Deutsche Telekom’s Defense Pivot and AI Ambitions Clash with Wage Strike as Stock Slides

Deutsche Telekom pivots to defense with Rheinmetall drone protection, expands AI adoption, and considers a T-Mobile US merger while stock slides 15% YTD amid labor unrest.

Deutsche Telekom is quietly reshaping its identity. The Bonn-based telecoms giant has teamed up with arms maker Rheinmetall to develop a “multi-threat protection system” aimed at defending cities and critical infrastructure against drones, sabotage, and hybrid attacks. Unveiled at the AFCEA defence conference, the partnership pairs Rheinmetall’s sensor and effector hardware with Telekom’s cloud computing and real-time data analytics – using passive RF sensors mounted on mobile phone masts to spot drones without emitting detectable signals. CEO Timotheus Höttges has signalled that further defence collaborations are in the pipeline, making this more than a peripheral side project.

The push into security comes as the company doubles down on artificial intelligence. Telekom’s AI chatbot already fielded one million calls in the first quarter, a figure it aims to double by 2026. The group has also taken stakes in startups Perplexity, 11labs and Lovable, betting that in-house adoption beats mere observation. An AI investor day is scheduled for 5 October, where management will showcase applications and their financial impact; Nvidia B200 GPU capacity in Munich is fully booked, serving as a tangible proof point for demand.

Yet for all the strategic ambition, the stock is stuck in neutral. Shares closed Friday at €27.63, down 0.58% on the day, leaving them roughly 5.5% below their 200-day moving average and more than 15% lower year-to-date. The company is using the weakness to buy back stock: in the first week of May alone it repurchased 1.6 million shares for about €45 million at an average price of €27.43, part of a buyback programme that can reach €2 billion by 2026. But the market remains unconvinced – the shares also trail their 50-day average by 8.38%.

Behind the scenes, a more radical restructuring is being considered. According to Bloomberg, Deutsche Telekom is exploring an early-stage merger with T-Mobile US via a joint holding company that would launch a takeover offer for both entities. Höttges declined to comment on the speculation. Politically, such a move would be fraught: the German government and KfW together hold roughly 28% of Telekom’s equity, and any deal that dilutes that stake in critical infrastructure would likely face stiff opposition in Berlin.

Short-term, the biggest weight on the stock is a deepening labour dispute. More than 20,000 employees have taken part in warning strikes since the industrial action began on 28 April, with the peak day on 7 May seeing around 9,000 workers walk out. Union ver.di is demanding a 6.6% pay increase for roughly 70,000 tariff employees. The fourth round of talks – covering some 60,000 staff – is scheduled for 26 and 27 May, after employers tabled a structural offer in the third round that ver.di dismissed as completely inadequate. For the first time, workers at subsidiaries T-Systems and Deutsche Telekom Services Europe have joined solidarity strikes, widening the pressure.

The outcome of those negotiations will shape margins directly; an expensive settlement would eat into the solid operational momentum reflected in the first quarter. Organic group service revenue rose 4.6%, organic EBITDA climbed 7.5%, and adjusted earnings per share were up 8%. Management maintains its full-year guidance of 10% growth. Between the defence narrative, the AI push, the merger talk and the looming wage showdown, Telekom’s shares are caught in a tug-of-war – and the market is still deciding which side will win. The next quarterly report is due in August.