker. The biggest threat to your job is not AI but the person who knows how to wield it, is among the platitudes they spout. But this is not quite how Deutsche Telekom's executives see it.

"Of course, the workforce will be continuously adjusted and thus reduced as we did in the past 20 years," said Christian Illek, Deutsche Telekom's chief financial officer, when asked what the planned use of technology to reduce overheads would mean for employees. "But this, of course, must be based on technological progress so that the other employees are not burdened much more strongly."

Höttges quickly supplied several examples of how AI could be used within Deutsche Telekom, and what it's impact on efficiency might be. In the next few days, he revealed, Deutsche Telekom will launch a new customer-facing chatbot, based on a large language model that has benefited from some "fine tuning" for telco use. "We assume another 25% to 30% higher efficiencies are achieved when the chatbot answers questions and the customer no longer has to talk to a personal agent," he said.

Using AI in financial reporting and modelling could boost efficiency by 10%, he thinks. Through autonomously controlled processes and preventive maintenance, Höttges estimates it could lead to a productivity gain of 15% by recognizing anomalies in patterns. It is also producing some of the basic code that Deutsche Telekom writes for customer applications. There, his figure is 35% for the expected efficiency gain.

Plummeting headcount

It's an obvious worry for employees, especially older ones, with Höttges noting the average age of a staff member is now 41.4 across the group. "Even in Germany, we are much younger than in the past," he said. Meanwhile, headcount has plummeted across Europe. Stripping out the numbers attached to its US business, which grew with the Sprint merger, Deutsche Telekom's workforce had shrunk from about 173,500 people in 2016 to fewer than 137,000 by the end of last year.

Annual non-US revenues, though, have held steady over this period at between €39 billion and €40.1 billion ($43.8 billion), despite the mass scrappage of jobs that has eliminated one in five positions. For shareholders and company bosses, it is a great sign the company can run a business of the same size with far fewer employees than it needed just eight years ago. Non-US revenues per employee have accordingly risen from about €227,000 ($248,000) in 2016 to nearly €289,000 ($316,000) in 2023.

The real challenge remains growth. It has been extremely visible in the US, where T-Mobile has hoovered up many millions of customers at its rivals' expense, but far less apparent in Germany and Europe, despite the assessment of group performance and latest targets. "AI and automation will help us to provide better and more individualized services to the customer," said Höttges. If he can prove the latest tech is about much more than just cost reduction, Deutsche Telekom really will be a stock market darling.

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About the Author

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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