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Timotheus Höttges

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Looking ahead: With a digital turbo out of the crisis

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An article by Timotheus Höttges, CEO of Deutsche Telekom AG. This article was first published as a guest contribution on the portal www.euractiv.de.

Europe is in the midst of its greatest crisis since World War II. The Coronavirus pandemic has shown very clearly how fragile the Union is: borders were closed, supply chains broke down, the rule of law suffered severely in some countries. But in every crisis, there is an opportunity. Therefore, it is crucial that the right conclusions are drawn from the huge challenges ahead of us.

Timotheus Höttges, Chief Executive Officer (CEO) Deutsche Telekom AG

Timotheus Höttges, Chief Executive Officer (CEO) Deutsche Telekom AG.

At their summit meeting EU leaders found a compromise and agreed on a huge rescue package to mitigate the economic and social damages of the Covid-19 pandemic and ensure a swift recovery.  Yet, this is only the first step. It’s obvious to everyone that the rescue package’s implementation will have to follow with the same sense of urgency and future orientation.

The debts we incur today will be a heavy burden on future generations. For this reason alone, we owe it to our children and grandchildren to invest these enormous resources in Europe’s future and to put clear KPIs on it.

The aim of the economic stimulus packages must be to strengthen strengths and compensate for weaknesses. The aim is to build the ‘New Normal’ instead of artificially keeping business models of the past alive. We need a digital and green transformation for sustainable growth.

Corona also shed light on Europe’s weak points in digitisation

Politicians had recognized even before Corona that climate change and digitisation are the central challenges for the future of Europe. The pandemic underlined the necessity very clearly. But Corona also shed light on Europe’s weak points in digitisation.

More than ever, digitisation is the key to ensuring the workability and sustainability of the economy and public institutions such as government offices and schools.

Without efficient telecommunications networks, nothing works. The volume of traffic increased between 35 and 60 percent during the crisis but was mastered thanks to the efforts of the network operators. This does not mean, however, that more revenue is associated with it. One reason for this is that the lion’s share of traffic on the network, around 80%, is accounted for by the winners of the crisis, the large Internet companies. They are the ones who benefit most from investments in communication networks, although they practically make no financial contribution to it.

Europe needs billions in investments in fibre networks

And one thing is certain: Europe needs billions in investments in fibre networks. Countries like Germany have built fibre to the curb in the first step and thus ensured that almost every household gets fast internet, also in rural areas. Now the next step is to expand fibre into every apartment. That is expensive. Some countries are already significantly further ahead than Germany. We should learn from these experiences across Europe so that every country can achieve ubiquitous fibre coverage. In contrast to Internet companies, whose business models are scalable in many ways, telecommunications is a capital-intensive industry. It is therefore all the more important that cost-effective build-out is made possible and that obstacles, for example regarding permissions for connecting premises to fibre networks passing them, are removed.

Value creation in the digital sector does not take place in Europe, but mainly in the USA and Asia. The five Internet giants Google, Apple, Facebook, Amazon and Microsoft (so-called GAFAM) are the clear winners of the Corona crisis. Their share prices rose by up to 45 percent during the crisis. Their combined market capitalisation has broken the €5 trillion mark. Among the world’s leading Internet companies there is no European player.

The European economic stimulus package offers a unique opportunity

This is worrying because whoever wins the digitalization race will own the value creation of the future. Unlike European companies, technology companies in North America and Asia often benefit from better legal frameworks, generous government programs, subsidies and market entry barriers. The European economic stimulus package offers a unique opportunity to redress this imbalance. With massive investments in software platforms and key digital technologies, Europe can – and must – catch up.

Software platforms determine the value generation. And this in all areas of business and life – be it energy, mobility, education, health or administration. In Europe we are in a race to catch up. So far, we have witnessed an unprecedented export of data: the data of around 500 million Europeans is processed and refined in data centres outside Europe. Europe has become a data colony.

The funds from the European economic stimulus package can now be used to provide the impetus for building and expanding European platform and software competence. The digitisation of public administration can be an important stimulus in this respect. The “GAIA-X” project, which is being driven forward by the German and French governments and representatives from companies, associations and science, represents an important contribution to strengthening Europe’s digital sovereignty and data sovereignty in the field of cloud computing.  The state as a consumer will play a central role in its success.

At the same time, there are promising new technologies that are currently still in their infancy and offer Europe the chance to gain a head start early on. Examples are quantum technologies, precision farming, human-machine interfaces, self-learning artificial intelligence or IT-supported autonomous economies. However, this would require a much more ambitious research funding from EU funds.

But it is also clear that money alone is not enough. Structural reforms are inevitable for a sustainable economic recovery in Europe. The lion’s share of future innovation and investment will continue to be driven by Europe’s small, medium and large enterprises. For them to be able to do so, Europe must become more attractive as an investment location and the internal market must be strengthened. Companies throughout the internal market must be able to rely on compliance with European law. The rule of law is therefore an indispensable element in the functioning of the EU. And infringements of it must finally have tangible consequences.

Europe also needs competition rules fit for the digital age. The aim must be to proect consumer interests more sustainably – without destroying incentives for innovation and investment or risking the global competitiveness of European companies.

In short: the crisis is the catharsis that should catapult Europe into a new orbit. That means a significant boost for digitisation and thus for an innovative and future-proof Europe. As the largest infrastructure provider in Europe, Deutsche Telekom is ready to support this surge. We will make Europe the leading market for 5G, we will build fibre to the homes and we will help build a European cloud. And we rely on a Europe that sets the right impulses.

This article was first published as a guest contribution on the portal www.euractiv.de.

Timotheus Höttges, Chief Executive Officer (CEO) Deutsche Telekom AG

Timotheus Höttges

Timotheus Höttges, Chief Executive Officer (CEO) Deutsche Telekom AG

Roof terrace and dome of the Reichstag building in Berlin.

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