Tim Höttges CEO of Deutsche Telekom: Future for connectivity, 5G and AI

We own over 2 of Deutsche Telekom, translating into 21 billion kroner, or 2.

1 billion U.S. dollars and guess what? We have been invested in Deutsche Telekom for 25 years. Tim is a very impressive and strong leader of Deutsche Telekom. It's a fascinating company and he is a super interesting person.

Tune in.

Now, what are the major trends in the telecom sector that really excites you today?

The first trend is more data available everywhere, always best connected. Second, it's about new business models. We have on the one side, the web 3.0 development, digital twins in the B2B area. On the other side, AI is enabling a lot of new services as well. Our industry, and on top of that, the world, the globalization only works while people are talking.

And today 5.

3 billion people of 8 billion are connected, and we are at the verge of it. I believe, you know, for a society which is living better together, connectivity is a must.

But we as Deutsche Telekom are only operating in the Western world, in the U.S. and in Europe, and that's a strong advantage.

Think about, let's say, Russia and its allies, think about China, and therefore being the North star for the Western world. With regard to one of the most important products, connectivity, I think that's an asset.

But it was always the case. I'm a veteran in this industry, I'm here more than 25 years. And there was a question, why should we send pictures? Does that somebody need that?

Why 3G services? And today, if we have a 3G service, we're already complaining because we need the data throughput. We want to see the videos, we want to share everything with our spouses.

And the industry is getting connected, and the same is happening with 5G. I see this that this low latency is getting important for the car industries to be always best connected. It is an issue which we see in the connection with home offers and the way of collaboration across different countries.

So, therefore, yes, the 5G cases will show their impact, especially in the IOT sector.

We have to make it as well in the 5G space, easier for developers to connect to the infrastructures. We have started an initiative from the whole Mobile Industries GSMA to open up APIS that developers can work on the different slices, as we call it in the 5G. So if you don't need low latency, you don't get it if you need high latency. For highly automated services in the production area, you can experiment that if you want to have, let's say, just the connectivity, you can work on the different features of the 5G ecosystem.

So this will be a new trend that developers can access the 5G APIS directly in a fully automated way.

While in the U.S. this market was growing, it was not regulated at all. From the beginning, different policy was taking place, spectrum was not rented, spectrum was sold, so different ways of dealing with the same environment.

Now, from that time, Europe created a market of 27 markets where the political idea was in every market. We need something like four players now, that means we have more than 100 players for a continent like Europe. For 500 million people in the U.S. you have only three and a half players for a market of 330 million. So the industry is today totally different. You have economies of scale in the U.S. while you have a fragmentation over competition in Europe.

They're only trying to survive the next quarter, but they're not investing strategic long-term. So, the return on capital employed in the European market is half of the return on capital employed in the U.S. The prices of the U.S. market are three times higher per customer than in Europe, so that is good for customers. But the consequence of this is the industry in the U.S. is investing significantly more into modern infrastructure than they are able in Europe.

The Netflix and the streaming industry is booming and all this traffic is going into our networks and they're not taking any cost on the infrastructure. So this is a construction mistake. When the world wide web was built at that time, At&T, Deutsche Telekom, Orange, the big telcos connected their networks.

And they did that on a free basis, why did they do that? They said, you give me traffic, I give you traffic. We balance this out so we make it a net-sum game for zero cost.

And how will you get that contribution? What are you going to do about it?

We call that fair share only for the ones who have more than 5 of the traffic. Look, one last sentence. It cannot be that. Our networks are spammed with advertising, and they always do this to take out data from consumers, which they monetize then in the U.S.

And what you have seen is the European telco industry, and we are the biggest player, we have a market cap of 100 billion, while the U.

S players in these industries are all trillions of market cap, and there is an asymmetry in our industry, which we have to balance a bit. They should contribute and help us to build this next generation networks.

Our aspiration is always to do things not in a good way, in a leading way, so always compare that. If everybody in the company would apply to this aspiration, the jigsaw of the whole organization will be leading and that is what we are trying to arrive.

Benchmarks is the service which you can get from the highly digitized companies. And therefore full automation of our services, the way of bringing new adjacent service to our connectivity, easy to use for our customers. Even the way of the capabilities of embracing new technologies like AI.

For us, this becoming a leading digital company, leading digital telco, this is our new strategic imperative, which we are driving here in the company. And therefore, I'm more comparing me now with the digital ecosystem than with the classical telcos.

Keep our focus on the connectivity part that is the basis for whatever we are going to do. This is where our core capabilities are. The second thing is, I think there will be a European market consultation where Deutsche Telekom is best positioned to create a European. A central European player in this very important industries. With its values, with its legacy, with its knowledge and its skills based in Europe for the Western world, that is, I think, you know, my aspiration, you know, going forward.

I don't see immediate acquisitions or mergers in Europe. I think we are still in this phase of very federal ambitions, but I think in 10 years this will have changed.

But look, the money should be spent in areas where you gain appropriate profits, so therefore find the right way. And on top of that, don't go in areas which you don't understand. So, you know, don't jump on something, and, you know, burn the chips and then think, you know, now we are in the cloud era, or now we go into a new consumer's digital consumer service, or we go in software development for applications or whatever. I can tell you, we will lose a lot of money.

So therefore, it should be expanding the adjacency. If I would have more money, I would spend it at the edges of our connectivity piece. Because I believe there is a certain commoditization of 5G service and fiber going forward. So that means every year we are investing, but there is a certain way that the prices for the services will be flattish or will decline. So therefore, the question is, to create a growth company, you have to work on the use cases around this connectivity.

And that is what we are thinking about.

In our organization, we have machine learning functionalities, but Chet Gpt the automation of natural language. By the way, the reason why the Homo sapiens is superior to all the others living on this Earth is because of our language, because of our communication. Suddenly, we have a tool which automates that.

This was a breakthrough and it's definitely an inflection point in history, so therefore it will affect everything. Now. What are we doing? There are areas where you have a lot of data.

These are the areas where you should start with AI. In our case, it's the customer interaction. So we are modernizing our bots on Chet GPT basis. So we are learning from the classical protocols, from all, let's say the taped or the known customer interaction. The system learns from that one.

And in the connection and the prompt, which we connect to all the knowledge which we have about the network functionalities, the products, the tariffs and the like. We create a new bot, by the way, we will have that bot already this year as an MVP here in Germany. To experiment with this new way of interactive customer service via a machine.

We will have as well, a speech which is creating presentations, speeches which is creating pictures. So the machine will transfer our language into doing into the automated way of making our life easier, and that is the purpose of it, making our life easier. It will take over first routines, but prospectively, it will even help us to be more creative.

You can easily fine-tune the models, yet you're not only getting the average of an answer, but even the edges of answers in the LLM models. So therefore, you will get as well new kind of creative inspirations. It will be always a human-machine interface. I don't believe that the machine is taking over, I don't believe that.

It will be always that I'm easening my life. I get new inspirations, I get new ideas, new knowledge with the machine, and then I transfer that and transfer that into my daily work. It will make us faster.

It will make us more skilled, think about program languages and other things which you cannot work on today. It will help us to simplify our living, and it will definitely take away routines, which gives us more time to create more important things, more creative things. It will create new jobs.

That is what my conviction is.

We have seen oil, we have seen gas, we have seen grain, we have seen food data. Everything is used as a weapon.

And it seems to be that in this world, where, kind of, you know, the classical organization is somewhat kind of the caudal. alignment between our values is a little bit, let's say, getting fragmented or falling apart. In this world, AI will be used as a tool as well to manipulate, and therefore, you know, we have to find new ways. What is the answer? By the way, it's even a business answer.

ID management very important, you know, so that you have to certify who is talking to you. It might be that you are sitting here with my avatar and you don't recognize that. So therefore, how can you make sure that it's Tim talking to you right now? So the certified protocols, not only on persons, but as well on data, is something which is getting more importance in the future.

And to make sure that we don't have fake news and other things.

This world is getting more difficult, more vulnerable, and therefore, you know, for us as a company, we are taking actions on this one.

We have, for instance, in the mobile network, our core network where the data is aggregated, in the IP Aggregation network, where data is transferred. We have full control, we only have Western providers. Now it's not against the Chinese, but it is better, you know, in this political world, you know, to have a multi-vendor strategy which is providing. On this one, I don't believe it's a good idea to shut down the doors to China.

Their innovation, their creativity, the way how they have, you know, performed in our industry in the past was as well a great learning impact as well. For Nokia and Ericsson, it brought innovation to our industries. And on top of that, I believe that being open, talking to these people, working with these people, using these people, will keep globalization intact. I don't believe if we are banning Huawei that this will not have an impact to other industries. And if we are closing down or decoupling our industries, what do we have?

What is this society about? I don't believe that's the way forward. So therefore, don't be naive. Critical component securities focus that you have them always under control, even if you run them your own with your own software. And on top of that, use the globalization for the competition of technologies and to learn, you know how different continents are evolving.

Our networks are operating from cloud infrastructures, we call that disaggregated infrastructure. in this disaggregated infrastructure, the protocols which we are using there will be supported by AI. The way how we are interacting with our customers, I mentioned that already.

Bots, you know, will be based with AI tools, by the way, teaching our agents, teaching our service people will work with AI. We have already a tool based in Hungary and in Germany, which we are using. To learn from the talks we had with our customers in the past to understand what the best interactions were for these individual cases. And teach our service people that they have more success in the interaction with their clients. So it's not only, you know, for the customers, as well as for our own people to learn from that one. And then we have this whole area of internal processes.

And I can tell you how many processes big companies have who could be automated, how many services you know where artificial intelligence can be used. I'm using Chet GPT-4 on a daily basis. By the way, I'm doing a lot of letters where I'm saying, by the way, I want to say this, this, this, this and this. Do that in a friendly manner.

And by the way, consider that, you know, I'm writing this letter to South Korea, or whatsoever, and you know, I get a draft letter then. Provided by Chet GPT. I love it and I change a little bit, but then I send it out.

In short.

The second one, curiosity, always been curious about new things. The third one is the element of, you know, purpose and belonging. We are very tied to each other, we feel like I would not say family.

That is too much, you know, but we feel togetherness. And by the way, history is. We were always, you know, a kind of state-owned company, you know, we were always the one who were attacked. This created this kind of mentality of a castle, you know, where people were defending themselves, and we have used this now for getting extroverted.

Look, how many people are on social media talking about the company if every employee is the communication department of this organization and everybody is showing his tee and his magenta. The message is very strong, We believe in our products, we believe in the strength of our company, and customers are recognizing this.

And customers always want to be with the winner. Success is a formula of discipline, plus talent. Times, attitude, the attitude of the way how we're doing that, and I'm coming back to leading, leading is our attitude. Everybody should have this attitude to do things in a better way than the others, so performance-oriented.

This is the way we're doing and for me, a lot has to do with empowerment. You know, I cannot run a business in Seattle, 9,000 kilometers away from here, and tell these people how the tariff of the next proposition should look like. I should trust these people that they are doing the right thing. So I would say 80 of our business is driven by empowerment of local people, building the right networks, having a great service, having good propositions for their customers, being, let's say, aggressive on the competition. And, you know, considering the appropriate return on investments, but centralize the ones which you have to do.

So I would say 20 central, 80 decentral gives a lot of empowerment to the people.

Everybody, you know, is a worker. I always say, guard horse. you know, everybody should be a guard horse. We do not need escort winners here, we need guard horses in this organization.

So I was doing the practical work, you know, I drilled the walls, I was, you know, digging the grounds, so I was trying to understand. You know how our processes are working. I always want to be on the lowest, you know, the operational level of this organization to under house where the money is going.

And that's the way how I'm trying to stay grounded. I'm spending significantly more time with customer service, with the technical infrastructure, and with, let's say, new business models than I'm spending, for instance, with capital markets.

I should be part of the organization. Authenticity means people should say he understands the business, he understands what we are doing, He understands as well, hopefully most of the problems which we are having, he is not. You know somebody who is a superstar, you know, sitting in talk shows or hanging out with celebrities all day long?

He should be a worker in this organization. I think this is it I earn. I don't want to be laughed, I want to have respect for what I'm doing and this comes from the jobs I do personally.

Being, let's say, deals like the U.

S deal being like operational team in the communication, being like fighting outside for political topics for this company. This is, let's say, how I want to be perceived, respected, that I'm always 100 committed. First, always Deutsche Telekom.

I always, you know, looking on the pros, the cons, you know, the opportunities, you know. I'm always listening to a lot of people. I want to get. Let's say a full picture of holistic view, cubistic, a holistic view about, let's say, what are we talking about? And then, you know, I'm drawing a conclusion of that one. Interesting wise, sometimes the conclusion comes automatically.

So you do not have to always, you know, show the organization I'm calling the shots, let the discussion maintain and organize a discussion in your organization. And suddenly the organization falls into a conclusion where you can say that's the right one. Go ahead. And rather than sitting there and calling the shots all the time.

I think this is the biggest negative. By the way. It's good for the company. Because, you know, I can never, and that is psychologically, maybe one of the biggest issues you can analyze is I'm never happy about something. You know, I did a big deal.

Successful, you know, with Sprint. And to be honest, I enjoyed it. Maybe for an hour, and then I was thinking away. What are now the complexities, the problems which are coming from that one, and what do I have to solve next?

So I'm always easy. I'm always, you know, I like to laugh a lot in the office. I make a lot of jokes as well. Maybe not always the best ones, but you know, at least, you know, I'm trying to be as funny as possible. So people have always this warm and cold a little bit.

Now, after a while, maybe if I don't appreciate their work, people are learning that whatever I'm doing, I'm doing this because I want to make this Deutsche Telekom even more successful. I always stand for the company. And then they start, you know, organizing themselves, and they don't become dependent on constant appreciation for me. They find, you know, their satisfaction in the achievements which we jointly have. And then, after a while, they say, By the way, it's normal that Tim is not appreciating that, you know, that is how he is.

Let's move on and follow him. I think, you know, we are on a good track. I think that is these three phases of how. I'm not somebody who is really applauding and appreciating all the time, but nevertheless, I'm very happy. In the way how the organization is striving for awards, how the organization is striving for success, and how ambitious this organization became over the last 10 years.

Faustus, who is constantly, you know, curious, constantly striving for something new, constantly driving this organization. And maybe the moment where I stop and enjoy that moment, you know, I will lose my life to the devil. So therefore, please, I hear your advice, but so far, I haven't adopted it.

You never have a kind of white and black answer, it's everything is gray. And you have to navigate companies. You know, 200,000 employees, including their families, through this fog. And therefore, you know, there is no kind of security in this one. But you know, I'm always, you know, and I said it earlier, I always, you know, anticipate the worst, and then when it turns out, you know that it's getting better. I'm happy.

And if you anticipate the worst, you prepare yourself, maybe more diligent, more deeper than the others. At least. You know, that was my recipe so far. And then you are surprised if you overachieve at the end of the day. So therefore, I don't think it's something bad with this. Nevertheless, you know, I think, you know, we can be. There is a lot of, let's say, self-conviction in me of, you know, being now in the operations for more than 35 years.

And therefore, I have a lot of, let's say, stamina and a lot of, let's say, convictions that this company is very successful. And on top of that, I have to say. All the ingredients, market structure, spectrum positions, the leverage situation of the company, capabilities, technology, know-how. All the ingredients for a future success of Deutsche Telekom are very strong today and therefore I think we are at a good place.

A bird can only fly with two wings. That is a classical American example, but there's a lot of truth in it. If you have problems with your health, if you have problems with your family, if you have problems in your private life. Over time, it will eat into your business life as well. So it is very important that you keep a very balanced personality, that you take time for yourself, that you have your own life aside from the company. Second, it is very important that you are happy with this.

You know, you can fight in difficult situations, it's not that. I recommend that if you don't like your situation, immediately throw it away and try something new. You have to fight through this, but you should set yourself limits. And say, by the way, if it's not improving after a year, after one and a half years, whatever timeline you have and it's still the situation, then move on and do something different. And on top of that, find your interests, your private interests.

Always stay curious. We like to travel. I like my sports, I'm very intensively balancing, I'm now 60 and I have to work on my body on a constant basis.

I have three times a week a personal trainer in the company that I stay fit for this job, so this helps me to stay happy as a person.

What can we explore? is there something which we can find? And I think that it gives a lot of energy, it gives a lot of power, which I can then even transfer into the company. I'm always exploring new things.

So this is an interesting book, and I always try to draw analogies for my business out of this.

Always being it in your private, in your business life. Explore the world, explore people, explore new areas, go deep in certain things, but as well, look right and left of it.

Always stay in this momentum of changes, things which are transforming something good, enjoy them rather than being afraid of it. Train your muscles for change, get out of your comfort zones, Get out of your comfort zones on a constant basis.

Do things if it's a marathon. I had to get out of my comfort zone. Last year, I sailed with five friends in a 48-feet boat from Gran Canaria to St. Lucia. This was 20 days on the ocean.

I had to get out of my comfort zone to challenge myself and say, by the way, I have to broaden my horizon.

Very good.