Deutsche Telekom's Global Development as a Reaction to the Transformation of the Telecommunication Industry
Responses to the Loss of Regional Competitiveness
Essay 2013 5 Seiten
Deutsche Telekom's global development as a reaction to the transformation of the telecommunication industry - responses to the loss of regional competitiveness
This paper will examine Deutsche Telekom AG ("the company" or "Deutsche Telekom") response strategies to a highly competitive and in some parts saturated German and European telecommunication market. It will especially consider key concepts, such as the economics of competition, efficiency and scale to account for the company's international expansion. This paper will argue that the company's globalization strategy is consistent with other top 500 companies. Furthermore it will show that Deutsche Telekom has managed to establish an international footprint with a very strong position in Europe. Finally this paper will conclude that the company, although facing strong competition and high future investments, will continue expanding with a special focus on emerging economies, especially Asia and Eastern Europe.
After the start of the liberalization of the European telecommunication market in the UK in the early 1980s Deutsche Telekom was already preparing for a soon changing business environment. Before its IPO in 1996 the company bought minority stakes in telecommunication companies in for example Indonesia, Malaysia, the Philippines, Thailand and several eastern European countries. With its takeover of One 2 One in the UK in 1999 and one year later Voicestream and Powertel in the US, Deutsche Telekom was determined to force a fast and strategic expansion (Kranenburg, 2008, p. 120). Today the company cannot only be described as transnational, with its operations taking place in 50 countries, but represents also one of the most diversified telecommunication companies worldwide, as Borsch (2007) points out. The liberalization of the European telecommunication market, as well as the technological innovations during that time attracted many new competitors, thus causing Deutsche Telekom to lose market share and revenue. Borsch argues, for example, that in consequence the German telecommunication market transformed into one of the most competitive worldwide. The expansion of Deutsche Telekom into the European market was therefore mostly due to increasing competition in the home market. However, at the same time some geographic boundaries that existed before where no longer applicable due to advancements in technology or simply adjusted needs of international customers (see Jamison, 1996). Therefore the market restructuring in Europe due to deregulation and innovation forced the company to enter into new fields of business if it wanted to stay competitive. Olmsted and Jamisin argue that the media market in Europe, due to these effects, has become part of a worldwide integrated communication system (Olmsted, Jamison 2001, p. 322). Considering that the telecommunication industry is characterized by very high fixed costs for networks and licenses and low marginal costs, the benefits of expanding become obvious since long run average costs are minimized with more subsidiaries. Especially the fact, that Deutsche Telekom created 4 mostly independent subsidiaries with T-Mobile, T-Com, T- Systems and T-Online helped the company to restructure and lastly expand its business successfully. Most of all, this was important, since the company was in severe need to become more efficient after being a state-owned company for several years, as Borsch (2007) points out. In contrast to other telecommunication companies, however, its goal was less to compete on the basis of lowering costs but rather by providing high-quality services. This can be seen that in the fact, that although revenue increased by €3 billion between 1994 and 1999, profits decreased by €500 million (Deutsche Telekom 1994 and 1999, cited in Borsch, 2007, p.127). The concept on competing through quality is quite different from what can be observed in other multinational companies. However, this is also due to the very nature of the telecommunication industry, since it is largely based on research and specialization. Globally Deutsche Telekom has already established its position in Europe and is continuing to expand especially in the growing Eastern European region. In the US the company's position is more difficult, since itjust failed to sell its local subsidiary T-Mobile USA and is now forced to invest heavily in the expansion of its LTE network in the US (Halstrick and Howley, 2011). It needs to be mentioned that Deutsche Telekom's subsidiary, T-Mobile, has a limited presence in some European countries and the USA, since the mobile market is globally very competitive. All other international subsidiaries belong to T-Systems, which reflects the global need for integrated and professional IT solutions, but also demonstrates that other markets, especially Asian markets are dominated by strong incumbents (Datastream, 2012, p.15). In comparison to other top 500 companies worldwide Deutsche Telekom represents almost no exception in terms of its transnationality or strategy of expansion. However, it can be argued that its increasing engagement in Eastern Europe differs somewhat from the operations of other large telecommunication firms. According to the UN's world investment report, as cited in Wood and Roberts the largest 100 non- financial multinational forms operate on average subsidiaries in 39 countries (UNCTAD 2007, cited in Woods, Roberts, 2011). This shows that the company already has a good position internationally and although it has a competitive advantage (at least forT-Systems) towards other telecommunication firms due to its very high diversity in its business areas, it is necessary to expand further to utilize that advantage and balance increasing competition.