Telco M&A Strategy

Realising Value
Proposal for [ ] Services

1
Contents
Executive Summary
• Group Summary
• Telecommunications Market Analysis
Company Overview
• Group Summary
• SWOT Analysis
• Future Strategy
• Benchmarking
 Financial Benchmarking
 Strategy Comparison
 Vendor Rating
• Group M&A Rumors
Industry Overview
• Market Definition
• Market Focus & Overview
• Historical and Forecasted Performance
• Market Ecosystem
• Market Assessment
T-Systems
• Restructuring Plans
Realising Value | Proposal for [ ] Services

2
Executive Summary
ABCAG
Market Analysis
T-Systems

3
Executive Summary
ABCAG is a German
telecommunications
company
headquartered in
Bonn.
Company
Overview
• ABCAG provides integrated telecommunication and information technology services. The group also provides wireless
and fixed line voice services, broadband services and TV services. The company operates through four segments ─
Germany, United States, Europe, and Systems Solutions.
• While the group benefits from a strong global presence and a large customer base, a high level of debt and limited
exposure to developing countries is likely to weaken its performance. The group has potential to grow in most of its
focus areas, however, acute spectrum shortages, changing regulations and intense competition could pose a threat.
• Low profitability ratios, high debt/equity ratio, Lower than average Return on Equity are the key areas of concern for the
company.
Industry Overview
• The global telecommunication market is expected to grow at a CAGR of 2.5% to reach to $2.47 t market by 2018 from
$2.18 t in 2013 driven by rising internet usage among consumers and growing demand of business mobility solutions.
• Majority of the growth in the telecommunications market across the globe is expected to occur in mobile segment
specially in the data services sub-segment.
• Asia Pacific, North and Latin America are anticipated to be the fastest growing regions in next few years driven by the
economies of developing countries such as China, India, Korea, Mexico and Brazil.
• Communication service providers such as ABCrepresent the core of the telecommunication industry ecosystem.
• The global telecommunication market remains competitive, so ABCis expected to benefit from accelerating the
execution of its global strategy despite competitive pressures and global economic uncertainty.
• Industry is expected to exhibit strong growth in mobile services segment. Economic factors, smartphone and
broadband penetration and consumer sentiments are few of the key market drivers.
T-Systems
• ABCis focusing on the profitability and transformation of business model to the market of T-Systems.
• The company initiated the restructuring measures in January, 2014 in line to the declining revenues from this business
segment.

4
Company Overview
Group Summary
SWOT Analysis
Future Strategy
Benchmarking
• Financial Benchmarking
• Strategy Comparison
• Vendor Rating
Group M&A Rumors

5
Business Overview
ABCprovides
integrated
telecommunication
services in over 50
countries. The
company operates
through four segments
─ Germany, United
States, Europe, and
Systems Solutions
Headquarters Germany
Primary Sector Integrated Telecommunication Services
CEO Timotheus Höttges
Year Founded 1995
Auditor PricewaterhouseCoopers LLP
Revenue (FY13) €60.1 b
Headcount (Dec. 13) 228,596
Group Website www.telekom.com
Services Brands
Fixed line communication services T-Home
Wireless communication services T-Mobile
ICT solutions T-systems
Fixed line and wireless internet services OTE TV
Data services
Voice telephony
Digital mobile telephony voice services
Computing and desktop services
Systems integration
Broadband services
Television and entertainment services
Business Overview
• ABCAG (DT) provides integrated telecommunication and information
technology services. The group also provides wireless and fixed line
voice services, broadband services and TV services.
• The group offers complex information and communication technology
(ICT) solutions to multinational corporations and business customers
across the globe.
• The group operates through four operating segments out of which
three segments are aligned by region (Germany, United States,
Europe) and one segment (Systems Solutions) is aligned by customer
and product.
• In FY13, the group’s adjusted EBITDA was €17.4 b and free cash flow
was €4.6 b. The net revenue increased by 3.4% to €60.1 b in FY13,
due to strong revenue growth in the United States.
Products and Services
Mobile
Communications
Fixed Network
ABCAG
Group Headquarters & Shared Services
Germany Europe
Mobile
Communications
Fixed Network
United States
Mobile
Communications
Systems
Solutions
T-Systems
Organization Chart

6
Summary of SWOT
While the group
benefits from a strong
global presence and a
large customer base, a
high level of debt and
limited exposure to
developing countries
is likely to weaken its
performance. The
group has potential to
grow in most of its
focus areas, however,
acute spectrum
shortages, changing
regulations and
intense competition
could pose a threat.
Strengths
• Global Presence
• Market Leadership
• Large Customer Base
• Non-core Offerings
• Strong Customer Focus
• Stable Organization Structure
Weaknesses
• Limited Exposure to Developing
Countries
• High Level of Debt
• Market Risks
• Legal Proceedings
• Industry Opportunities
• Increasing Usage of LTE
Technology
• Growth in Developing
Countries
Opportunities
• Intense Competition
• High Investment Needs
• Industry Consolidation
• Regulations
• Spectrum Shortage
Threats

7
Strengths
In addition to being a
market leader, having
a strong global
presence and a large
customer base, the
group also has a stable
organization structure
and is diversified into
non-core assets,
providing it an edge
over its competitors.
Title Description
Global Presence • The group is present in 50 countries worldwide with 230,000 employees. Geographically diversified operations helps
the group hedge risks in various adverse situations in different geographies.
• Deutsche’s realignment of its operating segments in January 2013, based on geographic segments helps the group
capitalize on the benefits from each of the regions.
Market leadership • ABCholds a strong position in Germany:
‒ It is a leading provider of television services and a market leader in the mobile industry in Germany.
‒ The group holds over 45.0% market share in broadband services in Germany.
‒ The group is one of the primary providers of unbundled local loop lines in Germany.
Large customer
base
• In 2013, The group had a total customer base of 173.5 m, out of which, 142.5 m were mobile customers and 31.0 m
were fixed-network lines customers.
• The group offers attractive prices, high-performance infrastructure, and innovative handsets including the iPhone and
the Android-based mobiles, which has led to an increase in its customer base.
• The business combination of T-Mobile USA and MetroPCS in May 2013 had a significant impact on the earnings. The
merger contributed €2.5 b to the Group’s net revenue in FY13. This merger was a success due to good market
acceptance of the group’s mobile communications services in the USA and Europe. The group’s acquisition of
MetroPCS added 8.9 m customers.
Non-Core Offerings • Apart from its core products, the group offers a comprehensive communications and IT services portfolio with strong IT,
networking capabilities and IT integration which provides a complete, interconnected user experience, thus providing
the customers a complete range of products and services.
Strong customer
focus
• In May 2012, ABCupdated its 2010 "Fix, Transform, Innovate" strategy, formulating a stronger focus on its customers.
To achieve this, the group outlined four strategic areas of operations — seamless connectivity for the gigabit society,
more innovation by cooperation, secure cloud solutions and best-in-class customer experience.
Stable organization
structure
• The group has divided the regional responsibilities very distinctly which allows clearer focus on Deutsche’s four main
businesses. The stable organization structure of the group reflects the combination and relationship between its fixed
and mobile businesses.

8
Weaknesses
The group’s limited
exposure to
developing countries,
in comparison to its
competitors, indicate
that the company
could be losing out on
opportunities in these
countries. High level
of debt and reducing
prices of mobile
services along with
various legal
proceedings further
strain the position of
the group.
Title Description
Limited exposure to
developing
countries
• Though the country has presence in over 50 countries, majority of its revenue is generated from developed countries.
‒ In 2013, the group generated 35.0% of its total revenue from Germany, followed by 21.6% from Europe
(excluding Germany), 30.9% from United States and 12.5% from other countries.
‒ The group’s competitors such as AT&T Inc. and Verizon Communications have their presence in developing
countries where the Telecom market is showing high growth potential, while Deutsche is losing out on these
opportunities.
High level of debt • The group has substantial debts, which may adversely affect its operations. In FY13, the group’s net debt reached
€39.1 b increasing by 6.1%, over FY12.
• These debts may increase Deutsche’s vulnerability to adverse economic and industry conditions; limit its ability to
obtain additional financing in the future for working capital, capital expenditures, dividend payments, acquisitions,
general corporate purposes or other purposes, thereby impacting the group’s operations.
Market risks • The main market risks faced by ABCare the falling price levels for voice and data services in fixed network and in
mobile communications.
• The group also expects prices in mobile voice telephony and mobile data services to decline further, which could
adversely affect their mobile revenue. This decline in prices could be attributed to discount operators that are expanding
in Germany and in Europe.
Legal proceedings • ABCis involved in several proceedings both in and out of court with government agencies, competitors and other
parties. Some of the cases the group is in involved in include:
‒ Toll Collect arbitration proceedings: In 2005, ABCreceived the Federal Republic of Germany’s statement of
claim, wherein Federal Republic claimed to have lost toll revenues of approximately € 3.51 b plus interest
owing to a delay in the commencement of operations. The main claims by the Federal Republic including the
contractual penalty claims amount to around €4.98 b plus interest. The proceedings are to continue in spring
2014.
‒ Claims for damages concerning the provision of subscriber data: In 2005, ABCreceived a claim for damages of
approximately €86 m plus interest from Telegate AG.
‒ Competitors: The competitors have filed lawsuits against ABCseeking damages of €223 m for alleged price
squeeze between wholesale and retail prices.

9
Opportunities
All the key focus
markets of the group
such as Big Data,
VoIP, M2M and LTE
technology are
expected to grow in
future. The group
could also tap into
opportunities present
in developing
countries.
Title Description
Industry
Opportunities
• Big Data: According to IDC, Big Data market, an important market for Deutsche Telekom, represents significant market
potential and is expected to reach $24 b in 2016 from $18.6 b in 2013.
• VoIP: The Voice over Internet Protocol (VoIP) service market is expected to grow at a CAGR of 6.5% over the period of
2012-2016. One of the key factors contributing to this market growth is the increasing adoption of fixed broadband
services.
• Machine-to-Machine (M2M): This market is on a rapid growth trajectory and is predicted to be a €300 b market in
2020. Machina research predicts Vodafone, ABCand AT&T to lead the global M2M market based on their expected
revenue in 2020.
• Mobile Communications: According to the UMTS Forum, the global mobile subscriber base is expected to reach
7,490 m in 2015 and 9,684 m in 2020. It also predicts that voice and data traffic on mobile networks is projected to grow
more than 33 times in 2020 compared to 2010. This growth is primarily due to the increasing usage of smartphones,
tablets and the growing consumption of video content on mobile devices. Deutsche being a leading provider of mobile
communication services worldwide may benefit from the growing mobile communications market.
• Mobile Broadband: According to Ericsson, mobile broadband subscriptions are expected to reach $5 b by 2016.
Advanced Smartphone devices’ sale is estimated to grow four to five times by 2016. This may fuel the growth in the
Internet content and applications that people access on their mobile devices. The group, being a provider of mobile
broadband solutions, may benefit from the growing mobile broadband subscriptions.
• Cloud Industry: The group provides various cloud based services which is expected to reach $107 b in 2017.
Increasing usage of
Long Term
Evolution (LTE)
Technology
• Demand for providing mobile broadband services using 4G LTE technology is expected to increase, which may present
growth opportunities for the group. The global LTE market is expected to reach a value of $610.7 b by 2019, growing at
a CAGR of 78.6% from 2013 to 2019.
• Some important factors driving the growth of LTE market globally are increased need for higher data rates and greater
spectral efficiency driven by increased data usage, rapid deployments of smart devices and need for high quality of
services on move.
Growth in
developing
countries
• The Telecom industry in developing countries has experienced exponential growth over the past few years and
possesses potential in terms of new users. Operators are on an expansion mode and are investing heavily on telecom
infrastructure.
• Telecom companies are acquiring considerable stakes in companies in these countries due to increasing spending
power, favourable investment climate and positive reforms.

10
Threats
Intense competition,
acute spectrum
shortages, changing
regulations and
consolidation in the
industry are likely to
pose a threat to the
group’s operations.
Title Description
Intense competition • The intense competition in this industry has led to price erosion for the group. Voice and data communications have
been affected due to reduced prices for fixed networks and mobile communications.
• These prices may rise even further due to technological changes, reductions in wholesale prices for competitor
products and increasing fixed mobile substitution.
• The competition is expected to further intensify as a result of the allocation of additional mobile frequencies to new
potential market players.
High investment
needs
• Telecommunications sector requires continuous network and product upgrade and invention. This requires high
investments from the companies. For the last 15 years, the U.S. wireless sector has invested $300 b to install the most
efficient seamless communications networks in the world.
Industry
consolidation
• Globally, the telecom industry is in a consolidation mode and this may result in Deutsche’s peers becoming financially
and operationally stronger. This is likely to affect the group’s revenue and operating results, if it is unable to be part of
such consolidation process and alliances.
Regulations • In Germany, the government has passed an amendment to the telecommunication act that requires additional
consumer protection which increases the capital expenditure of Telecom companies.
• The EU proposed a new roaming regulation in 2011 which tightens the already existing price regulation. Also, the EU is
committed to generate greater competition among mobile operators by introducing laws regarding wholesale access for
mobile virtual network operators. This will lead to more competition in the already intense market.
Spectrum shortages • The U.S wireless industry is facing acute spectrum shortages, resulting in data packet dropping. Carriers are increasing
investment for more effective utilization of the existing spectrum holding and are trying to add more spectrums to their
existing portfolio.

11
Future Strategies
The group intends to
focus on integration of
IP networks in all its
European subsidiaries.
The group is also
growing its TV
business and is
focused on
strengthening its
market position in the
B2B segment.
• The group is working on
simplification by switching the
fixed-network infrastructure to
all-IP technology.
─ The transformation to a fully
IP-based network is to be
completed by 2018 in
Germany and Europe.
• The Long Term Evolution
(LTE) mobile communications
standard is also being
launched in all the markets
that they are present in.
─ By the end of 2017,
ABCplans to expand its LTE
network coverage to 50% in
Europe.
─ In Germany, the LTE
network is being expanded to
provide transmission speeds
of up to 150 Mbit/s with a
network coverage of up to
85% as part of the integrated
network strategy.
Integration of IP networks Enhancing customer experience Growing markets Future service focus
• ABCis planning to launch
hybrid router in Germany in
2014. The router will combine
the advantages of the fixed
network with those of mobile
in order to achieve top
download speeds of up to 250
Mbit/s.
• ABCis growing its TV
business. The company plans
to develop the TV platform for
Germany and Europe in order
to provide "TV across all
screens," irrespective of
whether the screen is a TV, a
tablet, or a laptop.
─ Deutsche Telekom's goal is
to have around 10 m TV
customers in Germany and
Europe by 2017.
• The group expects growth in
the Small & Medium
Enterprise (SME) market and
plans to focus on expansion
of IT market share.
─ In this market, the group
intends to achieve a revenue
of >€600 m by 2018 in
Germany.
• The group is investing in its
mobile business and is
developing and implementing
new products and services.
─ The Mobile Wallet, which
was launched in Poland
market, will be launched in
other countries in 2014.
• ABCis focussed on cloud
services, security solutions,
convergent mobile and fixed-
network products, along with
solutions for virtual
collaboration.
─ The group plans to expand
its mobile centric subsidiaries
to include fixed network
products.
• The group is strengthening
market position in B2B
segment. This segment will
be strenghthened in its
European subsidiaries, to
generate increased revenue
shares from Information and
Communication Technology
(ICT) business.
• In 2013, the group invested
€8.9 b, for mobile spectrum,
10.5 % more than in 2012. In
2014, it plans to invest in
fixed network and mobile
communications.
• The group’s subsidiary T-
Systems is planning to
restructure its business
model and move towards
transformation and
integration services as well
as scalable ICT services.

12
Financial Benchmarking
The company’s key
areas of concern
include:
1. Low profitability
ratios
2. A high
debt/equity ratio
3. Lower than
average Return
on Equity
Total Revenue (US$ b) Rev per employee (US$) Market Cap (US$ b) Gross Margin (%)
FY13 FY12 FY13 FY12 FY13 FY12 FY13 FY12
Deutsche Telekom AG 82.8 76.7 362.3 333.9 77.9 54.1 39.7% 41.1%
AT&T, Inc. 128.8 127.4 529.1 527.0 187.9 201.9 60.0% 56.7%
Verizon Communications Inc. 120.6 115.8 681.8 631.7 198.2 153.3 62.8% 60.1%
China Mobile Limited 104.1 93.3 528.3 511.5 196.3 223.8 77.7% 81.4%
Nippon Telegraph and Telephone Corporation 102.8 127.5 456.7 568.6 63.9 64.2 56.0% 58.5%
Telefónica, S.A. 79.7 83.3 613.4 305.6 73.9 66.0 58.4% 57.9%
Vodafone Group Public Limited Company 72.7 74.2 796.6 859.4 97.9 144.9 30.5% 32.0%
SoftBank Corp. 52.4 38.9 2131.0 1711.1 84.6 69.3 44.3% 53.6%
Orange 56.4 57.4 342.0 337.6 44.2 28.1 39.5% 37.5%
Mean 89.7 89.7 759.9 681.6 118.3 118.9 53.7% 54.7%
Median 91.2 88.3 571.2 547.8 91.2 107.1 57.2% 57.3%
Deutsche Telekom AG 82.8 76.7 362.3 333.9 77.9 54.1 39.7% 41.1%
Company1
EBITDA Margin (%) Return on Assets (%) Return on Equity (%) Total Debt/Equity (%)
FY13 FY12 FY13 FY12 FY13 FY12 FY13 FY12
Deutsche Telekom AG 24.6% 26.8% 3.2% 3.0% 3.9% (13.8%) 160.9% 146.1%
AT&T, Inc. 36.3% 22.8% 6.9% 3.0% 20.1% 7.6% 82.3% 76.1%
Verizon Communications Inc. 40.3% 26.2% 8.0% 3.8% 26.0% 12.3% 98.1% 60.8%
China Mobile Limited 38.5% 44.1% 7.8% 9.7% 16.1% 18.8% 0.6% 4.0%
Nippon Telegraph and Telephone Corporation 29.3% 30.1% 3.9% 4.0% 7.1% 6.4% 38.3% 42.9%
Telefónica, S.A. 33.0% 33.4% 4.8% 5.1% 18.0% 16.0% 220.9% 241.7%
Vodafone Group Public Limited Company 29.7% 31.1% 2.3% 2.8% 26.7% 8.5% 57.1% 44.3%
SoftBank Corp. 34.0% 31.7% 5.9% 8.8% 24.6% 32.6% 134.2% 144.1%
Orange 30.4% 28.4% 4.6% 4.1% 8.1% 4.0% 147.5% 152.1%
Mean 33.9% 31.0% 5.5% 5.2% 18.3% 13.3% 97.4% 95.7%
Median 33.5% 30.6% 5.4% 4.0% 19.1% 10.4% 90.2% 68.5%
Deutsche Telekom AG 24.6% 26.8% 3.2% 3.0% 3.9% (13.8%) 160.9% 146.1%
Company1
Source: Capital IQ, Company filings,
PQR Analysis
Notes:
1. The companies have been
shortlisted on the following basis:
• Similar business as ABCAG
• Top 10 companies in
telecommunication sector by
revenue globally
High Low

13
Strategy Comparison
ABChas set revenue
targets for four of their
focus areas, Mobile
Internet, Connected
home network,
Internet services, T-
Systems, and
intelligent network
solutions
Company Key Focus Area
No. of
Acquisitions1
(2009-2014)
Future Strategy
ABCAG
Switching fixed network
to IP technology by
2018
126
The company is focused on improving performance in Mobile Internet,
Connected home network, Internet services, T-Systems, and intelligent
network solutions areas, and has set revenue targets for the same.
AT&T, Inc.
Focus on international
mobile strategy
43
The company is emphasizing on building industry-leading network for their
customers with emphasis on M2M communication.
Verizon Communications
Inc.
Focus on wireless/
wireline data & cloud
computing services
49
The company is focusing on it fiber optics network infrastructure and working
towards its upgrade. It has increased emphasis on the wireless operating
segment of the business.
China Mobile Limited
Focus on network
optimization and sales
of 3G smart devices
5
The company is focusing on the mobile segment of their business. It also
wants to leverage the developing trend of mobile internet in the market.
Nippon Telegraph and
Telephone Corporation
Higher focus towards
business customers
170
The company is expanding its global IP network capacity to support its
numerous business customers.
Telefónica, S.A.
Smartphone penetration
Focus on media,
financial services,
cloud, security,
advertising, M2M, e-
Health, etc.
187
The company’s future strategy includes:
— To drive forward the penetration of smart phones in all operating
markets
— To develop the growth opportunities that have arisen in an increasingly
digital context, such as media, financial services, cloud, security,
advertising, M2M, e-Health, etc.
Vodafone Group Public
Limited Company
Consumer Pricing and
bundling (Europe)
Extend 3G footprint in
Europe
39
The company has devised a four pillar(Consumer, Enterprise, Network,
Operations) centric strategy for their growth plan in next few years. The focus
is on smartphone penetration, unified communication and fibre deployment.
SoftBank Corp.
Focus on improving
mobile internet and
smartphone
connectivity
156
The company has adopted an investment strategy to tap the growth
opportunities across verticals and geographies. It is focusing on acquiring
companies in new emerging verticals of the industry.
Orange
.Focusing on customer
experience and network
expansion
71
As a part of the future strategy, the company is planning to accelerate
revenue growth by improving customer experience and IT systems, expanding
network sharing, and pooling service platforms
Note:
1. Includes private placement
transactions and all those transactions
where the company’s role was of
buyer.

14
Vendor Rating Comparison
According to Gartner,
ABCAG exhibits
promising ratings for
2014 in terms of
corporate viability and
customer
service/support
Company ABCAG AT&T, Inc.
Verizon
Communications
Inc.
Telefónica, S.A. Orange
Corporate Viability
Strategy Promising Positive Positive Positive Promising
Financial Promising Positive Positive Promising Promising
Marketing Promising Positive Promising Promising Positive
Organization Promising Positive Promising Positive Positive
Customer
Service/Support
Sales/Distribution Promising Promising Promising Promising Positive
Support/Account
Management
Positive Promising Promising Positive Strong Positive
ABCAg – Market Offerings RatingsRatings
1. Strong Positive: Is viewed as a provider of strategic products, services or solutions:
Customers: Continue with planned investments.
Potential customers: Consider this vendor a strong choice for strategic investments.
2. Positive: Demonstrates strength in specific areas, but execution in one or more areas
may still be developing or inconsistent with other areas of performance:
Customers: Continue planned investments.
Potential customers: Consider this vendor a viable choice for strategic or tactical
investments, while planning for known limitations.
3. Promising: Shows potential in specific areas; however, execution is inconsistent:
Customers: Consider the short- and long-term impact of possible changes in status.
Potential customers: Plan for and be aware of issues and opportunities related to the
evolution and maturity of this vendor.
4. Caution: Faces challenges in one or more areas:
Customers: Understand challenges in relevant areas, and develop contingency plans
based on risk tolerance and possible business impact.
Potential customers: Account for the vendor's challenges as part of due diligence.
5. Strong Negative: Has difficulty responding to problems in multiple areas:
Customers: Execute risk mitigation plans and contingency options.
Potential customers: Consider this vendor only for tactical investment with short-term,
rapid payback.
Market Offerings ABCAG
Product/Service Positive
Broadband/Fixed Networks Positive
Mobile Communications Promising
Systems Solutions (T-Systems) Promising
Internet and Entertainment Positive
Cloud Positive
Machine-to-Machine Promising
Small or Midsize Business Offerings Positive
Technology/Methodology Positive
Pricing Structure Promising

15
Rumoured M&A deals
Although the group
intends to buy
companies in the
Telecom space in
Europe, it is unable to
do so due to antitrust
issues. The group also
plans to enter the
healthcare sector
through the inorganic
route.
Date Country Description
Apr 23, 2014 Slovakia • The Slovak Ministry of Finance is hoping to raise ~ €1 b from the sale of its 49% stake in Slovak
Telekom (ST).
The remaining 51% stake in ST is held by Deutsche Telekom, which also has the first option to buy. In
case the group decides against acquiring, ST's 49% stake will be sold via stock exchange or in an
auction.
Apr 10, 2014 Hungary • Invitel, the Hungarian Telco owned by private equity firm Mid Europa, is most likely to be put up for
sale and GTS Central Europe, which was acquired by ABCin November 2013, could be interested in
buying Invitel.
This deal is however unlikely to happen due to antitrust issues arising from such a bid, as ABCcontrols
local sector player Magyar Telekom.
Mar 11, 2014 Central Europe • Liberty Global, a listed Colorado-based cable network group is contemplating sale of its Central-
European assets. ABChad shown interest in acquiring Liberty’s assets in Central and Eastern Europe,
however talks had been terminated due to significant differences in asset evaluation.
Feb 17, 2014 Greece • Deutsche Telekom, which currently holds 40% stake in Hellenic Telecommunication Organization, is
close to acquiring a further 10% stake in Greece for €610 m.
Jan 10, 2014 France • According to a report, there has been a speculation that ABCmight agree to a merger with Orange.
The two companies have a UK mobile telecom joint venture, EE (formerly Everything Everywhere).
Dallas based AT&T was also rumored to be working on a takeover bid for Orange.
Dec 20, 2013 Germany • ABCis planning to build on its position in the healthcare sector with the purchase of the healthcare IT
business of BrightOne GmbH (formerlyTieto) from the parent company, Aurelius AG. The antitrust
authorities have not agreed on the move yet.
Dec 05, 2013 United Kingdom • There has been a rumour surrounding 400p per share cash bid by ABCto buy London based TalkTalk
Telecom. According to the reports, Vodafone may also be interested in buying TalkTalk.
Buy Side
Source: MergerMarket

16
Rumoured M&A deals
The group did not
appear to be active on
the sell side in the last
year. There was also
speculation around a
merger last year
between T-mobile and
Sprint.
Oct 31, 2013 U.S. • Reports indicate that AT&T is looking for targets in Europe, Moreover, due to antitrust regulations in
the US, regulators cancelled AT&T’s attempt to acquire T-Mobile, the US wireless arm of Deutsche
Telekom, for $39 b, two years ago.
Without large opportunities in the US, AT&T’s rumored targets are Vodafone, Telefonica, Portugal
Telecom and Telecom Italia.
Sell Side
Oct 03, 2013 Germany • There have been speculations that T-Mobile and Sprint could merge to form a large competitor to
AT&T and Verizon Communications.
Merger
Source: MergerMarket

17
Industry Overview
Market Definition
Market Focus & Overview
Historical and Forecasted Performance
Market Ecosystem
Market Assessment

18
1,873.2
1,987.6
2,126.9 2,182.0 2,187.4 2,244.7 2,307.4 2,369.6 2,423.3 2,473.5
2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F
Source: Gartner Forecast Telecom Market Report, April 2014
Global Telecommunications Market Overview
The global
telecommunications
market continues to
expand at a
decelerating growth
rate driven by rising
internet usage among
consumers and
growing demand of
business mobility
solutions
CAGR: 4.0% CAGR: 2.5%
Key Observations
• The global telecommunications market revenue represents the global annual revenues generated for areas such as telecom
infrastructure, telecom services and mobile devices.
• The market is expected to grow at a CAGR of 2.5% to reach to $2,473.5 b market by 2018 from $2,187.4 b in 2013.
‒ The growth in 2013-2018 is projected to remain lower as compared to 2009-2013 as revenue from mobile data services
compensates for the decline in fixed/wired services market.
‒ The future growth is expected to be driven by increasing consumer and business spending for wireless services.
‒ The mobile device segment is expected to exhibit the strongest growth, followed by carrier network infrastructure and telecom
operations management systems.
• Until the recession of 2009, the telecommunications market had been growing in all regions at a moderate pace driven by wireless
subscriber growth, primarily in emerging countries.
• According to Gartner, Telecommunications services represent largest share of global ICT spending and represent 45% of $3,737 b of
total ICT spending worldwide.
Global Telecommunications Market Size ($b, 2009-2018F)

19
Global Telecommunications Market Segmentation
Most of the growth in
the
telecommunications
market across the
globe is expected to
occur in mobile
segment. Asia Pacific,
North and Latin
America are
anticipated to be the
fastest growing
regions in next few
years
Global Telecommunications Market by Segment
($b, 2009,2013,2018F)
Key Observations
• Mobile devices and mobile services segments have shown
significant growth in 2009-2013 and are expected to
demonstrate similar growth in 2013-2018.
• Mobile handset data and fixed and mobile broadband will be
the most important revenue growth areas in the industry in next
few years, driven by higher data usage and increased
penetration of smartphones and broadband services.
• Revenues from consumer fixed network services and
enterprise network services are expected to continue to decline
due to shifting consumer sentiments towards wireless services.
• Emerging segments such as telecom operations management
systems and enterprise network equipment have exhibited
strong growth in 2009-2013.
Key Observations
• Asia/Pacific and Latin America are the fastest-growing regions,
driven by the economies of China, India, Korea, Mexico and
Brazil.
• Telecommunications services growth is expected to originate
not only from increase in subscriber connections, especially in
emerging markets, but also from the uptake of multiple
connected devices, such as media tablets, gaming and other
consumer electronics devices in mature markets.
• Western Europe and Japan exhibited decline in revenues from
telecommunications in 2009-2013 but the decline is expected to
moderate in the period 2013-2018.
Global Telecommunications Market by Region
($b, 2009,2013,2018F)
Segment 2009 2013 2018F
CAGR
(2009-
2013)
CAGR
(2013-
2018)
Enterprise Communications Applications 15.1 15.7 13.8 0.9% -2.5%
Enterprise Netw ork Equipment 29.0 42.3 47.6 9.8% 2.4%
Carrier Netw ork Infrastructure 80.4 80.2 101.4 -0.1% 4.8%
TelecomOperations Management Systems 42.8 56.6 71.1 7.2% 4.7%
Enterprise Netw ork Services 297.3 271.4 232.2 -2.3% -3.1%
Consumer Fixed Netw ork Services 357.7 334.3 315.5 -1.7% -1.1%
Mobile Services 848.0 1,027.8 1,225.4 4.9% 3.6%
Mobile Devices — Retail Revenue 202.8 359.2 466.4 15.4% 5.4%
Total 1,873.2 2,187.4 2,473.5
Segment 2009 2013 2018F
CAGR
(2009-
2013)
CAGR
(2013-
2018)
North America 473.5 554.5 621.9 4.0% 2.3%
Latin America 175.7 238.0 249.3 7.9% 0.9%
Western Europe 426.0 380.1 372.6 -2.8% -0.4%
Eastern Europe 103.9 118.2 137.9 3.3% 3.1%
Middle East and Africa 170.5 214.8 253.4 5.9% 3.4%
Asia/Pacific 363.6 532.6 684.8 10.0% 5.2%
Japan 160.0 149.2 153.6 -1.7% 0.6%
Total 1,873.2 2,187.4 2,473.5

20
Global Telecommunications Market Ecosystem
Industry ecosystem
comprises of CSPs,
Consumers,
Technology and
solution vendors,
media and content
providers, app
developers, device
manufactures and
Enterprises/SMBs
App Developers
Device Manufacturers
Consumers
Social Network
Technology and Solution Vendors
Enterprise/SMB
Media and Content Providers
Communications
Service Providers
Products & Services
Financial
Information
Intangible Value
Brand
Design
Apps
Managed
Services
Managed
Services
Connectivity Software and
Infrastructure
Consulting and
Professional
Services
Value-Added
Services
Content and
Services
Subsidies
Information
Personal
Information

21
Global Telecommunications Market – Drivers
Smartphone and
broadband penetration
and consumer
sentiments are few of
the key determinants
of demand
Driver Description
Smartphone and
Broadband
Penetration
• Mobile handset data and fixed and mobile broadband are expected to be the most important revenue growth areas in
next few years, driven by higher demand of data services and increased penetration of smartphones and broadband
services.
• Majority of the demand from these segments are derived from emerging markets which still have a significant pool of
unserved customers.
Consumer
Sentiments
• Telecommunications market is marked by structural changes as people are making fewer phone calls on the fixed
network and, instead, are using mobile phones or Internet telephony more often. This shift in consumer behavior
influence the demand of certain products and services of the industry.
Economic Factors
• A larger population represent a bigger potential market for industry’s products and services. This is particularly the
case of developed countries where smartphones and internet services are ingrained in the daily lives of businesses
and consumers.
• Consumer demand for wireless services is influenced by population and household income growth. The size of the
population broadly determines the size of the industry's market, and per capita disposable income levels determine
consumers' ability to purchase wireless services in any given region or market.
Regulations
• Regulations across the globe are currently devised to respond to new market behaviors and growing need of
consumer protection. Regulators and policymakers across the globe are working towards consumer’s privacy/interest
and access to industry products and services.
Emerging Markets
• Majority of the demand for industry’s products and services are being originated from the emerging markets of South
America, Southeast Asia, India and Central Asia. Mobile and Broadband penetration has increased considerably in
these regions in past few years.
Price
• Price is an important demand determinant for this industry as consumers are very price sensitive, particularly in the
developing world. Indeed, consumer adoption of new technologies is particularly sensitive to price; if the price is too
high, the new service will likely remain a niche product that does not gain mass acceptance. However, once the price
of a new service reaches an acceptable level, demand can explode.

22
Global Telecommunications Market – Trends
Technology
advancement,
increasing competition
and technology
convergence are few
of the key trends of
the industry
Trend Description
Technology
Advancement
• Mass adoption of LTE has been primarily seen in North America and China in past few years, and its usage has been
accelerating in Europe in 2013.
• Industry is expecting an accelerated shift of consumer demand to cloud services as it offers the agility and efficiency
to telecom operators.
Telecom Consumer
• Rapid progress in the affordability and accessibility of technology will reshape the telecom consumer by 2020. Rising
awareness about “Smart Homes”, “Google Glass” and “Toshiba digital mirror” have reflected consumer interest
towards new advanced technologies. Interconnected devices and M2M communication is also emerging as a key
trend in the global space.
Increasing
Competition
• Several ICT companies have launched various smart products and were able to attract a significant traction of
consumers towards them. This technology and innovation competition will force companies to become smarter, more
efficient and more in-tune with consumer needs.
Platform for
consolidation
• Global telecom mergers and acquisitions gained significant momentum throughout 2013. In Europe, where most of
the action has taken place, the value of telecom M&A activity nearly doubled in the first six months of 2013 to almost
$60 b more than any other sector, and nearly a fifth of all European M&A.
• It is expected that telecom consolidation will accelerate globally heading into 2014 in response to intense competitive
pressures and increasing regulatory challenges.
Regulations
• EU’s Commission for the Digital Agenda is pushing disruptive legislation to create a single transnational mobile phone
and Internet services market which is being opposed by the operators.
• In Europe, the open telecommunications market to competition has acted as a catalyst for new players on a sector
previously reserved for oligopolies. To keep up with these changes, Europe’s decision-making bodies have adopted
legislation in tune with technological progress and market requirements. These developments have given rise to the
adoption of a new regulatory framework on electronic communications, the main aim of which is to strengthen
competition by making market entry easier and by stimulating investment in the sector.
Technology
Convergence
• Telecommunication technology is changing at a record pace. Technology convergence around smartphones is
powerful and hence all new technologies are emerging in and around that area.

23
Global Telecommunications Market – Challenges
Evolving consumer
demands and decline
in growth of
traditional services are
few of the challenges
faced by the industry
Challenge Description
Connectivity and
Speed
• Demand from consumers are growing daily in terms of connectivity and speed. The ongoing expansion of the mobile
ecosystem, coupled with demand for high-bandwidth applications and services such as video and gaming, is putting
pressure on the industry to increase the availability and quality of broadband connectivity.
Security
• Security also pose a challenge for the telecommunications industry. This encompasses the threat of increased risks of
hacking and malware as the global adoption of mobile devices continues to rise and machine-to-machine (M2M)
communications gains momentum.
• Moreover, increasing popularity of bring-your-own-device (BYOD) in the workplace could exacerbate the potential
exposure to critical company data using malware or other hacking techniques. Reducing the vulnerability of mobile
devices to hacking, including embedded anti-malware software into devices and enhanced authentication features,
will be a key priority for device manufacturers and wireless carriers.
Evolution of
consumer needs and
expectations
• In today’s evolving and innovating technology paradigm, building a lasting impression, through products and services,
on customers’ mind is a challenge for all the operators in the industry. The needs and tastes of consumers are shifting
frequently and companies operating in the space are trying to meet those evolving consumer demands.
Declining Growth in
Traditional Services
• Telecommunications industry is facing challenges from traditional services, particularly voice services, as their
revenue growth is not at par with the industry average, particularly in mature countries due to shift in consumer
demand from wired services to wireless services as well as rising usage of data services.
Competition
• The developed markets in the U.S. and Western European region are maturing and have become more competitive in
comparison to past few years.
• With low levels of product differentiation, players are left competing on quality, reliability, brand awareness,
functionality and value pricing to try to capture new and retain existing customers in the market.

24
T-Systems
Restructuring Plans

25
T-Systems – Restructuring plans
ABCis focusing on
profitability with the
transformation
program of T-Systems
Date Description Link
May 9, 2014
Germany : T-Systems executes transformation program
• A focus on profitability is the heart of the transformation program T-Systems 2015+. The financial figures
for the first quarter of 2014 show the initial effects of this strategic realignment. In the first three months of
this year, order entry in the Market Unit, which mainly comprises T-Systems’ external business, declined by
28.4% year-on-year to EUR 1.4 b. This reflects compliance with stricter profitability criteria for new
business introduced as part of the restructuring.
Factiva News
May 2, 2014
Germany : Collective wage agreement: Full package for T-Systems completed
• Employers and Ver.di reached an agreement in the collective wage negotiations for the approximately
20,000 T-Systems employees subject to the Master Collective Wage Agreement in Germany, putting an
end to a difficult negotiation process. "The collective wage agreement is a well-balanced and
comprehensive package, making it an important building block for our transformation program. It allows us
to support the necessary personnel restructuring in a socially responsible way while offering a viable wage
increase, says T-Systems CEO Reinhard Clemens
Factiva News
March 31, 2014
T-Systems SA announces shareholder restructuring
• As part of its strategy of accelerated transformation and localization, T-Systems in South Africa has
announced the restructuring of its minority shareholding in line with the Codes of Good Practice.
• To enable inclusive minority shareholding, the company has re-purchased its 30% shareholding from the
minority partners.
Link
April 30, 2014
Comprehensive restructuring of T-Systems
• T-Systems’ business model will be developed to meet the increased digitization of businesses in the future.
This approach is why the ABCsubsidiary is investing in digital areas of the future such as connected cars,
healthcare, energy, cloud computing and cyber security.
• Traditional ICT services, which are mainly based on outsourcing models, are being transformed so that
they are economically viable for T-Systems as a European provider. The transformation is expected to
happen over a period of two years. Likewise, the reorganization of the Group’s internal IT structures, which
began in 2011 and is now known as Telekom IT, will also continue to be implemented along the same
lines.
Link

26
T-Systems – Restructuring plans
T-Systems announced
the restructuring plans
in January, 2014
aimed at adjusting the
business model to the
market
Date Description Link
April 9, 2014
T-Systems sells IDS to Aurelius
• T-Systems, the business clients subsidiary of Deutsche Telekom, has sold its Onsite Desktop Services &
Solutions operations -- IDS GmbH, to German investment firm Aurelius.
• ABCannounced its intention to restructure T-Systems at the beginning of 2014. It became clear in mid-
March 2014 that the parent would cut many more jobs at the unit than previously expected. It now plans to
reduce its workforce by 4,500.
Factiva News
March 19, 2014
T-Systems to cut 4,900 jobs in Germany by end-2015
• T-Systems, the IT division of ABC(ETR:DTE), plans to cut 4,900 jobs in Germany by the end of 2015.
Factiva News
March 6, 2014
ABClowers cash flow outlook on US investment
• ABClowered its free cash flow outlook for 2014 as it plans to invest for further growth at its U.S. arm and
reorganise T-Systems.
Factiva News
January 23, 2014
T-Systems announces restructuring
• “T-Systems will implement restructuring measures, which will affect its employees, aimed at adjusting its
business model to the market“- CEO Reinhard Clemens said.
• According to Clemens, the supervisory board of T-Systems, the business clients unit of Deutsche Telekom,
has already approved the plans. The manager did not specify how many jobs will be affected. T-Systems
had 28,000 employees in Germany.
Factiva News
December 2, 2013 • ABCplans to cut around 7.5% of jobs in the next three years at its IT services business T-Systems. Link

Telco M&A Strategy

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Telco M&A Strategy

Similar to Telco M&A Strategy (20)

More from Milind Kinker

More from Milind Kinker (6)

Recently uploaded

Recently uploaded (20)

Telco M&A Strategy

Editor's Notes