THE FOURTH INDUSTRIAL REVOLUTION IS DIGITAL

Digitalisation is a megatrend of our time. Comprehensive connectivity and data exchange speed up processes and make them more flexible. As a consequence, this facilitates cooperation between companies, customers and partners. The Telekom Austria Group aims to consistently benefit from the considerable opportunities offered by digitalisation.

At the end of the 1990s, the number of Internet users in the EU was around 15% of the popula- tion and only a fraction thereof used online shopping. Now, Internet penetration in this region has reached 85% and the number of online shoppers has increased to almost 60%1). The fact that the picture has changed so dramatically only 20 years later is due to a number of factors, including the emergence of online retailers, such as Amazon and Zalando, a reduction in Inter- net usage costs and the availability of broadband connections, which mean we can comfortably shop without leaving our own homes.

This remarkable development within a short period of time has caused some disruption in the form of a fundamental displacement of previous systems and circumstances; disruption which is capable of producing completely new possibilities and business models. Disruptive tech- nologies are often not identified as such, then experience very strong growth and eventually re- place established technology.

The disruption caused by digitalisation began a few decades ago and has since then altered the economy and society with increasing speed. Online shopping is only a small subarea of this megatrend. The term digitalisation is on everyone’s lips. Nevertheless, it is a difficult concept to grasp and it is not entirely foreseeable where the resulting comprehensive connectivity and data creation and collection will lead.

DISRUPTION ON AN UNFORESEEN SCALE

It is not true that digitalisation is an entirely new phenomenon. It has already been around for some time and has left its mark. There have been countless digital transformations in the past – such as the widespread disappearance of the handwritten letter after the rise of personal com- puters, e-mail and the Internet. There was also the collapse of major companies, such as Kodak, because the trend toward digital photography was identified too late. Or the last printing of the Encyclopædia Britannica in 2010 because most reference knowledge is now being found online thanks to Wikipedia and other websites. We also order online now, such as from Amazon, in- stead of via post from traditional catalogue companies, and chat more and more via WhatsApp instead of in a café.

Digitalisation is also referred to as the fourth industrial revolution. The terms Internet of Things (IoT), Virtual Reality (VR), Artificial Intelligence (AI), big data, machine learning and in- dustry 4.0 are all often used in this context. These terms make it possible to vividly portray how comprehensive connectivity and data exchange can be useful. For instance, when bridges or machines in industrial production are fitted with sensors that record vibrations as well as fric- tion and are therefore able to determine and predict necessary maintenance work. Or when blinds and shutters in smart homes exchange data with weather services and therefore close or open at the right moment.

We are dealing with an all-encompassing phenomenon which affects both the private, profes- sional and business spheres. At companies, the relevance of this phenomenon is by no means limited to IT. Controlling, human resources, marketing, strategy, sales – every imaginable area is affected by digitalisation. As a result, this revolution is not only accompanied by a profound change in the foundations of work and product portfolios, but also a fundamental change in working methods, which does not end with the question of how to interact within a company as well as with clients, suppliers and other stakeholders.

Although the potential and opportunities of digitalisation are not yet entirely foreseeable, eco- nomic researchers unanimously agree that the subject will fuel economic dynamics. For exam- ple, based on a 2016 study, the Austrian Institute of Economic Research (WIFO) believes that digitalisation will lead to further growth and boost employment. Specifically, the WIFO reached the conclusion that an increase in the employment share in the IT-intensive sector by one per- centage point is accompanied by additional regional growth of between 0.3% and 0.4%.

However, digitalisation will not only create new jobs – in certain areas it will also replace them, particularly those jobs that can be carried out more cheaply and efficiently using algorithms or artificial intelligence. The elements of knowledge and competence are becoming increasingly important, which is why they need to be actively promoted using modern training and further education. Not least, digitalisation itself constantly provides innovative, simple, widely avail- able and cost-effective educational opportunities in the form of e-learning and apps.

TELECOMMUNICATIONS ARE THE BACKBONE OF DIGITALISATION

For digitalisation to develop its full potential and to ensure the success of comprehensive con- nectivity of data flows, a number of requirements must be fulfilled. Above all, this means the availability of low-cost sensors with long-life batteries for connecting objects, high-perfor- mance and reliable networks, small and powerful computers and growing cloud capacities. As well as high bandwidths and optimal coverage in buildings, the particular key to success for communication networks, and especially the Internet of Things, is the lowest possible latency periods for data communication in real time – for driverless cars, for example. For computers, there seems to be no limit to processing power in the future. This extends to the quantum com- puter, which performs as many calculations as there are atoms in the universe in just one sec- ond. From today’s perspective, the technical hurdles associated with the quantum computer, such as cooling to very low temperatures and extreme magnetic shielding, are very high. Never- theless, the dynamics of the developments make them appear doable in the future.

These requirements and framework conditions are used to outline, so to speak, the digital growth areas of the coming decades and, in this context, it is becoming apparent that telecom- munications are a key foundation of digitalisation. The requirement for this is efficient data ex- change via high-performance networks. Here, operators are confronted with a dynamically in- creasing demand for bandwidth – not only from the business sector but also from the private sphere. Accordingly, companies in the telecommunications sector have been developing from telephony service providers into data companies for some time now.

Furthermore, the industry has the opportunity to become more than the ‘backbone’ of digitali- sation or the provider of infrastructure which enables connectivity and data exchange. Modern telecommunications companies are expanding their business fields and skills and becoming end-to-end service providers – also in cooperation with external partners.

Correspondingly, the Telekom Austria Group is focusing on broadening its service portfolio but, at the same time, it is taking its role as a ‘digitalisation enabler’ very seriously. Its convergent infrastructure is therefore of crucial importance, as the combination of mobile and modern fixed-network technologies, such as fibre, is essential for the efficient management of the enor- mous quantities of data. This is why the Telekom Austria Group is continuing to invest heavily in its broadband rollout. This represents a decisive opportunity for differentiation within an in- tensely competitive environment and enables a variety of bundled offers.

Another key aspect is providing or enabling the infrastructure and foundations for economic development within rural areas. This is because expanding the network also means closing the ‘digital gap’ between towns and the countryside, centres and peripheries as well as between so- cial circumstances – for example, with a view to education and development opportunities. This is of the greatest relevance to both the social and economic development of a society.

DATA EXCHANGE BETWEEN MACHINES

Comprehensive, efficient connectivity with a view to data exchange between devices and ma- chines (IoT or M2M) is an altogether ground-breaking field of application for digitalisation. Here, it is not the data volume per transaction that ignites the imagination, but the virtually limitless scenario of possible applications. Anything that can be connected will be connected. Fleet, building and project management only touch upon the imaginable potential. As a result, the ‘Narrowband Internet of Things’ (NB-IoT) has been established as a global industry standard – a mobile network developed especially for machines that optimises power consumption, cov- erage in buildings and latency periods (i.e. data transmission in real time as far as possible). In June 2016, NB-IoT was demonstrated in Austria for the first time.

Gartner forecasts that connected things will reach around 20.4 billion by 2020.1) In order to en- able the accompanying connection requests, the Telekom Austria Group is laying the techno- logical foundations in its sphere of influence by providing NB-IoT.

DIGITALISATION ALSO MEANS DIVERSIFICATION

The fields of voice telephony, television and data form the core business of the Telekom Austria Group. In the light of current developments, new fields for expansion are becoming evident. One example is the provision of cloud solutions entailing both the required infrastructure involved and the services that can be obtained from the cloud. The Telekom Austria Group al- ready operates a cloud brokerage platform, with which it offers back-up services, virtual storage capacity and software. The Group is also focussing on growth in the fields of data analy- sis, digital services and digital healthcare.

In any case, the significance of the subject area of digitalisa- tion and the growing demand of corporate customers for com- prehensive services in this area has been addressed in the cor

porate structure through the establishment of ‘A1 Digital International GmbH’. This new sub- sidiary unites activities in the fields of cloud services and IoT. Put into context, the aim is to of- fer scalable services in the Software as a Service (SaaS) and Infrastructure as a Service (IaaS) seg- ments and to expand the range of products. The markets for SaaS and IaaS are currently still very fragmented. Here, the Telekom Austria Group sees a good opportunity to position itself as a relevant regional player, particularly given its background of long-term cooperation with a range of corporate customers.

The data security aspect must not be disregarded. An increase in connectivity and data ex- change also increases vulnerability to cyberattacks. Any potential target which works on its de- fence alone will more easily become a victim of cybercrime. With its many years of expertise, the Telekom Austria Group is optimally prepared to protect its customers from such attacks, as continuously professionalising data security is of key importance to the Group. The Telekom Austria Group therefore operates highly secure data centres with a holistic IT security concept for the transfer of consumption data. These centres are certified in accordance with the infor- mation security standard ISO 27001. On this basis, the Telekom Austria Group has been provid- ing customers in highly sensitive areas with hosting, housing and IT services for several years. It is therefore possible to benefit from the opportunities offered by digitalisation while apply- ing optimal security standards.

Another aspect that must be taken into consideration is legislation with regard to data security. As a regional player located in the EU, the Telekom Austria Group is subject to strict European legislation.

SUSTAINABLE IMPACT

Digitalisation is also showing positive effects in the context of sustainability. A study by the Massachusetts Institute of Technology (MIT) together with business consultancy CapGemini has revealed that digitalisation can contribute to uncoupling the growth of a company from its resource consumption. According to the study, sales at companies that established themselves as digital are 9% higher (measured according to employment of capital) and their profits are 26% higher. On the other hand, resource consumption has increased only minimally.

Working digitally also means that some things might simply not be needed any more. This in- cludes physical means such as business trips, hardware, energy consumption, paper and a number of other resources. Processes can also be optimised in terms of efficient use of re- sources using algorithms, for instance with regard to energy consumption or transport logis- tics. The proactive, connected controlling of home technology or traffic flows also has great re- source- saving potential. The same applies to the digital monitoring of machines and devices within the meaning of ‘industry 4.0’, for which preventative checks are performed by sensors to assess whether maintenance or repairs are required. In the business world and also the private sphere – here, we need only think of the replacement of resource-intensive data carriers for films and music with cloud or streaming services – a wide range of opportunities are opening up for the harmonisation of efficient working and a sustainable way of life.

We are therefore on the road to an exciting and promising – yet challenging – future. From to- day’s perspective, it is not ultimately foreseeable which achievements and upheavals will ac- company digitalisation. In any case, the fact remains that the telecommunications sector is playing a central role in the fourth industrial revolution and this is something the Telekom Austria Group is optimally prepared for.

1) Source: Eurostat, http://ec.europa.eu/eurostat/web/products-datasets/-/tin00134; http://ec.europa.eu/euro- stat/web/products-datasets/-/isoc_ec_ibuy; European Commission; http://ec.europa.eu/public_opin- ion/archives/eb/eb51/eb51_en.pdf (page 22)

Less hardware: The use of software, ICT infrastructure and platforms via cloud solutions is preserving physical resources and reducing the costly acquisition and modernisation of hardware – providing optimised flexibility and scalability at the same time.

1) Source: Gartner, http://www.gartner.com/newsroom/id/3598917

Source: OECD,  https://www.oecd.org/g20/key-issues-for-digi- tal-transformation-in-the-g20.pdf (page 136)