BARCELONA -- Mobile World Congress 2016 -- Niek Jan van Damme is unfazed by the prospect of surging quad-play competition in Germany. "There is room enough out there for everybody and this will only fuel the market," says the softly spoken managing director of Telekom Deutschland. "As we are the biggest and most advanced player I think we'll benefit the most."
The domestic unit of Deutsche Telekom AG (NYSE: DT), Europe's biggest telecom operator, Telekom Deutschland GmbH (TDE) launched its bundled-services offering under the MagentaEINS brand in September 2014. The response has been impressive. By December last year, the operator was boasting more than 2 million customers on the new tariffs. "It shows we have created a new category," Jan van Damme tells Light Reading on the sidelines of this week's Mobile World Congress in Barcelona. (See DT Notches Up 1.5M Quad-Play Customers.)
The move into convergence neatly fits with Deutsche Telekom's strategy of developing both fixed and mobile networks in its central and eastern European markets. It also comes after a remarkable turnaround at TDE's mobile business, which has managed to reclaim its lead on service revenues from Vodafone Germany during the past few years. "We've been back at number one for a while," says Jan van Damme. "That's important because it's a signal of strength in the organization and to the market."
Yet with Vodafone in resurgent spirits, conditions seem bound to get tougher. Since completing its takeover of Kabel Deutschland GmbH , Germany's biggest cable operator, in 2014, Vodafone has been flexing its own quad-play muscle. Telefónica O2 Germany GmbH & Co. OHG , which uses TDE's network to provide broadband services, is also keen on targeting this opportunity. In the meantime, analysts continue to flag concern about the impact of service bundling, and the attendant price discounting, on revenue development.
Jan van Damme says he is not worried, highlighting the differences between TDE's strategy and that of operators in southern Europe. "Six or seven years ago convergence was a defense mechanism to address churn in the fixed-line base," he says. "This is about bringing more value to customers."
To build a lead ahead of moves by Vodafone, TDE has been offering new customers a €10 ($11) monthly discount off the price of services over a limited period. But subscribers have been spending an additional €7 ($7.7) per month since switching to the new offering, including on the purchase of additional services like safety features and higher data allowances. Some of the most valuable customers are forking out nearly €90 ($99) a month, which compares with average revenue per user at TDE's mobile contract business of about €22 ($24) in the final three months of 2015.
In terms of customer growth, MagentaEINS has perhaps had its biggest impact in persuading some fixed-only customers to sign up to mobile as well. According to Jan van Damme, between 23% and 25% of MagentaEINS subscribers fall into this category, with 8% or 9% moving from mobile-only deals previously. Just 2% are entirely new to TDE, meaning that just less than two thirds have simply switched to the "repositioned" offering from older bundled products.
Those numbers seem to bear out in Deutsche Telekom's latest financials. At its consumer business, TDE reported a 2.7% year-on-year increase in broadband customers in the fourth quarter, to around 10.2 million subscribers, and a 10.6% rise in TV customers, to around 2.5 million. Its mobile contract business, meanwhile, flagged an impressive 7.8% increase over this period, to roughly 17.3 million users.
But MagentaEINS still accounts for only about one fifth of TDE's broadband customer base, excluding enterprise accounts, and 12% of its mobile consumer business. At €5.1 billion ($5.6 billion), overall revenues from broadband and TV services were flattish in 2015, compared with 2014, while service revenues from all mobile customers rose just 0.5%, to €6.7 billion ($7.4 billion).
Even so, Deutsche Telekom insists that TDE continues to outperform the mobile market following the merger between Telefónica and E-Plus Service GmbH & Co. KG that took place in October 2014. Moreover, despite the market entry of new mobile virtual network operators, prices have not fallen sharply, as some feared. "What we have seen so far is quite rational behavior in the market," says Jan van Damme.
Next page: Beefing up the network