Deutsche Telekom Bolsters Security to Revive Fixed-Line Business

Deutsche Telekom AG (DTE), Germany’s largest phone company, plans to bolster its ailing fixed-line Internet business by making its network indispensable to smaller companies seeking safety from cyber attacks.

Customers are testing the Clean Pipe service, which will allow them to run security systems such as firewall and e-mail security through Deutsche Telekom’s servers instead of their own, according to Juergen Kohr, who heads Bonn-based Deutsche Telekom’s new cybersecurity unit. The company plans to move the entire system to its network over coming years, he said.

“If we were to serve 1 million small- and medium-sized companies, you can imagine what amounts of data will need to be sent to the system for clean-up,” he said in a telephone interview yesterday. “It will require deep integration into the network, which is something no other provider can do.”

Tying security-conscious clients to its network would bolster Deutsche Telekom’s efforts to reverse a drop in broadband market share in Germany, brought about by competition from cheaper and faster cable providers. It would also let it tap into Europe’s cybersecurity market, which the operator forecasts will grow by 7 percent a year to reach 16.9 billion euros ($23 billion) in 2017.

The German market, where Kohr plans to be “security champion,” will grow 8 percent annually and total 3.2 billion euros by that time, according to the carrier, citing forecasts by Gartner Inc. and Ovum analysts.

A higher pace of attacks targeting computer systems, and concerns over spying by intelligence services including the U.S. National Security Agency, have fueled the market for security. That’s prompted acquisitions such as network-equipment maker Cisco Systems Inc.’s deal in October to buy Sourcefire Inc. for more than $2 billion and FireEye Inc.’s $1.05 billion purchase of Mandiant Corp. last week.

New Division

Kohr, who previously worked as strategy chief for Deutsche Telekom’s T-Systems corporate customer unit, became head of the newly formed division in August last year. His task involves selecting cybersecurity services spread around the company’s operations and making them easy to order and access, he said.

“Companies have become much more aware of the threat situation, which will enable us to increasingly sell security products on a standalone basis,” he said.

Clean Pipe will roll out in May to a larger group of customers and initially require a router made by Wuerselen, Germany-based Lancom Systems GmbH to connect to Deutsche Telekom’s servers, Kohr said. By late 2015 or early 2016, Deutsche Telekom’s infrastructure may be ready to fully take over delivery of security services, he added.

Malware Alerts

Deutsche Telekom is also in talks with larger companies to deploy its Advanced Cyber Defense offering, which involves customized detection of security breaches and responses to minimize the damage. The tools, supplied by EMC Corp.’s RSA division, include software to detect anomalies in data traffic that may indicate the presence of malware.

Lessons learned from this program about avenues of attack and types of malware commonly used will be incorporated into Clean Pipe, offering products for smaller companies, Kohr said.

Initiatives also include an investment by Deutsche Telekom’s venture arm in San Jose, California-based CipherCloud Inc., which allows customers to encrypt data that’s hosted on third-party servers.

Deutsche Telekom may also work with partners to offer clients who purchase security services insurance against breaches, he said.

Deutsche Telekom is spending as much as 4.5 billion euros a year for 2014 to 2016 to improve its broadband infrastructure in Germany. That includes rolling out faster DSL lines to 24 million households through 2016.

The carrier’s revenue from German fixed broadband fell 2.9 percent to 3.2 billion euros in the first nine months of 2013 from the year-earlier period as cable companies such as Vodafone Group Plc (VOD)’s Kabel Deutschland and Liberty Global Plc (LBTYA)’s Unitymedia KabelBW gained market share.

To contact the reporter on this story: Cornelius Rahn in Berlin at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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