Vision and
strategy

Our vision

The customer is our focus. Even today, we connect more people in mobile communications than any other network operator in Germany. We have a direct customer relationship with more than 80 percent of our customers. Our customers are therefore our greatest potential for new growth.

Once the integration has been completed, we will therefore place customer benefit at the heart of our activities more consistently than ever before. To this end, we have defined a clear vision:

“We want to become the ‘Mobile Customer & Digital Champion’.”

This means: we want to be the preferred partner for mobile customers in the German market.

To achieve this, we are making our customers' lives easier and better and giving them mobile freedom in the digital world. We want to offer our customers a consistently positive experience with our brand, products, customer service and network. The daily user experience at Telefónica Deutschland should impress our customers in terms of ease, speed and performance.

We want to know our customers' wishes and needs even better, respond to them in real time and develop suitable products and services. To this end, we will set the benchmark in the market with our multi-brand and multi-channel sales approach. On the other hand, we are increasingly using digital interaction with our customers, because we see ourselves as pioneers of digitalisation. We attach great importance to the fact that our customers can shape their digital lives in a self-determined way.

Our strategic priorities

In order to realise our vision of the “Mobile Customer & Digital Champion”, we defined three strategic priorities last year: foundation, customer experience & digitalisation and growth & profitability. They will determine our actions in the coming years.

First, we will strengthen the foundation: outstanding customer service, stable IT systems, a powerful organisation and an appropriate regulatory framework are the basis for a positive user experience and future growth.

Our second priority is to improve the customer experience in the digital age. This starts with providing a better, faster and more efficient network that meets the needs of its users in every situation. Building on this, we offer a convincing range of products and services that are tailored to the customer's day-to-day digital life. Finally, we are digitalising our company comprehensively in order to further improve the customer experience. That is why we have set up our “Digital4Growth” transformation programme. This makes us easier, faster and better for our customers.

  • Easier by making interaction more intuitive for our customers and enabling a consistent experience across our channels.
  • Faster by responding to customer needs and market changes in real time.
  • Better, by enabling a positive customer experience across all our channels and building data-based growth areas.

Through the successful implementation of our first two priorities, we reach the third priority: by making our customer experience stand out, we create the conditions for growth and profitability.

In the past year, we already made significant progress on these priorities, which will be set out in more detail below.

Our path to becoming a “Mobile Customer & Digital Champion” is being specified by Telefónica Group's global strategy programme: #RECONNECT. It also focuses on our customers and the connection between people and technology. The building blocks of this programme help us to achieve our growth ambitions.

#RECONNECT is Telefónica Group's formula for growth (G): G = R4 × M

The R and M parameters are defined as follows:
  • RELEVANCE: We provide the best digital experience for our customers, made possible by easy-to-use, user-friendly and customised technologies.
  • REVENUES – Sales: We increase the loyalty of our customers and their enthusiasm for our products and services; this opens up increasing sales potential for us.
  • RETURNS: We rely on smart and efficient investments that meet the needs of our customers.
  • RESPONSIBILITY – Awareness: We grow responsibly, play a bold role in shaping regulation and create value for society as a whole.

The predominant factor in all of this is MOTIVATION: it is the key to all success and thus functions in the formula as a multiplier of the four Rs. It stands for a growth mentality, a powerful, agile organisation and committed employees.

In the following, the strategic priorities outlined above on the way to becoming a “Mobile Customer & Digital Champion” will be discussed in more detail. At the same time, the individual blocks are also classified into the global #RECONNECT programme.

First strategic priority: Foundation

The basis for a positive user experience and future growth is a strong foundation of the company. This applies, in particular, to the areas of service and IT systems, organisation and framework conditions. The following section provides a comprehensive overview of the progress already made in 2018 and the ambitions in these areas.

Service
Our aim is to convince our customers with outstanding quality every time they contact us. In doing so, we consistently use the possibilities of digitalisation to achieve a high level of satisfaction with our service. It is important to us that our customers themselves decide which channels they prefer to use to get in touch with us.

In the past financial year, numerous measures were implemented to further improve the availability of hotlines and services. This includes the optimisation of processes and new training initiatives. These measures have been effective: this is demonstrated not only by internal performance indicators (such as waiting times and availability), but also by feedback from our customers. In the independent hotline test conducted by the connect trade journal, for example, O2's customer service managed to improve by a whole grade on the previous year and thus came second in the overall ranking (grade “good”). Our service employees were particularly convincing when it came to consulting and came first among all twenty suppliers from Germany, Austria and Switzerland tested in the “quality of statements” category. Customer service was also convincing in the fixed-network business recently. The connect trade journal rated the O2 DSL hotline as “good”. Compared with the previous year, Telefónica Deutschland improved more than any other test participant.

In the coming years, we will continue to offer our customers outstanding service on a daily basis – with the right mix of personal and increasingly digital service channels. They offer customers new possibilities to resolve matters themselves in an uncomplicated, fast and completely flexible way. Our aim is to increase the e-care share of all service requests to 80 percent by 2022. We are also digitalising our internal service processes. This will enable us to solve service issues even better and faster through automation and the use of artificial intelligence, among other things.

IT systems
In addition to excellent customer service, stable and future-proof IT also forms an essential part of the foundation. To ensure this, we are creating a uniform, flexible system landscape across all market segments and sales channels. We are transforming our entire IT systems using the approach of Telefónica S.A. Group: a standardised product catalogue ensures consistency of product and price information. We are also standardising our ordering system and our Customer Relationship Management (CRM) system to further increase efficiency.

Organisation
Digitalisation is not only a challenge for technology, but above all for the organisation and its employees. We want Telefónica Deutschland to remain efficient in the face of digital change. To this end, we are developing new ways of working that fit the requirements of the digital world: we promote continuous learning in analogue and digital form. In our day-to-day work we collaborate in mixed teams across all areas in a solution-driven and trust-based manner. We also design flexible working time concepts that meet the needs of our employees today and tomorrow. The aim is to become more agile and to promote interdisciplinary cooperation and rapid decision-making. Further training should be available to our employees in real time and be easily accessible. A digital learning platform will be available to all employees for this purpose by 2020. They can find the right training that suits them in less than five clicks.

Framework conditions: Legal and Regulation
Telefónica Deutschland advocates appropriate legal, regulatory and political framework conditions and acts as a conscientious company. We are actively involved in shaping the discussion on the social and economic consequences of digitalisation. Within this framework, we are consistently committed to legal and regulatory frameworks that promote the digitalisation of Germany in the best possible way.

With regard to the auction of the 5G frequencies, we are advocating more investment-friendly procurement rules. This relates to aspects such as payment terms, roll-out obligations, auction design, provision of regional spectrum, the so-called service provider obligation and the issue of national roaming. We thereby aim to ensure for our customers and shareholders that no unnecessary barriers to investment are placed in the way of the industry. Germany needs a clear and fair framework to avoid falling behind in this important future technology.

We are also playing an active role in the ongoing antitrust review process with regard to the planned acquisition of Unitymedia by Vodafone. Because it is important for us to counteract potential restrictions of competition in the telecommunications market decisively in the interests of our customers.

“Germany needs a clear and fair framework to avoid falling behind in this important future technology.”

Second strategic priority: Customer experience and digitalisation

Building on a strong foundation, the second priority is the continuous improvement of our customer experience. This will be achieved by further expanding our network and comprehensively and consistently digitalising all corporate divisions.

Network infrastructure
We are building Germany's largest and most modern mobile communications network, which is geared to the real benefits for people in their digital day-to-day lives. We had largely completed network integration by the end of 2018. The results of the current network tests confirm the progress made: for instance, our network earned a clear “good” (2.2) in the CHIP trade journal and improved on the previous year nearly by a full ranking. We were also able to improve significantly in the connect network test.

In addition, we are pushing ahead with the expansion of LTE. We are expanding precisely where customers benefit most from better coverage and higher transmission speeds. Last year we installed more than 6,700 new LTE stations nationwide – more than any other network operator in Germany. In almost all cities, our network was expanded with additional LTE elements. At the same time, we have significantly improved performance within important transport infrastructures and in sparsely populated areas. This is also objectively confirmed by third parties: In the LTE network category, we received the ranking of “good” (1.70) overall in the CHIP test. The trade journal particularly emphasised the good network quality in metropolitan areas, as well as in large cities.

On our route to becoming the “Mobile Customer & Digital Champion”, we are already working consistently on our network of the future today. In particular, we are ensuring that we prepare our mobile infrastructure for the future integration of 5G. Via the fibre-optic connection of our mobile communications sites and 5G pilot projects, we are creating the conditions for ultra-fast data transfer rates of the future. In this way, we are laying the foundation for future digital applications, further improving the quality of our network and making it future-proof.

We continue to rely successfully on cooperation ventures in this process: we have concluded agreements with Deutsche Telekom, NGN FIBER NETWORK, GasLINE and Unitymedia. In addition, we are cooperating with Vodafone in a pilot project for the joint use of fibre-optic-based connections. Together with these and other partners, we plan to increase our share of mobile communications sites with fibre-optic connections to 70 percent.

In addition, we are driving innovative projects with various partners. They include the establishment of the joint Early 5G Innovation Cluster test network with Nokia, the 5G Connected Mobility project with Ericsson and the testing of 5G Fixed Wireless Access (FWA) connections in collaboration with Samsung. The latter is a promising, fast and cost-effective way to provide real broadband access based on millimetre waves (26 GHz) to people across the country. FWA is therefore a sensible alternative to the expensive use of fibre optics.

Consistent digitalisation: “Digital4Growth”
We want to become simpler, faster and better for our customers. To this end, we have designed the “Digital4Growth” transformation programme.

We are becoming simpler by making interaction with our customers more intuitive and providing them with a consistent experience through our channels. To this end, we are continuing our cross-channel sales and service concept consistently (omnichannel). This means we are establishing consistent customer interfaces and interfaces for a standardised experience across all customer interactions. “Digital4Growth” uses the so-called Customer Journey Mapping method to continuously improve all customer-relevant processes. In doing so, we are consistently driven by real, precisely defined customer processes. These are analysed step by step. In this way, optimisation potentials can be identified quickly and systematically in order to noticeably improve the customer experience as quickly as possible. The goal is to increase the share of digital distribution channels to 25 percent by 2022 as part of the “Digital4Growth” programme.

With the continuous further development of the “My O2” app, we also simplify the digital life of our customers. In this way, we offer them new opportunities to solve their own problems quickly and easily. Our customers can already manage their rates and devices easily and intuitively today. The “My O2” app was rated “very good” by the connect trade journal in September. Through further improvements in functionality and handling, we plan to further increase their attractiveness. As a result, the use of the “My O2” app within our customer base will increase from 20 percent (2017) to 80 percent (2022).

We are becoming faster by minimising the number of process variants and automating the remaining ones in the best possible way. This enables us to introduce new features and products much faster than in the past and to react quickly and flexibly to changing customer needs. Smart data analysis will also enable us to use our resources more flexibly and efficiently. Our aim is increasingly to satisfy the needs of our customers in real time.

We get better by enabling a positive customer experience across all our channels at every contact. We take advantage of opportunities offered by artificial intelligence (AI) and also rely on the use of smart Telefónica technologies such as AURA. This is a new digital contact channel that uses artificial intelligence to help customers quickly, easily and in real time. Since February 2018, O2 customers can already chat with AURA via Facebook Messenger. Beyond that, we also meet customers' requirement for more digital self-service offerings.

We will continue to drive “Digital4Growth” in the coming years. By 2022 at the latest, for example, there will only be one payment process, one credit check or one activation process. The transfor­mation program helps us to become the “Mobile Customer & Digital Champion”. Through the continuous improvements within the framework of “Digital4Growth”, we aim to achieve a total of around EUR 600 million in OIBDA effects (gross) by 2022.

Private customers
We are consistently addressing the needs of our residential customers in the digital world and will continue to focus our core brand O2 on the customer promise of freedom. By continuously improving our O2 Free plans, we can promote data usage and in this way increase Average Revenue per User (ARPU). In addition, we aim to increase the loyalty of our customers further and reduce the churn rate.

Our strategic focus is on data-centric mobile phone contracts, which we address with our O2 Free plan portfolio. O2 Free has become even more attractive with the introduction of the plan items Connect (up to 10 SIM cards for any number of end devices included in the mobile phone contract) and Boost (double the data for EUR 5 extra) in June 2018. Since August 2018 we have even been offering our customers unlimited data at a very attractive price with O2 Free Unlimited.

In July 2018, we also introduced our completely revised O2 my Prepaid plan portfolio. It addresses smart phone users in particular and in this respect, too, takes into account the growing interest in the use of mobile data.

We have also consistently placed our brand promise at the centre of our range of end devices for O2. We offer our customers maximum freedom in the choice of their preferred smart phone. This is available at O2 not only on favourable terms, but also flexibly with or without a mobile phone contract and regardless of any contract change or contract extension.

The guiding principle of freedom also determines our O2 my Home DSL plan portfolio, which was launched in October 2018. This enables us to offer residential customers speeds of up to 100 Mbit/s within their own four walls.

In addition, the O2 brand has had a genuine convergent product in its portfolio since August 2018: the unlimited plan O2 my All in One, which offers unlimited browsing both at home and on the move.

In addition to our core brand O2, Telefónica Deutschland also offers a second brand, Blau, which is clearly differentiated from O2, targeted at price-conscious residential customers. This means that we can offer this customer segment a mobile services portfolio that has been reduced to the essentials. In the summer of 2018 the new Blau plan portfolio was introduced, underlining this customer promise and offering an even more attractive price/performance ratio. Excellent customer service (it was rated “Good” by the magazine connect) also contributes to the popularity of the Blau brand. Blau also received the “High Customer Loyalty” accolade from Focus Money.

Partner customers
In addition to the O2 and Blau brands, our partner business is a key pillar of our strategy. With a focused multi-brand strategy, we are successfully reaching all market segments aside from our own brands. Examples include the ALDI TALK, AY YILDIZ, Ortel Mobile and Tchibo Mobil products, which are implemented through partnerships or equity interests.

Other cooperation partners from the telecommunications industry are mobilcom/debitel, Drillisch (1&1), Versatel, Breko and various cable providers. We offer these partners a broad portfolio of options. The basis is a scalable business model with different depths of added value. This enables us to offer tailor-made solutions for different customer groups and serve their needs even better. In this case, too, independent tests confirm that our strategy meets the needs of the market. In 2018, for example, ALDI TALK was named “Mobile Brand of the Year” for the fifth time in a row, in a representative customer survey conducted by the market research company YouGov in cooperation with the business and financial newspaper Handelsblatt.

Going forward, too, we intend to continue growing together with our wholesale business to complement our core brand O2. So we will continue to be flexible and responsive to our partners' needs and support them in improving the customer experience.

Business customers
Telefónica offers lean mobile and landline products tailored to business customers. Our focus remains on addressing small and medium-sized companies through our core brand, O2, with an innovative product portfolio. Here, too, the customer experience based on lean, user-oriented mobile and landline products is at the forefront.

Since October 2018, for example, business customers have had the option of an all-in package with the new O2 Free Business Unlimited. It includes the most important elements for everyday mobile business at home and abroad in one plan. In addition to unlimited LTE high-speed data, which can be used on up to five devices, the plan also includes Europe-wide telephone and SMS services, as well as additional roaming services in other countries of the world.

In addition to O2 Free Business, Telefónica has also, since November 2018, been offering business customers convergence benefits for the first time, when they order products from several of our B2B product ranges together. In doing so, we consistently respond to our customers' wishes. With O2 Business Fusion, we offer companies an integrated product for mobile, Internet and landline communications. O2 Unite provides a pooling plan model for corporate customers that is unique in the German market.

We also offer business customers a range of services relating to the Internet of Things (IoT), machine-to-machine communication (M2M) and managed connectivity. In this way, Telefónica Deutschland supports companies on their path to a networked future through simple and demand-driven products. We intend to expand this division in the future, as described in the following section.

New business: Internet of Things and intelligent data analysis
Through the growth markets of the Internet of Things (IoT) and advanced data analytics (ADA), we are opening up new areas of expansion that are close to our core business. They not only open up new revenue opportunities, but also contribute to improving the overall customer experience.

Our customers are connecting an increasing number of end devices to their networks. We want to become the leading provider of mass-market Internet of Things solutions for residential customers. In this context, we are establishing a comprehensive eco-system. It is designed to enable customers to utilise easy-to-use IoT end devices and solutions. In this way, we are seizing the opportunities resulting from the exponential growth of devices and things connected to the Internet via mobile phone technology. By 2022, we plan to increase the number of network devices per customer to an average of four.

In addition to a future leading role in the end customer market, we also offer business customers and partners innovative IoT solutions. Through the IoT Smart Center platform, the Global SIM and IoT Connect, Telefónica Deutschland can offer flexible, secure and cost-efficient networking solutions. The IoT Partner Programme (IPP) also helps firms to develop and network new and futuristic technologies.

We will continue to develop new business models in these areas in the coming years, making use of both agile methods and the strengths of the Telefónica Deutschland Group. By 2022, we expect revenue to increase by around EUR 200 to 300 million cumulatively as a result of IoT.

In addition to the Internet of Things, intelligent data analysis plays a key role for us. On the one hand, data analyses and artificial intelligence methods help us to respond better to changing market demands. For example, we acquire new customers in a more targeted way by customising campaigns and our offers even better on the basis of data analyses. Artificial intelligence also helps us to optimise our mobile network.

With the help of data analysis, we also support other companies in gaining new insights from Big Data, e.g. for traffic planning and the retail trade. Using our anonymisation process developed in-house, we guarantee the security of our customers' data. In Transport Analytics, for example, we use anonymised data from Germany's largest mobile customer base to draw conclusions about air quality from the flows of people under way. We also support cities in traffic planning. In Retail Solutions, we combine the performance potential of data analysis and IoT to give retailers insight into customer behaviour and enable them to interact more effectively with their customers.

“We want to become the leading provider of mass-market Internet of Things solutions for residential customers. In this context, we are establishing a comprehensive eco-system.”

Third strategic priority: Growth and Profitability

Our strategy is creating an excellent basis for further business success. By placing the customer consistently at the centre of our actions, we differentiate ourselves and enable new growth.
By focusing on optimising fundamental factors in success such as network and customer service and the customer promise “Mobile Freedom”, we create an outstanding customer experience. We are continuing our data monetisation strategy to increase Average Revenue per User (ARPU) and further reduce churn. Our transformation programme, “Digital4Growth”, will not only enable us to act faster and more efficiently, but also to tap new revenue potential, so that we will experience overall growth in line with the German market.

We are making intelligent investments in our network and in the transformation and digitalisation of the company. Over the medium term, we will keep the level of our investments stable. In particular, the transformation to a digital company enables us to continuously increase efficiency, with the result that we can steadily reduce our operating costs.

Overall, we are aiming for a continuous, positive development of our profitability. At the same time, we are reaffirming our commitments to our shareholders: we firmly believe that we are in a position to continue generating a solid free cash flow. In addition, we continue to support an above-average shareholder return with a high dividend distribution in relation to free cash flow.