Telefónica Deutschland Capital Market Day:

Telefónica Deutschland launches digital transformati-on programme

-Merger of Telefónica and E-Plus has enabled 25% increase in OIBDA in 3 years
-Digital4Growth transformation programme intended to generate additional growth and make the company faster, simpler and better
-Consistent focus on customer benefits and experience
-First digital product initiatives scheduled for 1st half of 2018
-EUR 600 million boost to gross OIBDA1 by 2022
-Shareholder returns to remain above average
Telefónica Deutschland has started the company’s sweeping digital transformation into a mobile customer and digital champion by 2022. The programme, dubbed Digital4Growth, puts the needs of customers and customer experience in the Digital Age consistently at the centre of focus. The company is thus laying the foundations for continued profitable growth. As a result, the telecommunications operator expects to boost its operating income (OIBDA1) by a total of EUR 600 million between 2019 and 2022. The lion’s share of that will come from additional growth. That will be on top of increased efficiency thanks to digitalisation. Moreover, Telefónica Deutschland wants to continue to distribute above-average returns to its shareholders in successive years. “Over the past three years, we have established the basis on which we can now write the next chapter of our success story”, said Markus Haas, CEO of Telefónica Deutschland, at the Capital Market Day in London on Friday. “Never before have two telecommunications providers in the western world successfully completed the process of integration following a merger as quickly as we did with E-Plus. Now, we are concentrating completely on the customer experiences and digital transformation of our company. Our Vision 2022 has a clear focus on one goal: We want to become the mobile customer and digital champion.” By that, Telefónica Deutschland means that our vision is to offer customers a first-class experience combined with attractive value across every one of the company’s brands. In particular, the daily digital user experience should set standards for the industry with unique levels of simplicity and speed. The company will make that possible through consistent digital transformation and the accompanying optimisation of all related processes. Both measures will ensure high degrees of customer satisfaction and loyalty. Those conditions are essential to Telefónica Deutschland’s plan to maintain its position as Germany’s mobile communications market leader based on the number of customers, providing more people in Germany with mobile communications services than any other.

“Simpler, Faster, Better” as areas of focus and clear parameters for measuring success

Markus Haas
Since it took over E-Plus in 2014, Telefónica Deutschland has migrated over 25 million customers to a shared IT platform, harmonised its shop network and optimised the company's structures. The consolidation of more than 14,000 cell towers will be completed by 2019. Over the same period, the company intends to create synergies of EUR 900 million in its operating cash flow. As of the end of 2017, it had already realised 75 percent of that goal. When combined with its strong operating performance, Telefónica Deutschland has thus increased its OIBDA by 25 percent over the past three years. Room for improvement that still exists in the areas of network, customer service and IT is systematically being addressed. At the same time, Telefónica Deutschland is launching its digital transformation programme. Digital4Growth will focus on three areas. The word “Simpler” means the company is concentrating on making interactions with customers easier and more intuitive by leveraging Telefónica Deutschland’s strengths in every distribution channel. A consistent customer experience across all points of contact, an even more comprehensible and simplified product portfolio, and further consolidation of the IT landscape — among other things — will contribute to that. The company expects a reduction of post-paid customer churn of 2 percentage points by 2022. Simultaneously, Telefónica Deutschland is striving to become “Faster” and meet customer requirements in real time without fail. The deciding factor in doing that will be consistent streamlining and automation of processes. In addition, their goal is to respond more quickly to changing market requirements by reducing the time needed to develop and adjust their tariff plans. In the future, Telefónica Deutschland will intensify to use advanced data analytics (ADA) to do that. Lastly, the purpose of the area of focus labelled “Better” is to steadily improve the customer experience. Intuitive and do-it-yourself service offerings, the expansion of their digital channels and the optimisation of their shop network will play an important role in that. Moreover, Telefónica Deutschland will establish a comprehensive ecosystem for the Internet of Things (IoT). The ecosystem is intended to provide customers with a means of employing easy-to-use IoT devices and solutions. The company expects more than 80 per cent of O2 customers to use the O2 app on their smartphones, each customer to use four devices on average and increase the share of digital service interaction to approx. 80 per cent.

Plans to let shareholders profit from improved margins and rising free cash flow

Markus Rolle
Digital4Growth should result in noticeable improvements from the customer’s point of view before the end of this year. For example, a centralised platform that allows customers to control their devices and SIM cards easily and conveniently on one contract will be rolled out in the first half of 2018. Over the next two years, Telefónica will be able to complete its nationwide expansion of LTE service (95% LTE POP coverage by 2020), at the same time preparing for the introduction of 5G, the next generation of mobile communications. As part of Digital4Growth, the company will introduce a variety of innovations, including uniform interfaces and universal e-care for all its brands over the coming years. This will enable customers to have a consistent experience regardless of the service or distribution channel they use. The necessary investments for Digital4Growth will initially be financed through as of yet unrealised synergies from integration with E-Plus. For the medium term, Telefónica Deutschland wants to increase its revenue at the same rate as the broader market, with gains in market share expected for the Internet of Things (IoT). Cummulative additional revenues from the growing IoT business shall add up to 200 to 300 million euro until 2022. Overall, the digital transformation will lead to further improved margins and free cash flow, which will in turn also benefit shareholders. “Digital4Growth is going to change Telefónica Deutschland from the ground up and significantly boost our performance”, said Markus Rolle, CFO of Telefónica Deutschland. “Not only will our customers benefit in a big way from it, but our employees and shareholders will too. We will be offering our shareholders attractive dividends, just like in previous years. For the medium term, we are also planning to distribute a large share of our free cash flow to our shareholders as a dividend.

Mid-term expectations

In an economically stable environment Telefónica Deutschland expects the German telco market to remain rational, yet dynamic and to provide significant further data and device growth potential. In view of these underlying conditions the company will continue to drive data monetization and expects to grow its revenues with the market in the mid-term, specifically capturing market share in IoT. The company strives to reward as well as develop its existing customer base. At the same time, Telefónica Deutschland intends to attract new customer groups based on its successful multi-channel, multi-brand approach. Moreover, the company aims at driving innovation with a fast and flexible go-to-market approach as well as future-proof products, services and solutions across the different business segments. Thereby, Telefónica Deutschland will continue to show operational efficiency. The digital transformation is expected to enable Telefónica Deutschland to continue to grow its margins, while keeping capex stable in the mid-term. The company will maintain an attractive shareholder return on the back of a conservative financing profile supported by a solid FCF trajectory. Further information on the capital markets day and mid-term expectations to be found at
1)Adjusted for exceptional effects and before the implementation of IFRS9, IFRS15 and IFRS16