Three-pronged innovation strategy

To tap into even greater innovation capacity, we not only rely on our own developments but also successfully integrate new ideas from outside Deutsche Telekom. We take a three-pronged approach to innovation to set ourselves apart from the competition and generate growth:

  • In-house developments,
  • partnerships, and
  • startup funding.

FEEL THE FUTURE – OUR PRODUCT AND SERVICE INNOVATIONS

Below are a few examples of developments in the reporting year:

  • Smart parking. Searching for parking spaces wastes time, causes traffic jams, and pollutes the air. Summer 2017 brought relief to Hamburg in the form of the new digital parking service Park and Joy. The first parking spaces in the city were equipped with narrowband sensors transmitting over the mobile network. Over the next three years, numerous public parking spaces, parking garages, and private parking lots across the country are to be connected to the network. 13
  • Since February 2017, Slovak Telekom has offered its customers a SmartHome service based on the white-label portfolio from QIVICON. It combines the open, secure QIVICON platform, the new QIVICON Home Base, the White Label app, and other compatible devices from a range of manufacturers. Our SmartHome platform offers further benefits in the form of certification and security. QIVICON has been certified in accordance with the ISO 9001 quality management standard as well as being awarded the top mark by the AV-Test Independent IT-Security Institute.
  • immmr is a one-stop service for voice and video calling and messaging. The app virtualizes the user’s mobile telephone number allowing them to call any number from any device – even from multiple numbers. The first managed OTT service worldwide, immmr combines the best of Internet-based communication with the strengths of mobile technology. After introducing the app under the immmr brand in Slovakia at the end of 2016, we have been focusing in 2017 on relaunching it under the Telekom brand.
  • The future belongs to the eSIM card. We support the GSMA’s eSIM standard in Germany, which premieres in the Apple Watch Series 3, making us the only network operator in Germany to offer the Apple Watch with this new eSIM function.
  • The use of voice assistants to operate services is becoming increasingly important. We designed our own Smart Speaker featuring our continually learning Magenta voice assistant. It can be used to control equipment connected to the device, such as EntertainTV, using voice commands. The assistant was developed together with researchers at the Fraunhofer Institute for Digital Media Technology (IDMT). In terms of data security too the Smart Speaker meets the most demanding requirements: commands are stored for only 30 days. The servers it uses are located exclusively in Germany, making them subject to Germany’s strict data protection law. The Smart Speaker will be available in Germany in the first half of 2018.

With our central research unit, Telekom Innovation Laboratories (T-Labs), we operate our own research and development facilities at locations in Berlin, Darmstadt and Bonn in Germany, Beer Sheva in Israel, and Mountain View in the United States. Some 300 experts and scientists in diverse fields work closely with our Technology and Innovation Board department and our operating segments. They foster open innovation by working with partners from industry, international universities, research institutions, and startups. 17 Based primarily in Berlin, the T-Labs have had close ties to Technische Universität Berlin since 2004. We also entered into further academic partnerships in the reporting year, including with TU Wien in Vienna and the Einstein Center Digital Future in Berlin. In 2017, T-Labs focused on a range of topics including the following:

  • A Group-wide initiative was launched in 2017 focusing on a new research area at T-Labs – blockchain – to look into the technology and the possibilities it offers in terms of efficient, secure, environmentally friendly confidential data transfer between partners across a decentralized network. Together with a range of partners, we are working on numerous prototypes which, for example, utilize blockchain technology in the Internet of Things (IoT), including in cooperation with Telekom Deutschland and T-Systems.
  • New media experience is all about improving the user experience, in particular at the user interface to new media formats. We look through the eyes of the customer to create solutions for at home and on the move, as well as for smart cities. The focus of our research is on cloud-based applications and integrating new formats such as virtual reality/augmented reality and 360°, which we already unveiled in several showcases (360° Basketball Bundesliga, Telekom Cup, Magenta VR Portal).
  • We are working both on new services and to improve existing services for our customers using a range of methods that include machine learning and artificial intelligence. The FASAS project is developing mechanisms to detect cyber attacks on our networks at an early stage and trigger automated protection measures. FASAS, a partnership between Telekom Security, Ben-Gurion University in Israel, and T-Labs, represents the successful transfer of research findings and was awarded the Best Big Data Project at Deutsche Telekom 2017 prize. We are migrating the solutions into live operations on a step-by-step basis, with the next update due in the first quarter of 2018. 16
  • Smart cities as a strategic focal area has grown out of the many years of lab test results and research findings at T-Labs. Together with partners, we are testing innovative solutions for energy, mobility, and communication in our European flagship project mySmartLife in Hamburg. 11

INNOVATIONS FROM PARTNERSHIPS

We draw on the expertise and abilities of our partners in order to implement the digital transformation successfully. 17 We rely on the tremendous innovative energy coming out of Silicon Valley, Israel, Germany, and other innovation hotspots across the globe.

Some examples of successful partnerships can be found below:

  • After successfully launching StreamOn in Germany, Poland, and Croatia, we expanded our new zero-rating video platform to include Greece and Romania. Our customers in these countries can now stream big-name video services from partners such as YouTube, Netflix, and Amazon Video on their mobile devices without using up their inclusive data volume. We also launched a new StreamOn option in Croatia, Hungary, Albania, and Greece offering unlimited access to social media and chat services, including Facebook, Messenger, WhatsApp, and Instagram. We will roll out this service to additional countries in 2018 and bring extra partners on board.
  • At the end of 2017, Telekom Deutschland and T-Mobile Austria joined forces with our partner Mojio to bring a connected car service to market which transforms consumers’ vehicles into smart cars, giving them an overview of car usage, handling, and condition, as well as Wi-Fi for passengers. Similar Mojio-based services in the form of SyncUp Drive and Chytré Auto are already on offer at T-Mobile US and T-Mobile in the Czech Republic. In addition, Digital Drive – another Mojio-based technical solution – from T-Systems is a manufacturer-neutral retrofit option for dealers, original equipment manufacturers (OEMs), insurance companies, and fleet operators. Digital Drive enables them to offer their customers own-branded digital connected car services.
  • We formed a partnership with Checkpoint to deliver security solutions for business customers and consumers. Business customers benefit from secure e-mail transmission with the APT Protect Pro cloud solution, while Telekom Deutschland and Cosmote in Greece launched the Protect Mobile service for consumers in collaboration with Checkpoint. Protect Mobile is a convergent security product available as a simple add-on that protects mobile customers against viruses. An additional app offers protection when connected to Wi-Fi.
  • We joined forces with CyberX and Radiflow to offer comprehensive protection for connected industrial systems. Industrial Threat Protect Pro (CyberX) identifies vulnerabilities and provides transparency, while Industrial Network Protect Pro (Radiflow) protects against the uncontrolled flow of data and unauthorized access to the network. 16

STARTUP FUNDING

Our hub:raum incubator connects startups with the right contacts at our Group. In addition to seed financing, hub:raum offers the startups targeted programs that tie in with the strategic technologies at our Group. With its focus on our core areas, such as artificial intelligence and the smart home, hub:raum primarily deals with startups that fall within our 4+1 innovation areas. Since it was established in 2012, hub:raum has helped us to build up an investment portfolio of over 20 companies and 250 startups in Europe and Israel. In 2017 alone, almost 20 projects between startups and our Group business units were launched (www.hubraum.com). We would like to mention just some of these startups below: 9

  • Twyla has created a flexible piece of chatbot software designed to help large companies improve their digital customer experience and take on the diverse challenges of customer service. The solution is simple to integrate and frees up customer advisors’ time to concentrate on more complicated customer inquiries (www.twylahelps.com).
  • An app designed by eParkomat shows users vacant parking spaces in the vicinity and guides them there via smartphone quickly and easily. It uses an algorithm to forecast the availability of vacant parking spaces in real time by analyzing the number of mobile devices that are logged into a specific mobile network (www.eparkomat.com). 13
  • Reparando is a speedy mobile repair service that comes to the aid of faulty smartphones. Currently available to customers in 20 cities across Germany, the Stuttgart-based startup has carried out more than 10,000 repairs since it was established mid-2015 (www.reparando.com).

In 2017, hub:raum also launched or continued to pursue three programs dealing with the Group’s strategic technologies: low latency/edge computing, future communications (with our partner), and the narrowband IoT program launched in 2016. Program participants gain access to Group experts and support with developing their businesses.

DEUTSCHE TELEKOM CAPITAL PARTNERS

We have restructured our commitment in the areas of venture capital, private equity, and technology innovation with our Deutsche Telekom Capital Partners group (DTCP), which was established at the beginning of 2015, and are extending it considerably. DTCP is Deutsche Telekom’s investment management group and is positioned at the center of our redesigned investment concept. DTCP offers growth capital for startups with a proven business model, investments in mature companies, and consulting in the technology, media, and telecommunications sectors. Its objective is to create value for the Group, investors, portfolio companies, and other stakeholders and it has access to some EUR 500 million in capital to pursue this goal. DTCP’s investments have a strong financial motivation. The group aims to acquire shares in companies, to see these companies grow, and to sell the shareholdings again at a profit. Choosing the most successful startups and collaborating closely with them leads to strategically relevant cooperation options and business relationships with our Group.

DTCP also provides guidance to our strategic investment fund Telekom Innovation Pool (TIP) on investments that are primarily strategically motivated. TIP focuses its investment activities not only on external startups that are strategically relevant, but also supports and implements in-house ventures as spin-offs. For the latter, new business ideas from our Group are spun off as young companies, making greater entrepreneurial freedom and shorter decision paths possible. Additionally, DTCP advises DTVF (Deutsche Telekom Venture Funds GmbH) on its portfolio. The aim is to support the development of the around 55 existing investments (including through follow-up investments) and divest them at a profit.

DTCP was already conducting successful deals in its first two years in business. This involved the profitable sale of the startups Nexmo (to Vonage), Replay (to Intel), and Fireglass (to Symantec). In 2017, DTCP invested venture capital in several companies, including mobile marketing platform AppsFlyer, big data analytics company Fornova, machine learning-based personalization technology Dynamic Yield, and software-as-a-service enterprise-architecture specialist LeanIX. It also advised the Telekom Innovation Pool on matters such as investing in the IoT orchestration platform Axonize and our cloud computing spin-off mobiledgeX. In terms of mature businesses, DTCP invested in mobile infrastructure provider SwissTowers AG.

PATENTS/IPR PORTFOLIO

Patents are gaining more and more significance in the telecommunications industry. Market players and their areas of activity are changing, with a knock-on effect on our intellectual property rights (IPR) agenda. On the one hand, our Group’s scope for action must be maintained. On the other hand and alongside our own research and development activities, we want to pave the way to open innovation through collaboration projects and partnerships. National and international IPRs are vital for these types of activity. We are strongly dedicated to generating our own property rights. In the reporting year, we filed 295 patent applications, taking the total number of IPRs held by the Group to around 8,300. We pursue our intense efforts to develop and structure our IPR portfolio. This secures the value of the rights we hold and ensures they are in line with our Group’s strategic objectives. We have put in place a professional patent law management process to keep our IPR assets safe.

EXPENDITURE AND INVESTMENT IN RESEARCH AND DEVELOPMENT

Research and development (R&D) expenditure includes pre-production research and development, such as the search for alternative products, processes, systems, and services. By contrast, we do not class as research and development expenditure the costs of developing system and user software which is designed to improve productivity and make our business processes more effective. R&D expenditure in the Deutsche Telekom Group amounted to EUR 57.7 million in 2017. As the parent company, Deutsche Telekom AG bears part of the Group’s research and development expenditure, the amount in this case being EUR 27 million (2016: EUR 58 million). However, this figure cannot be viewed in isolation from our three-pronged innovation strategy comprising in-house developments, partnerships, and startup funding.

Our Group’s investments in internally generated intangible assets to be capitalized were also up year-on-year at EUR 235.7 million compared with EUR 129.5 million for the previous year. These investments predominantly relate to internally developed software, mainly in our Group Headquarters & Group Services segment and our Systems Solutions operating segment. About 3,000 employees worked in the Group’s R&D areas in 2017 (2016: approx. 2,900).

Expenditure and investment in research and development
millions of €
  2017 2016 2015 2014 2013
Research and development expenditure 57.7 84.1 108.1 95.6 97.0
Investments in internally generated intangible assets to be capitalized 235.7 129.5 101.3 93.2 112.0