T-Systems relaunched as top three bid by Telekom - Company Business and Marketing

CommunicationsWeek International, Feb 5, 2001 by Peggy Salz-Trautman

Deutsche Telekom is relaunching its systems integration business in a bid for a place among the world's top three integrators by 2004.

The renamed company, T-Systems International GmbH, based in Frankfurt, unites the carrier's own information technology and data units, including DeTeSystem, DeTeCSM and T-Nova, together with its 50.1% stake in Debis Systemhaus, the IT services company owned jointly with Daimler-Chrysler Services.

Analysts say that Telekom is taking quite the opposite view from many telecoms companies and making a major strategic bet that systems integration and outsourcing will be a huge market for established operators (see table). Most also say T-Systems International creates a formidable European rival to the United States giants' dominating the marketplace.

"Up until now telcos had their telecom arms and their IT services arms and didn't bundle them very well," said Christophe Chalons, managing director of Pierre Audoin Conseil GmbH in Munich and a long-time tracker of Debis, "T-Systems and Debis want to develop offerings together and sell them through both channels--this makes perfect sense and positions T-Systems as the strong number one in Germany and the number two in Europe."

Telekom snapped up the stake in Germany's number one IT services company last March fighting off the likes of Computer Sciences Corp., Siemens AG and CSC Ploentzke--all of whom had battled for a piece of Debis to bolster their own outsourcing businesses.

IBM Global Services and EDS are currently the numbers one and two on the global marketplace, so Telekom will have to make a few acquisitions to take a top notch in the global marketplace, according to Audoin Conseil's Chalons. "Telekom needs to go to the U.S. and the U.K. and therefore needs to purchase a company that will pave the way. It's not impossible for T-Systems to rate among the global top three, but without an acquisition abroad it is unlikely." Some analysts suggest Telekom is prepared to make more acquisitions, including possibly Unisys.

While Christian Hufnagel, T-Systems' chief executive officer and former head of DeTeSystem, admitted there are "gaps to be filled in the U.K. and the U.S.," he said a large acquisition is highly unlikely as T-Systems will first concentrate on completing the integration of Debis into T-Systems.

T-Systems' strategy, said Hufnagel, is to "offer, plan, build and run solutions to large enterprise customers and service providers."

T-Systems is organized according to customer segments, branches and services, to fit in with Telekom's company-wide "four-pillar" strategy, called TIMES, which divides the carrier's offering into telecommunications, information technology, multimedia, entertainment and security.

Nicole France, senior industry analyst at Gartner Group Limited, of Egham, England, gives Telekom high marks for reorganizing its services offer around customers, but is worried that it may lack the creativity and vision to see the strategy through to conclusion. She said the result may be an "elegantly engineered endeavor with all the right elements that arrives on the market offering too much too late."

She added, "Telekom is behind the curve compared to BT and KPN. These are ahead because they've had more experience. Telekom can close the gap, but only if it keeps a focus."

Altogether T-Systems will have a staff of 37,000 worldwide and revenues around [epsilon]11 billion. Alone, 10,000 will work in the area of systems integration--an effort Telekom says make T-Systems a leading German software house.