Deutsche Telekom looks ahead to a post-Huawei future

Deutsche Telekom Group CEO Tim Höttges welcomed the agreement reached with Germany's government in July on the removal of China‑made kit in 5G networks, although he warned that the process will have consequences for the operator in the coming few years.

Speaking during DT's results presentation on Thursday for the first half of 2024 (H1 FY24), Höttges said that while the agreement has brought greater clarity in what has been a complex and long, drawn-out matter, it will have a "massive impact" on the way DT operates and runs its infrastructure.

"It requires a lot of changes and a lot of new skills within our company to fulfil this agreement with the government," he said.

Five years after the initial launch of 5G services over Huawei's network products, Germany has ordered its telcos to strip Huawei out of their "cores," the network control systems, by the end of 2026. They must also remove its products from the management systems for the RAN and transport infrastructure by the end of 2029.

Höttges noted that DT's core network is already free of Chinese vendors. However, he said the work required to meet the 2029 deadline will be far more challenging.

"By 2029, we have to develop proprietary, sovereign software which is steering and configuring all the antennas. All the software which is required to run the access nodes, so the antennas, has to come from the operators. So we are not using software from third parties anymore," he said. "Now, this requires a totally new skill. You cannot buy that software on the global market now … we have to develop that software."

DT is already working on the development of appropriate software for controlling and configuring the transport and antenna network.

"On top of that, we made a commitment towards open RAN infrastructure, which is our clear future technology, which we deploy, and we will have 3,000 mobile sites implemented … by the end of 2026," Höttges added. He noted that DT now has access to "entirely new suppliers" such as Nokia, Fujitsu, Samsung and others, "which we then can implement in the access node side."

Höttges was unwilling to disclose the financial impact of these measures, although he said the cost of the software alone would be a "triple million number."

"That is something which is in our financial envelope and which we have to digest. It is part of the agreement" that was reached between the operators and the government, he said.

Onwards and upwards

Overall, Höttges presented a bullish assessment of the group's results in Q2 FY24, noting that his key message is that DT "continues its course unabated."

In the first six months of the year, service revenue increased by 4.1% in organic terms to €47.6 billion (US$52 billion) while total revenue was up 2.5% at €56.3 billion ($61.55 billion). Total adjusted EBITDA after leases grew by 6.2% in organic terms to €21.3 billion ($23.3 billion).

The highest revenue growth was achieved by the Europe division at 6.1%, while Germany grew by 3.1% and the United States by 1.5%, again in organic terms. Revenue in the systems solutions segment was up 3.6% year-on-year, on the back of growth in the cloud, digital, and road charging portfolio areas.

Höttges said DT is now raising its guidance on free cash flow after leases for the full year from around €18.9 billion ($20.66 billion) to around €19 billion ($20.77 billion), reflecting the improved outlook at T‑Mobile US.