Timotheus Höttges must love to flex his corporate muscle alongside punier European rivals and peers.
Pumped up by US activity, Deutsche Telekom, the German operator he runs, made nearly €109 billion ($121.7 billion) in sales last year, almost €8 billion ($8.9 billion) more than it generated in 2020, as well as €8.8 billion ($9.9 billion) in free cash flow, a 40% increase.
Vodafone, the second-largest regional operator by sales, is about €65 billion ($72.6 billion) smaller and shows the anemic growth typical of a European telco.
But strip out the US and Deutsche Telekom does not look so different. Following a merger with Sprint, that T-Mobile US business is now responsible for nearly 63% of Deutsche Telekom's sales and a colossal 92% of revenue growth last year.
Its adjusted earnings after leases (the telco world's preferred measure of profitability) contributed 61% of the group total. Deutsche Telekom's headquarters might be in Bonn, but it is mainly an American firm.
A merger with Sprint has (so far, at least) not proven to be the quagmire skeptics feared. If the "Un-carrier" label conceived by former CEO John Legere is wearing thin (especially since the company overtook AT&T in 2020 to become America's second-biggest mobile operator), T-Mobile continues to lure customers under new boss Mike Sievert.
Conditions are favorable, European telco executives are fond of saying, because a vast market of 330 million people is served by just three operators (although Dish Network is building a fourth), while Europe is awash with dozens.
The argument is not without flaws. American operators do have a much bigger addressable market, but their costs are also substantially higher. The difference between Germany (hardly a small country) and the US in mobile networks is zero (three exist and one is under construction in each).
Network numbers alone do not explain why T-Mobile US has been able to continue growth at such a dramatic pace when its parent company's European units struggle. But the contrast in performance is stark.
While US revenues grew 15% in dollar terms, Deutsche Telekom's German unit eked out a 1.6% improvement in sales, to about €24.2 billion ($27 billion).
Across the rest of Europe, revenues were up as little as 0.4%, to €11.4 billion ($12.7 billion). And the long-suffering IT business – T-Systems – recorded a 3.4% drop, to €4 billion ($4.5 billion).
Swinging the axe
Cost-cutting, then, has become a priority, manifesting itself in a huge reduction to the size of the non-US workforce. Between 2015 and the end of last year, Deutsche Telekom has cut headcount by 35,580 jobs outside America, leaving it with 145,434 employees.
That means nearly one in five jobs has disappeared – a drop that cannot be explained away by the limited amount of divestment activity that has involved the German company.
"Brutal automation" is a term the operator has previously used to describe its approach. Increasingly, networks can be upgraded or fixed with the rollout of new software, minimizing human effort.
Deutsche Telekom, among other firms, has spoken of a "zero touch" future in which there is no human intervention whatsoever. The shutdown of older technologies is helping. At the same time, a consumer preference for buying online has allowed operators to cut retail jobs.
Accordingly, while non-US sales rose just 1.6% last year, the figure for adjusted earnings after leases was up 4.4%. In Germany, the earnings target outlined in the latest annual report, published this week, is to generate an additional €280 million ($313 million) this year partly through cuts to indirect costs.
Those will come thanks mainly to "digitalization and automation," says Deutsche Telekom. It is targeting another improvement in 2023.
For European policymakers eager to see operators build 5G and full-fiber networks, the good news is that Deutsche Telekom is investing more.
In 2013, the year before Höttges became boss, its German unit spent about €3.4 billion ($3.8 billion) on capital expenditure, roughly 15% of sales.
In 2021, it invested €4.1 billion ($4.6 billion), or 17%. But the commitment to America is far greater. Deutsche Telekom spent €18.6 billion ($20.8 billion) there in 2021 (although more than €8 billion, or $8.9 billion, of this was on spectrum), equal to about 27% of the revenues it made.
The politician's concern must be that without a fast-growing US business, and its "brutal automation," Deutsche Telekom would be investing even less.
Following the Sprint merger, its net debt has soared to more than €100 billion ($111.7 billion), exceeding its market value by €23 billion ($25.7 billion).
Nor is Germany in an enviable position on fiber and 5G rollout. For starters, Deutsche Telekom continues to rely heavily for its mobile networks on Huawei, a Chinese vendor that many European officials view with suspicion if not outright hostility.
Moreover, while the operator boasts 5G household coverage of 90%, only 3,600 of its 63,000 5G antennas use the 3.6GHz band needed for higher-speed services. So far, no serious investment has gone into the standalone version of 5G, the one that brings a new "core" and the possibility of service innovation.
On fiber, Germany continues to lag other countries on household penetration.
According to a forecast published by the FTTH Council Europe in September last year, just 8.4% of German homes were expected to have a full-fiber service at the end of 2021, leaving Germany far behind Spain, Portugal and France and even trailing Italy and the UK, other regional laggards.
Deutsche Telekom's full-fiber network reaches only 3.4 million homes (for comparison, it has 14.5 million broadband connections). The company plans to reach 10 million by the end of 2024, but millions of homes in rural areas could be without fiber for years.
Höttges can sound tired and frustrated when discussing Germany and Europe, and yet full of excitement about the US.
The share price performance says it all. Rocked today along with other European stocks by Russia's invasion of Ukraine, Deutsche Telekom's share price closed yesterday at €16.48, roughly the same level it was five years ago. Shares in T-Mobile US are up 88% over that period. It is something for European officials to ponder.
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— Iain Morris, International Editor, Light Reading