Deutsche Telekom is merging parts of T-Systems with its fixed-network services operation T-Com, and will launch two news operations next year.

T-Systems Enterprise Services will take out all the systems integration, computing and desktop services offerings currently provided by T-Systems, built largely around the debis IT services operation that DT acquired from DaimlerChrysler in 2000. The unit will focus on 60 multinational accounts.

T-Systems Business Services will provide network and IT services to 160,000 large and medium-sized accounts, and pools together the operation formerly known as Area Sales Network. Both divisions will continue to operate under the all-encompassing T-Systems brand.

DT said in a statement that the aim of the restructuring is to better position itself to win IT and network outsourcing and business process management deals with multinational accounts, and to win back market share with large and medium-sized business customers.

With annual revenue of 10.6 billion euros ($13.7 billion), T-Systems ranks as Europe’s largest ICT operation but with almost half its revenue coming from its parent organization, it has struggled to achieve profitability and international expansion in recent years.

In the three months ending September 30, 2004, the operation grew profit before interest, tax, depreciation and amortization to 397 million euros ($512 million) from 393 million euros ($507 million) in the year-ago quarter. Revenue fell 1% to 2.56 billion euros ($3.3 billion).

An interesting comparison can be made with the ICT services operations of two of DT’s main rivals, BT Group and Telefonica, which despite similarly low profitability have more momentum than their German counterpart.

BT Global Services increased its EBITDA 10% to 129 million pounds ($238 million) on sales that grew 9% to 1.5 billion pounds ($2.8 billion). The company also announced the $965 million takeover of network services rival Infonet to help drive more large international contracts.

Telefonica’s Data and Service business grew revenue 1.9% to 692.5 million euros ($894 million) in the quarter ending September 30, but within this, its Solutions and Value-Added Services unit grew sales 18.5% to around 180 million euros ($232 million). The business said it now had 169 agreements for outsourced or managed services with its clients.

One of T-Systems’ problems is that is has not significantly reduced its headcount in the last four years, despite a slowdown in demand for new projects, particularly in its domestic market. T-Systems’ headcount stood at just under 40,000 at the end of September, which was down just 7.5% from the 43,000 it had at the end of 2002.

This gives it a revenue per headcount figure of 265,000 euros ($342,000) per employee, which is significantly lower than that of it rivals. BT Global Services (which has around 20,000 employees) has annual sales per headcount of $470,000.

T-Systems has also been slow to tap into low-cost IT services skills in countries such as India. This week, the company announced that it would set up its first development center in Pune, which it aims to grow to a 1,000-employee operation within three years. However, rivals such as BT have been sourcing talent from India for several years, which is helping them to drive down its operating costs.

Deutsche Telekom chairman Kai-Uwe Ricke said that DT is back on track and once again, a completely normal company. The company’s debt is now at a more manageable figure, but the board must be running out of patience with T-Systems. The latest restructuring might not be enough to breathe new life into a business that has failed to come to terms with the downturn in its sector.