Deutsche Telekom Ag · XETR:DTE
Deutsche Telekom — Everything Everywhere — Investor Day (September 2010)
73 slides from Deutsche Telekom's investor day presentation, Sep 28, 2010
Slide 1: Creating a new mobile champion
Creating a new mobile champion Timotheus Hoettges, Deutsche Telekom CFO Gervais Pellissier, France Telecom Deputy CEO & CFO September 28th, 2010 1
Slide 2: Cautionary statement
Cautionary statement • These presentations contain forward-looking statements and information about Everything Everywhere business, in particular for 2010 and 2014, that reflect the current views of EE management with respect to future events. These forward-looking statements are subject to numerous
Slide 3: Execution toward full integration ahead of schedule
Execution toward full integration ahead of schedule • September 2009 – Announced our intention to form a joint venture • November and beyond – working closely with regulators in UK and EU • March – EU clearance obtained six months earlier than expected • April – Legal incorporation of Everything Eve
Slide 4: Board designed for delivering on commitments
Board designed for delivering on commitments • Small and balanced Tim Hoettges board structure: two Chairman representatives of each Gervais Guido Kerkhoff shareholder, two Pellissier Non–executive Non-executive representatives of Director Director the company • All board members are experienced han
Slide 5: Governance designed for a stable, long term ownership structure
Governance designed for a stable, long term ownership structure • Joint control situation • Identical fair value appraisal at both parents France Deutsche Telecom Telekom • Distribution of 90% of cash flow to shareholders • Strategic direction and major 50% 50% financial decisions under Everything E
Slide 6: Everything Everywhere designed to become the leading UK mobile business
Everything Everywhere designed to become the leading UK mobile business and maximise value and cash flow for its shareholders • Significant benefits and the most innovative services for UK consumers and sector ecosystem • Recognised market leadership in all relevant dimensions • Free cash flow accre
Slide 7: Creating a new mobile champion
Creating a new mobile champion Tom Alexander, CEO
Slide 8: Introduction
Introduction • Compelling logic to the joint venture • Overview of strategy • Demonstration of strong progress to date 8
Slide 9: Transforming for sustainable leadership
Transforming for sustainable leadership Compelling logic Strategic To deliver our for the merger approach ambitions • Highly competitive • Creating a • Network of choice and regulated lean and agile • Leader in service environment backbone revenue market share • Driving • Lowest margins in commercia
Slide 10: Strong progress to date
Strong progress to date Integration phase • Gained Integration early approval phase in April • Incorporated • Leadership team in place Mobilisation phase • Integration planning completed • Synergies defined and verified • National roaming Solid short term operational performance (Q2) • Synergy captu
Slide 11: Strategic changes to September 2009 plan
Strategic changes to September 2009 plan 1. Improved economics and performance, combined with a change of balance of indirect/direct distribution Own retail footprint set to grow: 720+ stores 2. Leverage advantage of biggest network to keep and grow customer base, and to shape data revolution Re
Slide 12: Our aspiration is our name
Our aspiration is our name Everything … Everywhere … a step change in the a superior customer market opportunity experience for networks coverage To capitalise on the and quality data revolution 12
Slide 13: Our vision
Our vision “To give Orange and T-Mobile customers instant access to everything everywhere, opening up endless possibilities” =e. aE
Slide 14: Our strategy for transformation
Our strategy for transformation 15
Slide 15: Strategy pillars: customer insight
2. Changing 8. Execution distribution 7. Scale 3. Brand advantage reach 1. Customer insight 6. Everywhere 4. Everything network services 5. Platform for growth 16
Slide 16: Customer-centric approach
Customer-centric approach Leveraging customer insight, size of base and reach of brands to design propositions and target segments more effectively Maximise lifetime value: • Improve retention and upgrades • Efficient and targeted acquisition • Building attachment 17
Slide 17: Strategy pillars: changing distribution
2. Changing 8. Execution distribution 7. Scale 3. Brand advantage reach 1. Customer insight 6. Everywhere 4. Everything network services 5. Platform for growth 18
Slide 18: Distribution strategy is built to address a changing market
Distribution strategy is built to address a changing market • Rebalance new acquisition and upgrade 92% PAYM retention activity adds 24 month • Evolve retail environment to maximise 70% of PAYM increasing opportunities to sell smartphones smartphones • Maximise up sell and cross sell rates Orange Ca
Slide 19: Strategy pillars: brand reach
2. Changing 8. Execution distribution 7. Scale 3. Brand advantage reach 1. Customer insight 6. Everywhere 4. Everything network services 5. Platform for growth 20
Slide 20: Two great brands to sustain leadership
Two great brands to sustain leadership Straightforward Mass premium • Address the profitable segments by value smart-competing and value steering our two brands − Orange: mass premium − T-Mobile: straightforward value seekers • MVNO partner of choice: 19 MVNOs targeting other market segments, utilis
Slide 21: Strategy pillars: everything services
2. Changing 8. Execution distribution 7. Scale 3. Brand advantage reach 1. Customer insight 6. Everywhere 4. Everything network services 5. Platform for growth 22
Slide 22: “Everything”: more than voice and text
“Everything”: more than voice and text Orange Wednesdays Apps – Over 1.1m downloads Contacts Available from Cloud services backup July 2010 Mobile Orange Orange 2k campaigns since advertising Monkey Shots launch Every 7-series BMW Machine to BMW Connected sold in UK has a Machine Drive T-Mobile SIM
Slide 23: Strategy pillars: platform for growth
2. Changing 8. Execution distribution 7. Scale 3. Brand advantage reach 1. Customer insight 6. Everywhere 4. Everything network services 5. Platform for growth 24
Slide 24: Platform for growth
Platform for growth Market growth Revenue growth Strategic focus 2010-14 (CAGR) 2010-14 (CAGR) • Leader in SME, growth in corporate under single B2B Business to Orange brand Business +1% +4.5% • Leverage Everything Everywhere scale & network Fixed BB Fixed • Profitable fixed BB growth broadband usin
Slide 25: Strategy pillars: everywhere network
2. Changing 8. Execution distribution 7. Scale 3. Brand advantage reach 1. Customer insight 6. Everywhere 4. Everything network services 5. Platform for growth 26
Slide 26: Enhancing coverage and quality “everywhere”
Enhancing coverage and quality “everywhere” National • Launching October 5th roaming High speed data, and seamless • Launching spring 2011 roaming • Launched on Orange HD voice • Launching on T-Mobile 2011 Multiple • Fixed broadband, WiFi Hotspots, networks 4G and beyond 27
Slide 27: Strategy pillars: scale advantage
2. Changing 8. Execution distribution 7. Scale 3. Brand advantage reach 1. Customer insight 6. Everywhere 4. Everything network services 5. Platform for growth 28
Slide 28: Unique scale advantage
Unique scale advantage • Largest retail footprint Largest of any operator customer Increasing base • Market leader profitability attracts talent potential, with UK • Cost benefits & customer Biggest and purchasing power benefits best network • Enables viable future investment 29
Slide 29: Strategy pillars: execution
2. Changing 8. Execution distribution 7. Scale 3. Brand advantage reach 1. Customer insight 6. Everywhere 4. Everything network services 5. Platform for growth 30
Slide 30: Shaping our organisation for success
Shaping our organisation for success Lean and agile Commercial Platform for backbone leadership growth • Organisation structured around strategic pillars • Executive and management team in place • Top management incentivised toward free cash flow generation 31
Slide 31: Delivering our commitments, 2010 to 2014
Delivering our commitments, 2010 to 2014 Lean and agile Commercial Platform for backbone leadership growth Profitability Service Revenue generation Synergy capture Cash delivery Market Share (EBITDA) Continual Continuing growth of Double digit £3.5bn+ absolute EBITDA to lead NPV FCF growth to 25%+ m
Slide 32: Finance Update
Finance Update Richard Moat, CFO
Slide 33: Q2 results, commercial momentum maintained
Q2 results, commercial momentum maintained Strong postpay net additions Continuous reduction in postpay churn* +84% 1.9% 267k 1.7% 1.7% 1.6% 1.5% 145k 1.4% Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q2 09 Q2 10 * monthly average (3 month rolling) Improving value mix of customer base Insight • Continued foc
Slide 34: Q2 results, growing revenues
Q2 results, growing revenues Revenues growing +1% excl. regulation £m Total blended monthly ARPU -5% -7.7% +1% -101 -2.5% +29 -26 +15 -4 1,808 1,707 1,721 £20.8 £19.7 £19.2 * * * Q2 09* Regulation Q2 09 Customer Voice Non- Equipment Q2 10 restated for base voice & others Q2 09 Q2 09 restated for Q2
Slide 35: Q2 results, securing value impacts EBITDA
Q2 results, securing value impacts EBITDA EBITDA, -6% excl. regulation & restructuring, £m -18.5% -6.1% -40 -10 -87 +67 379 309 329 Margin (turnover) 21.0% 18.3% 18.0% Q2 09* Regulation Restructuring Q2 09 Commercial Indirect Q2 10 restated for costs and costs regul. & other restr. Insight • Regulat
Slide 36: Cash flow generation in line with plan
Cash flow generation in line with plan Free cash flow*, £m Balance sheet at 30th June 2010, £bn -70 Tangible fixed assets 3.5 (20) u/l Intangible fixed assets 12.2 (50) reg & restr +9 Cash 0.8 Other current assets 1.6 Current liabilities (1.9) 266 Net current assets 0.5 205 Loan (1.3) Deferred tax l
Slide 37: Mid term cash generation dynamics
Mid term cash generation dynamics EBITDA new consumer business mobile EBITDA (net benefit) not to scale free synergies cash regulation flow free cash flow lean & agile commercial platform capex backbone leadership for growth capex 2009 2014 Insight • Further regulatory cuts anticipated • Synergies c
Slide 38: Synergies confirmed as £3.5bn+
Synergies confirmed as £3.5bn+ Annual run-rate opex and net capex savings, £m Network Distribution & Other cost Total opex Net capex Total pre- Run-rate & IT savings marketing savings savings savings savings tax cashflow savings Previously 145 145 155 15% 445 100 545 (post 2014) presented 56% Latest
Slide 39: Network & IT synergies update
Network & IT synergies update Annual run-rate opex savings, post 2014 (£m) 50 7 154 137 (40) Network Previously Managed services Extra site costs Other Latest view presented & outsourcing Annual run-rate opex savings, post 2014 (£m) 14 47 25 IT 8 Previously presented Billing & other Infrastructure L
Slide 40: Investment in Retail expansion
Investment in Retail expansion Annual run-rate opex savings, post 2014 (£m) 300 244 (14) Other (42) Other Supply chain Savings & facilities Marketing Customer ops Billing Previously presented Marketing Retail estate Latest view Insight • Slight decrease in marketing synergies as a • Retail estate ex
Slide 41: Mid term objectives, 2010 to 2014
Mid term objectives, 2010 to 2014 Revenue Margin Free cash flow Maintain Continual growth leading service of absolute Double digit revenue market EBITDA to 25%+ CAGR share margin 42
Slide 42: Delivering Commercial Leadership
Delivering Commercial Leadership Andrew Ralston, CCO
Slide 43: Changing customer needs shape our priorities
Changing customer needs shape our priorities Market changes Commercial Priorities • Accelerating migration from 1. Enhance customer PAYG to PAYM relationships • Market polarising between high- end premium and value-oriented 2. Smart compete brands • Increasing demand for advanced to best advantage s
Slide 44: Creating more engaged customer relationships
Creating more engaged customer relationships Largest customer Deeper Broader Services Extend Lifetime base in UK Relationships Postpaid share of Penetration of Churn evolution Everything Everywhere base ancillary services - 23% ~44% 27.1 ~24%` ~52% ~57% 30% 42% 28% ~23% 6.1 2010 2014e 2010 2014e 201
Slide 45: Unparalleled brand assets drive investment efficiency
Unparalleled brand assets drive investment efficiency • Rich portfolio of Orange high-end devices “mass • All inclusive tariffs premium” • Lead on Innovation and premium services T-mobile • Affordable smartphones “straight • Simple and focused tariffs forward • Add on services, at a price value” • £
Slide 46: Embracing the smartphone revolution
Embracing the smartphone revolution • Pursue multi-OS Smartphone strategy Invest in ecosystem agnostic smartphone growth • Increase penetration of 24 month contracts to 90% • Reduce voice allowance to compensate • Portfolio design to cater to for data usage multi-O/S, and cost, needs • Improving pay
Slide 47: Serving customers more effectively through our direct channels
Serving customers more effectively through our direct channels High street presence Retention % of Direct share % of 723 commercial acts commercial acts 298 >60 55 ~45 >60 ~40 30 425 443 380 294 Today 2014e Today 2014e Grow retail footprint Increase online focus Balance with indirect • Key lever in
Slide 48: Creating the best network experience
Creating the best network experience • Launch 2G roaming Network site count in October • Implement seamless 2G 3G Expand 2G/3G roaming in Q2 2011 coverage • Reduce customer churn related to network 3G perception 2G 2G 3G 3G • Expand take up of HD Voice on Orange • Launch HD Voice Enhance on T-Mobile
Slide 49: Commercial strategy is designed to:
Commercial strategy is designed to: Extend the tenure with Optimise the value from all customers our portfolio of brands Capitalise on the unique Lead the smartphone advantage of our and data revolution enhanced network 50
Slide 50: New Business & development
New Business & development: Gerry McQuade, Chief Development Officer
Slide 51: New Business & Development: core to Platform for Growth
New Business & Development: core to Everything Everywhere Platform for Growth Ambition: develop new revenues and drive efficiencies Everything Everywhere New Business & • Deliver profitable new revenues Development1 revenues and shape market development CAGR £1.9bn • Step-change performance in non +
Slide 52: New Business & Development: core to Platform for Growth
New Business & Development: core to Everything Everywhere Platform for Growth Today Strategic direction • £236m revenues in Q2 2010 • Grow market share by leveraging B2B • Estimate 30%+ market share opportunities from Everything in SME Everywhere merger • £43m revenues in Q2 2010 Home • Turnaround s
Slide 53: B2B: Punching Our Weight
B2B: Punching Our Weight Rationalise brand portfolio • Unification of direct sales force under Orange-brand • Targeting 37% • Dual-brand smart competition in other channels new market Leverage Everything Everywhere scale share in SME = 200k incremental • Strong SME base (estimated 30+% share) connec
Slide 54: Home: turnaround strategy
Home: turnaround strategy Outsource network and IT back-office • Grow customer base • Contract signed mid-April 2010 from Q2 2011 − Development of new IT systems • 12% CAGR in − Outsourcing of operation for network, IT and Customer Service Revenue by 2014 • Everything Everywhere retain sales, market
Slide 55: Machine-to-Machine: profitable growth engine
Machine-to-Machine: profitable growth engine Build machine-to-machine business • UK M2M market is set for high growth across key verticals: 1. Energy management – Green agenda/regulation 2. Automotive – SIMs in vehicles/legislation 20% CAGR 3. Home automation – connected consumer electronics/securit
Slide 56: New Business: focus on future revenue streams
New Business: focus on and develop Everything Everywhere future revenue stream Significant adjacent value pools UK retail spend (£bn) UK On-line advertising spend (£bn) CAGR +5% 4 300 CAGR +26% 3 200 2 100 1 0 0 £150m to £250m 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Cash Cards Source: Inte
Slide 57: New Business: Orange Shots
New Business: Orange Shots A New Market Opportunity • New and novel business model • Builds on MNO capabilities and partnerships with industry experts • Strong profiling and targeting key to success • Premium pricing model for advertising is being proven • Campaigns range from 15% - 63% Customer acc
Slide 58: Digital Channels: significant efficiency opportunity
Digital Channels: significant efficiency opportunity Customer behaviour transformation • Self-care: from 6% • Widespread smart-phone adoption, driving today to 28% - 40% behavioural change in 2014 of service • 100m on-line customer transactions so far in 2010, transaction through up from 25m in 2008
Slide 59: Establishing the growth engine of Everything Everywhere
Establishing the growth engine of Everything Everywhere • 4.5% CAGR revenue growth B2B • SME share to grow from 30% to 37% in 2012 • Step-change performance in non consumer mobile activities Home • EBITDA positive in 2012 • Deliver profitable new revenues and shape market m2m • M2M: +270% growth bet
Slide 60: Network update
Network update Emin Gürdenli VP Networks
Slide 61: Network promise from launch of JV
Network promise from launch of JV Everything Everywhere network will deliver high quality and high savings at the same time September 2009 September 2010 High-quality, high-performance network • “A plan to deliver 14-16k site network” • We are building an 18,000+ site network • “Best sites retained
Slide 62: Spectrum update
Spectrum update • Merger clearance required Everything Everywhere to give up 2 x 10 MHz of 1800 MHz spectrum and will also require a further 2 x 5 MHz to be relinquished unless market circumstances have changed • Everything Everywhere is permitted to keep the proceeds of the sale of this spectrum if
Slide 63: Capacity – embracing the smartphone opportunity
Capacity – embracing the smartphone opportunity Data traffic growth • 18k+ site plan includes large Increasing data dongle usage, number of sites retained for smartphone and tablet uptake capacity benefits responsible for rapid growth in • Network consolidation will mobile data traffic enable poolin
Slide 64: Significant network progress already made
Significant network progress already made H3G Network Integration Agreement signed Agreement Already in service with Everything Everywhere employees; 2G Roaming launched to consumer base from October Network Plan £154m annualised opex savings whilst leap-frogging in key to coverage quality and provi
Slide 65: Network synergy plan fully defined and in delivery
Network synergy plan fully defined and in delivery Phase Definition Milestones • High level plan with associated • High-level plan agreed by Everything coverage & synergies Everywhere Board in April 2010 • Detailed plan of: keep sites, Planning • Integration plan agreed with traffic & capacity model
Slide 66: Building the biggest combined 2G+3G network in the UK
Building the biggest combined 2G+3G network in the UK Current site count per operator 2G 3G 2G 3G 3G 2G 2G 2G 3G 3G 3G Network ambitions: Be the UK market Deliver ‘Best Network No 1 in independent leader in 2G+3G satisfaction’ benchmarking Source: Everything Everywhere management estimates 67
Slide 67: Plan to deliver best network coverage with optimal synergies
Plan to deliver best network coverage with optimal synergies Today 2014 T-Mobile Everything Everywhere No. of Sites 14k No. of Sites 18k+ -2G 10.2k -2G 18k -3G 11.1k -3G 18k 3G pops 96.05% 3G pops 99.63% Carriers 2 x 3G Carriers 4 x 3G Orange No. of Sites 13.5k -2G 13k -3G 7.4k 3G pops 92.51% Carrie
Slide 68: Synergies directly mapped to network coverage plans
Synergies directly mapped to network coverage plans Coverage Existing T-Mobile Coverage Everything Everywhere Future Coverage • Network £154m opex run-rate synergies delivered by following cost reductions: Existing Orange Coverage − 52% site running costs − 21% resource − 10% transmission Example sh
Slide 69: Network Integration Roadmap
Network Integration Roadmap Phase 1 Phase 2 Phase 3 Phase 4 Separate 2G (2G+3G) RAN Full Networks Roaming Roaming Consolidation Consolidation Refreshed RAN Separate (but infrastructure Single 2G and 3G RAN connected) Separate Core and Radio Sites Decommissioned Common Core layer Core and Radio Netwo
Slide 70: Network technology evolution and innovation to deliver the Best Network
Network technology evolution and innovation to deliver the Best Network Coverage where customers need it Capacity for Next-gen LTE Consumer, Business & Wholesale 2G Refresh LTE introduction HD Voice HSPA Devices 2012 Olympics London Underground WiFi UMA Spectrum Broadband QOS Seamless services for D
Slide 71: 18,000+ site network has significant benefits
18,000+ site network has significant benefits Good for the Customer Good for the Shareholder Good for the Environment • Best of both worlds – 2G (from Q4/2010) • £154m opex synergy • 9k duplicate sites removed • Best of both worlds – 3G (from Q2 2011) • £700m+ capex synergy over • 79k tonnes of CO2
Slide 72: “Best of both worlds” - it’s already here!
“Best of both worlds” - it’s already here! NB: Advertising illustrative 73
Slide 73: Thank you
Thank you 74
Everything Everywhere — Investor Day (September 2010) on 6ix