annual200920f.htm
As
filed with the Securities and Exchange Commission on February 25,
2010
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Form 20-F
x ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
fiscal year ended December 31, 2009
Commission
file number 001-14540
Deutsche
Telekom AG
(Exact
Name of Registrant as Specified in its Charter)
Federal
Republic of Germany
(Jurisdiction
of Incorporation or Organization)
Friedrich-Ebert-Allee
140, 53113 Bonn, Germany
(Address
of Registrant’s Principal Executive Offices)
Dr.
Guillaume Maisondieu
Deutsche
Telekom AG
Friedrich-Ebert-Allee
140, 53113 Bonn, Germany
+49-228-181-0
Guillaume.Maisondieu@telekom.de
(Name,
Telephone, E-mail and/or Facsimile number and Address of Company Contact
Person)
Securities
registered or to be registered pursuant to Section 12(b) of the
Act:
|
Title
of each class
|
Name
of each exchange on which registered
|
|
American
Depositary Shares, each representing
one
Ordinary Share
|
New
York Stock Exchange
|
|
Ordinary
Shares, no par value
|
New
York Stock Exchange*
|
Securities
registered or to be registered pursuant to
Section 12(g)
of the Act:
NONE
(Title
of Class)
Securities
for which there is a reporting obligation pursuant to
Section 15(d)
of the Act:
NONE
(Title
of Class)
Indicate
the number of outstanding shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the annual
report:
Ordinary
Shares, no par value: 4,361,319,993 (as of December 31, 2009)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes ý No o
If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.
Yeso No ý
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for
the past 90 days.
Yes ý No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer ý
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Indicate by check mark which basis of accounting the registrant has used to
prepare the financial statements included in this filing:
|
o US
GAAP
|
ý International Financial Reporting
Standards as issued by the International Accounting Standards
Board
|
o
Other
|
If
“Other” has been checked in response to the previous question indicate by check
mark which financial statement item the registrant has elected to
follow.
Item 17
o
Item 18 o
If this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes o Noý
*Not for
trading, but only in connection with the registration of American Depositary
Shares.
|
Item 10.
|
|
171 |
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|
|
171 |
|
|
|
177 |
|
|
|
178 |
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|
180 |
|
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|
180 |
|
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|
183 |
|
Item
11.
|
|
184 |
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|
184 |
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|
184 |
|
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|
185 |
|
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|
186 |
|
Item
12.
|
|
187 |
| |
American
Depositary Shares |
187 |
|
|
|
|
|
|
|
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|
Item
13.
|
|
189 |
|
Item
14.
|
|
189 |
|
Item
15.
|
|
189 |
|
Item
16A.
|
|
191 |
|
Item
16B.
|
|
191 |
|
Item
16C.
|
|
191 |
|
Item
16D.
|
|
192 |
|
Item 16E.
|
|
192 |
|
Item 16F.
|
|
192 |
|
Item 16G.
|
|
193 |
|
|
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|
Item
17.
|
|
196 |
|
Item
18.
|
|
196 |
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|
F-2 |
|
|
|
F-3 |
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F-4 |
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F-5 |
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F-6 |
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F-8 |
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|
F-9 |
|
Item
19
|
|
197 |
DEFINED
TERMS
Deutsche
Telekom AG is a private stock corporation organized under the laws of the
Federal Republic of Germany (the “Federal Republic”). As used in this annual
report on Form 20-F (“Annual Report”), unless the context otherwise
requires, the term “Deutsche Telekom” refers to Deutsche Telekom AG, and the
terms “we,” “us,” “our,” “Company” and “Group” refer to Deutsche Telekom and, as
applicable, Deutsche Telekom and its direct and indirect subsidiaries as a
group.
INTERNATIONAL
FINANCIAL REPORTING STANDARDS
Unless
otherwise indicated, the financial information contained in this Annual Report
has been prepared in accordance with the requirements of the International
Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB).
FORWARD-LOOKING
STATEMENTS
This
Annual Report contains forward-looking statements. Forward-looking statements
are statements that are not historical facts. Examples of forward-looking
statements include statements concerning:
|
·
|
plans,
objectives and expectations relating to future operations, products and
services;
|
|
·
|
our
prospective share of new and existing
markets;
|
|
·
|
plans,
objectives and expectations for our cost savings and workforce reduction
programs and the impact of other significant strategic, labor or business
initiatives, including acquisitions, dispositions and business
combinations, and our network upgrade and expansion
initiatives;
|
|
·
|
the
potential impact of regulatory actions on our financial condition and
operations;
|
· our shareholder
remuneration policy and the payment of dividends and/or conduct of possible
share repurchases;
|
·
|
the
possible outcomes and effects of litigation, investigations, contested
regulatory proceedings and other
disputes;
|
|
·
|
future
general telecommunications sector and macroeconomic growth rates;
and
|
|
·
|
our
future revenues, expenditures and
performance.
|
Forward-looking
statements generally are identified by the words “expect,” “anticipate,”
“believe,” “intend,” “estimate,” “aim,” “plan,” “will,” “will continue,” “seek,”
“outlook,” “guidance” and similar expressions. The “Risk Factors” discussion in
Item 3, the “Management Overview” and “Outlook” discussion in Item 5,
the "Dividend Policy" discussion in Item 8 and the “Quantitative and
Qualitative Disclosures about Market Risk” discussion in Item 11, in
particular, contain numerous forward-looking statements, although such
statements also appear elsewhere in this Annual Report.
Forward-looking
statements are based on current plans, estimates and projections. You should
consider them with caution. Forward-looking statements speak only as of the date
they are made, and we undertake no obligation to update any forward-looking
statement in light of new information or future events. Forward-looking
statements involve inherent risks and uncertainties, most of which are difficult
to predict and are generally beyond our control. We caution you that a number of
important factors could cause actual results or outcomes to differ materially
from those expressed in, or implied by, the forward-looking statements. These
factors include, among others:
|
·
|
changes
in general economic and business conditions, including a continuous
deterioration in the economic environment, in the markets in which we and
our subsidiaries and associated companies
operate;
|
|
·
|
the
level of demand for telecommunications services in the markets we serve,
particularly for wireless telecommunications services, broadband access
lines, voice and data traffic, new higher-value products and services, and
new rate offerings;
|
|
·
|
changes
in government policies and new
legislation;
|
|
·
|
regulatory
developments and changes, including with respect to the levels of tariffs,
terms of interconnection, customer access and international settlement
arrangements;
|
|
·
|
our
ability to secure and retain the licenses needed to offer new and existing
services and the cost of these licenses and related network infrastructure
build-outs, particularly with respect to advanced
services;
|
|
·
|
competitive
forces, including pricing pressures, technological developments and
alternative routing developments, all of which affect our ability to gain
or retain market share and revenues in the face of competition from
existing and new market entrants;
|
|
·
|
the
effects of our customer acquisition and retention initiatives,
particularly in the fixed-line voice telephony business, the mobile
telecommunications business and our interconnection
business;
|
|
·
|
the
effects of industry consolidation on the markets in which we operate,
particularly with respect to our mobile and leased lines
businesses;
|
|
·
|
the
success of new business, operating and financial initiatives, many of
which involve substantial start-up costs and are untested, and of new
systems and applications, particularly with regard to the integration of
service offerings;
|
|
·
|
our
ability to achieve cost savings and realize productivity improvements,
particularly with respect to our workforce-reduction initiatives, while at
the same time enhancing customer service
quality;
|
|
·
|
our
ability to attract and retain qualified personnel, particularly in view of
our cost reduction efforts;
|
|
·
|
concerns
over health risks associated with the use of wireless mobile devices and
other health and safety risks related to radio frequency
emissions;
|
|
·
|
risks
of infrastructure failures or damage due to external factors, including
natural disasters, intentional wrongdoing, sabotage, acts of terrorism or
similar events;
|
|
·
|
the
outcome of litigation, disputes and investigations in which we are
involved or may become involved;
|
|
·
|
risks
and uncertainties relating to the benefits anticipated from our
international expansion, including in the United
States;
|
|
·
|
risks
and costs associated with integrating our acquired businesses and with
selling or combining businesses or other
assets;
|
|
·
|
the
progress of our domestic and international investments, joint ventures,
partnerships and alliances;
|
|
·
|
the
effects of foreign exchange rate fluctuations, particularly in connection
with subsidiaries operating outside the euro
zone;
|
|
·
|
instability
and volatility in worldwide financial
markets;
|
|
·
|
the
availability, terms and deployment of capital, particularly in view of our
financing alternatives, actions of the rating agencies, developments in
the banking sector and the impact of regulatory and competitive
developments on our capital outlays;
and
|
|
·
|
the
level of demand in the market for our debt obligations, and for the debt
obligations of our subsidiaries and associated companies, and our shares,
as well as for assets that we may decide to sell, which may affect our
financing and acquisition
strategies.
|
Certain of these factors are discussed in more detail elsewhere in this Annual
Report, including, without limitation, in Item 3, Item 4 and
Item 5. We caution investors that the foregoing list of important factors
is not exhaustive.
If these
factors or other risks and uncertainties materialize, or if the assumptions
underlying any of these statements prove incorrect, our actual performance and
future actions may materially differ from those expressed or implied by
forward-looking statements. We can offer no assurance that our estimates or
expectations will be achieved or that we will be able to achieve our policy
aims. When reviewing forward-looking statements contained in this
document, investors and others should carefully consider the foregoing factors,
as well as other uncertainties and events and their potential impact on our
operations and businesses.
Certain
information in this Annual Report has been provided by external sources. Due to
the rapid changes in our industry, it is possible that some of this information
is no longer accurate. Assessments of market share in particular involve the use
of information released or estimated by regulatory authorities, our competitors,
third parties or us.
World
Wide Web addresses contained in this Annual Report are for explanatory purposes
only and they (and the content contained therein) do not form a part of,
and are not incorporated by reference into, this Annual Report.
PART
I
Not
applicable.
Not
applicable.
The
following table presents selected consolidated financial and operating
information. This selected consolidated financial and operating information
should be read together with “Item 5. Operating and Financial Review and
Prospects” and our Consolidated Financial Statements and the notes thereto that
are included elsewhere in this Annual Report.
The
selected consolidated financial information as of and for each of the five years
ended December 31, 2005 through 2009 are extracted or derived from our
consolidated financial statements and the notes thereto, which have been audited
by Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft (“E&Y”) and
PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft
(“PwC”).
Selected
Consolidated Financial Data of the Deutsche Telekom Group
|
|
|
%
Change
2009/2008(1)(2)
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(billions
of €, except as otherwise indicated)
|
|
|
Income
Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
|
4.8 |
|
|
|
64.6 |
|
|
|
61.7 |
|
|
|
62.5 |
|
|
|
61.3 |
|
|
|
59.6 |
|
|
Domestic
|
|
|
(2.9 |
) |
|
|
28.0 |
|
|
|
28.9 |
|
|
|
30.7 |
|
|
|
32.4 |
|
|
|
34.2 |
|
|
International
|
|
|
11.6 |
|
|
|
36.6 |
|
|
|
32.8 |
|
|
|
31.8 |
|
|
|
28.9 |
|
|
|
25.4 |
|
|
Profit
from operations
|
|
|
(14.6 |
) |
|
|
6.0 |
|
|
|
7.0 |
|
|
|
5.3 |
|
|
|
5.3 |
|
|
|
7.6 |
|
|
Profit
attributable to owners of the parent
|
|
|
(76.2 |
) |
|
|
0.4 |
|
|
|
1.5 |
|
|
|
0.6 |
|
|
|
3.2 |
|
|
|
5.6 |
|
|
Statement
of Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
3.8 |
|
|
|
127.8 |
|
|
|
123.1 |
|
|
|
120.7 |
|
|
|
130.2 |
|
|
|
128.5 |
|
|
Total
financial liabilities (in accordance with the consolidated statement of
financial position)
|
|
|
9.9 |
|
|
|
51.2 |
|
|
|
46.6 |
|
|
|
42.9 |
|
|
|
46.5 |
|
|
|
46.7 |
|
|
Shareholders’
equity
|
|
|
(2.7 |
) |
|
|
41.9 |
|
|
|
43.1 |
|
|
|
45.2 |
|
|
|
49.7 |
|
|
|
48.6 |
|
|
Cash
Flow Data(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash from operating activities
|
|
|
2.8 |
|
|
|
15.8 |
|
|
|
15.4 |
|
|
|
13.7 |
|
|
|
14.2 |
|
|
|
15.1 |
|
|
Net
cash used in investing activities
|
|
|
24.0 |
|
|
|
(8.6 |
) |
|
|
(11.4 |
) |
|
|
(8.1 |
) |
|
|
(14.3 |
) |
|
|
(10.1 |
) |
|
Net
cash used in financing activities
|
|
|
(65.4 |
) |
|
|
(5.1 |
) |
|
|
(3.1 |
) |
|
|
(6.1 |
) |
|
|
(2.1 |
) |
|
|
(8.0 |
) |
|
Ratios
and Selected Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
to intangible assets (including goodwill) and property, plant and
equipment
|
|
|
13.3 |
|
|
|
11.5 |
|
|
|
10.1 |
|
|
|
9.1 |
|
|
|
13.4 |
|
|
|
11.1 |
|
|
Capital
expenditures(3)
|
|
|
(5.7) |
|
|
|
(9.2 |
) |
|
|
(8.7 |
) |
|
|
(8.0 |
) |
|
|
(11.8) |
|
|
|
(9.3) |
|
|
Number
of employees averaged over the year (full-time employees excluding
trainees) (thousands)
|
|
|
9.7 |
|
|
|
258 |
|
|
|
235 |
|
|
|
244 |
|
|
|
248 |
|
|
|
244 |
|
|
Revenues
per employee (thousands of euro)(4)
|
|
|
(4.5 |
) |
|
|
250.8 |
|
|
|
262.5 |
|
|
|
256.5 |
|
|
|
246.9 |
|
|
|
244.3 |
|
|
Earnings
per share/ADS—basic and diluted euro)(5)
|
|
|
(76.5 |
) |
|
|
0.08 |
|
|
|
0.34 |
|
|
|
0.13 |
|
|
|
0.74 |
|
|
|
1.31 |
|
|
Weighted
average number of ordinary shares outstanding (basic)
(millions)
|
|
|
0.0 |
|
|
|
4,340 |
|
|
|
4,340 |
|
|
|
4,339 |
|
|
|
4,353 |
|
|
|
4,335 |
|
|
Total
number of ordinary shares at the reporting date (millions)
|
|
|
0.0 |
|
|
|
4,361 |
|
|
|
4,361 |
|
|
|
4,361 |
|
|
|
4,361 |
|
|
|
4,198 |
|
|
Dividend
per share/ADS (euro)(5)(6)
|
|
|
0.0 |
|
|
|
0.78 |
|
|
|
0.78 |
|
|
|
0.78 |
|
|
|
0.72 |
|
|
|
0.72 |
|
|
Dividend
per share/ADS (U.S. dollar)(5)(6)(7)
|
|
|
2.8 |
|
|
|
1.12 |
|
|
|
1.09 |
|
|
|
1.21 |
|
|
|
0.98 |
|
|
|
0.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Percentage
change based on figures expressed in
millions.
|
|
(2)
|
In
this Annual Report, increases in the size of negative numbers are
expressed in percentage terms with negative percentage amounts, and
decreases in the size of negative numbers are expressed with positive
percentage amounts.
|
|
(3)
|
In
accordance with the statement of cash
flows.
|
|
(4)
|
Calculated
on the basis of the average number of employees for the year, excluding
trainees, apprentices and student
interns.
|
|
(5)
|
ADS
refers to the Deutsche Telekom’s American Depositary Shares, which are
traded on the New York Stock Exchange, NYSE. One ADS corresponds to one
ordinary share of Deutsche Telekom
AG.
|
|
(6)
|
Dividends
per share are presented on the basis of the year in respect of which they
are declared, not the year in which they are paid. The proposed 2009
dividend per share amounts are subject to approval by the shareholders at
the annual shareholders’ meeting.
|
|
(7)
|
Dividend
amounts have been translated into U.S. dollars (using exchange rates
published by the European Central Bank) for the relevant dividend payment
date, which occurred during the second quarter of the following year,
except for the 2009 amount, which has been translated using the applicable
rate on December 31, 2009. As a result, the actual U.S. dollar amount
at the time of payment may vary from the amount shown
here.
|
Exchange
Rates
Unless
otherwise indicated, all amounts in this Annual Report are expressed in
euros.
As used
in this document, “euro,” “EUR” or “€” means the single unified currency that
was introduced in the Federal Republic and ten other participating Member States
of the European Union on January 1, 1999. “U.S. dollar,” “USD” or “$” means
the lawful currency of the United States. “Pound sterling” or “GBP” means the
lawful currency of the United Kingdom.
So that
you may more easily ascertain how the trends in our financial results might have
appeared had they been expressed in U.S. dollars, the following table shows, for
the periods indicated, the average, high and low exchange rates for euros,
expressed in U.S. dollars per EUR 1.00, as published by the European
Central Bank:
|
Year
or Month
|
|
Average
(1)
|
|
|
High
|
|
|
Low
|
|
|
|
|
(in
$ per €)
|
|
|
2005
|
|
|
1.2380 |
|
|
|
|
|
|
|
|
2006
|
|
|
1.2630 |
|
|
|
|
|
|
|
|
2007
|
|
|
1.3797 |
|
|
|
|
|
|
|
|
2008
|
|
|
1.4726 |
|
|
|
|
|
|
|
|
2009
|
|
|
1.3963 |
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
August
|
|
|
- |
|
|
|
1.4410 |
|
|
|
1.4072 |
|
|
September
|
|
|
- |
|
|
|
1.4783 |
|
|
|
1.4220 |
|
|
October
|
|
|
- |
|
|
|
1.5020 |
|
|
|
1.4537 |
|
|
November
|
|
|
- |
|
|
|
1.5083 |
|
|
|
1.4658 |
|
|
December
|
|
|
- |
|
|
|
1.5120 |
|
|
|
1.4276 |
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
- |
|
|
|
1.4563 |
|
|
|
1.3966 |
|
|
February
(through February 23)
|
|
|
- |
|
|
1.3984
|
|
|
1.3519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
average of the exchange rates on the last business day of each month
during the relevant period.
|
On
February 23, 2010, the exchange rate was USD 1.377 per
EUR 1.00.
Our
shares trade on German stock exchanges, including the Frankfurt Stock Exchange,
in euros. Fluctuations in the exchange rate between the euro and the U.S. dollar
will affect the U.S. dollar equivalent of the euro price of the shares on the
German stock exchanges and, as a result, are likely to affect the market price
of our ADSs on the New York Stock Exchange. When we declare cash dividends, they
are declared in euros, and exchange rate fluctuations affect the U.S. dollar
amounts you would receive if you are a holder of American Depositary Receipts
(ADRs) evidencing ADSs upon conversion of cash dividends on the shares
represented by your ADSs.
In
addition to the other information contained in this Annual Report, investors in
our securities should carefully consider the risks described below. Our
financial condition or results of operations, or the trading prices of our
securities, could be materially adversely affected by any of these
risks.
The
following discussion contains a number of forward-looking statements. Please
refer to the “Forward-Looking Statements” discussion at the front of this Annual
Report for cautionary information.
An
economic downturn, a substantial slowdown in economic growth or deterioration in
consumer spending could adversely affect our customers’ purchases of our
products and services in each of our operating segments, which could have a
negative impact on our operating results and financial condition.
Our
business is influenced by general economic conditions in Germany, Europe and the
United States. The economic outlook for 2010 signals a slight recovery,
including in our largest markets in Europe and the United States, but the global
economic situation remains fragile.
A
continuous deterioration in the economic environment could have an adverse
effect on the level of demand by our individual customers for our products and
services and the willingness of our business customers to invest in information
and communications technology (ICT). This could, in turn, jeopardize the
attainment of our growth targets, such as those relating to multimedia services
in mobile telecommunications, or those relating to broadband products and
services based on digital subscriber line (DSL) technology.
Because
we operate in heavily regulated business environments, decisions that regulatory
authorities impose on us restrict flexibility in managing our business and may
force us to offer services to competitors, or reduce the prices we charge for
our products and services, either of which could have a material negative impact
on our revenues, profits and market shares.
We are
subject to strict regulation in all of our fixed-line and mobile markets in
Europe and the United States. Government agencies regularly intervene in the
offerings and in the pricing of our fixed-line and mobile products and services.
Regulation can impede our ability to grow and to react to the initiatives of
competitors and technological change.
Amendments
to the EU Telecommunications Framework entered into force on December 17, 2009.
Whether the revised regulatory framework will increase or decrease the
regulatory burden on us will depend on the manner in which revised directives
are subsequently implemented in the EU Member States, and how the revised
regulatory framework will be applied by the respective National Regulatory
Authorities.
In June
2009, the European Commission also proposed a draft recommendation on regulated
access to Next Generation Access Networks, or NGA, such as access to new and
existing ducts, civil engineering structures and other elements which are not
active and necessary for the roll-out of fiber-based telecommunications
infrastructure. The objective of the recommendation is to regulate fiber-based
telecommunications infrastructure and access. If this recommendation is
implemented as currently drafted may cause a decrease in our revenues and may
impact the extent and timing of our NGA build-out.
The
German telecommunications regulatory framework implemented by the Federal
Network Agency (Bundesnetzagentur) has an
especially significant impact on our domestic business. So far, we have been
exempted from regulation on the basis of a loss of significant market power in
markets of relatively minor importance only, such as the market for fixed-line
international calls.
Additionally,
since we are offering mobile and fixed-line triple-play services (“triple-play”
includes high-speed Internet access, communications services and entertainment
offerings), media regulation may become increasingly important to our business.
This regulation might restrict our ability to provide media services, including
the delivery of content, and could also result in additional costs for technical
implementation measures needed to comply with increased regulation.
Mobile
Telecommunications Operations
Regulatory
authorities supervise our mobile telecommunications operations in the countries
in which we operate. We expect a tightening of regulatory control in the area of
mobile telecommunications, with a probable negative effect on pricing and
revenues, for example as a result of further reductions in international roaming
charges for the wholesale and retail voice market, international data and SMS
roaming charges, call termination charges and possible access regulation in some
markets. In Europe, national regulatory authorities and various EU bodies have
the power to regulate based on market investigations or reviews.
With
respect to international roaming charges for the wholesale and retail voice
market, a European Union-wide regulation, valid until June 2010, is presently in
place. On July 1, 2009, a new EU roaming regulation came into force and expanded
the existing regulation to non-voice roaming services until June 30, 2012.
Besides additional reduction of wholesale and retail voice roaming tariffs, SMS
roaming charges were reduced and furthermore, price caps for wholesale data
roaming tariffs and additional transparency measures have been introduced. This
expansion of existing regulation has an additional negative effect on our
roaming revenues.
Mobile
call termination charges are also subject to regulatory measures in countries
with mobile telecommunications operations that can have a negative effect on
revenues. Various reviews of call termination rates and court proceedings
relating to regulatory measures are pending in several of those markets. The
European Commission intends to further reduce the termination rates
significantly and has therefore issued a recommendation that defines details for
the calculation of termination rates by the National Regulatory Authorities. The
recommendation neglects significant parts of the costs of mobile operators in
the termination rate calculation. Despite these serious negative consequences
for the mobile industry the recommendation was adopted in May 2009. If the
European Commission were to further reduce termination rates, it may have an
adverse effect on the profitability of our mobile-telecommunications operations
in Europe.
Our
operations in the United States are regulated primarily by the Federal
Communications Commission (FCC) and by various other federal, state and local
governmental agencies. These governmental agencies may also exercise
jurisdiction over mobile telecommunications operators. The FCC is continually
considering whether to establish new rules and policies, many of which, if
implemented could impose significant costs and burdens on our business. The most
significant areas of concern include whether the FCC makes available additional
spectrum for next generation wireless offerings in a reasonable timeframe and
ensures that existing spectrum holdings remain free and clear of any radio
interference concerns. The FCC is also considering imposing new “net neutrality”
regulations on wireless carriers that could, depending on how they are defined,
restrict a carrier’s ability to manage its network. In addition, many state and
local governments regulate various aspects of wireless operations, affecting our
business practices and the carrier-customer relationship. In
particular, consumer regulation at the federal or state level can impact a
variety of carrier practices in this area including for example early
termination fees, trial periods, billing practices and marketing. Any state or
federal regulation could have a potentially adverse effect on our mobile
telecommunications business in the United States, as would any failure to comply
with applicable regulations. Some U.S. states have taken actions to regulate
various aspects of wireless operations including customer billing, termination
of service arrangements and advertising. Any of those agencies could adopt
regulations or take other actions that could adversely affect our business. If
we fail to comply with applicable regulations, we may be subject to sanctions,
which may have an adverse effect on our mobile telecommunications business in
the United States.
Fixed-Network
Operations
We
believe that, for the foreseeable future, the Federal Network Agency is likely
to consider us a provider with significant market power in various German
markets for public voice telephony services in the fixed-line network and in
other markets, including most of those in which we held monopoly rights in the
past. Access and price regulation apply primarily to telecommunications services
that are considered to involve an operator with "significant market power." As a
result, we expect that the strict regulatory provisions of the German
Telecommunications Act relating to providers with significant market power will
continue to be applied to our activities in those markets. Considering that in
many markets our competitors are unlikely to gain significant market power in
the near future, we expect that we will have to compete in important markets
with providers not subject to these regulatory obligations. Therefore, these
competitors may be expected to have more flexibility than we have in terms of
the types of services offered and customers served, pricing and the granting of
network access.
We are
required to offer an Internet Protocol (IP) Bitstream Access product in the
wholesale-market and are therefore required to offer unbundled broadband access
to competitors since April 2008. According to the key elements of the draft
market analysis and regulatory order on bitstream access published on October
21, 2009, the Federal Network Agency intends to rely on ex-post regulation but
will expand the scope of regulation to include all wholesale bitstream access
products, including also new VDSL wholesale services and including the transfer
of traffic to a minimum of one point of presence (PoP) whereas until today, a
carrier must connect to 73 PoP in order to provide BSA-based retail services on
a nationwide basis. The final adoption of this market analysis and regulatory
order is expected in the first quarter of 2010.
According
to a regulatory order, we must grant access to competitors to ducts and
street cabinets. The replication of VDSL products, in particular by our
competitors using their own infrastructures, is therefore being made easier at
our expense. This will have a negative impact on our revenue and results of
operations, even if we offer our competitors a VDSL product on a voluntary
basis. The Federal Network Agency specified the obligations concerning access to
cable ducts, dark fiber and co-location within street cabinets on December 4,
2009. We applied for corresponding tariffs in mid-January 2010 and expect a
decision in the first quarter of 2010 regarding prices relating to access
to ducts and collocation within the street cabinets.
We are
involved in a number of pending legal proceedings regarding decisions of the
Federal Network Agency that concern access charges relating to the local loop.
Unbundled local loop charges for monthly rental, as determined by the Federal
Network Agency for the period from February 1999 to March 2001, were revoked.
The Court criticized the Federal Network Agency’s calculation method for
unbundled local loop costs. The Court ruling concerning unbundled local loop
charges for the period from 1999 to 2001 became effective in October 2009. As a
result, the Federal Network Agency must now decide again on our rate approval
applications of 1999. Unbundled local loop charges for monthly rental as well as
for one-off services, as determined by the Federal Network Agency for the period
April 2001 to March 2003, were also revoked by the Cologne Administrative Court.
These rulings are not yet effective due to pending claims of the Federal Network
Agency and Deutsche Telekom at the German Federal Administrative Court. It is
not possible at present to estimate whether these decisions will require
Deutsche Telekom to make payments or price adjustments and if so, in what
amount.
Our
fixed-line subsidiaries in Southern and Eastern Europe are subject to regulatory
provisions and risks that are similar to those affecting our fixed-line
operations in Germany. For example, we are designated an operator with
significant market power in most fixed-line markets in which we operate,
including in Hungary, Slovakia, Croatia and Greece. The provision of
telecommunications services in Greece is subject to regulation based on European
Union legislation, competition law and ex-ante sector-specific regulation
transposed in 2006 in the Greek Telecommunications Law. A second round of
analysis of the markets for wholesale broadband access and wholesale (physical)
network infrastructure access (including shared or fully unbundled access) at a
fixed location was concluded by in the Greek NRA in July 2009. The Greek NRA
defined the Hellenic Telecommunications Organization S.A., (" OTE") as
having significant market power and imposed additional
obligations. The business impact of increased regulation on our
subsidiaries in Southern and Eastern Europe will depend on the way in which
national regulatory authorities use their powers, and the extent to which our
competitors take advantage of regulatory decisions designed to foster increased
competition.
For
further information regarding the matters discussed above and other aspects of
the regulatory environments to which our businesses are subject, see “Item 4.
Information on the Company – Regulation” and “Item 8. Financial Information –
Legal Proceedings.”
We face
intense competition in all areas of our business, which could lead to reduced
prices for our products and services and a decrease in market share in certain
service areas, thereby adversely affecting our revenues and net
profit.
Germany
In
Germany, fixed-line network voice telephony service revenues and prices have
continued to decline, primarily due to intense competition and adverse decisions
imposed by the national regulation authorities, and also due to customers’
ongoing substitution of mobile telecommunications and VoIP services for
fixed-line usage.
Due to
competitive pressures from cable operators, mobile operators and fixed-line
carriers, we continued to lose market share in 2009. We expect a further
increase in competition from cable operators, in particular, offerings of
product bundles for telephone and broadband access lines, which are increasingly
offered in more regions throughout Germany. Furthermore, the switch of mobile
operators’ focus from pure mobile services towards fixed-line offerings,
regulatory actions by the Federal Network Agency and the increasing quality and
acceptance of VoIP services will increase pressure on our market shares,
revenues and margins.
Additional
local and regional network operators are expanding their presence to include
other major cities and regions. In the future, we could face even fiercer
competition and lose further market share if our competitors were to combine
their businesses.
Existing
mobile substitution effects are intensified by the proliferation of MVNOs.
Reduced prices for mobile telecommunications services (e.g., on the basis of
lower flat rates without call-based charges and regulatory decisions regarding
mobile telephony termination rates) could further increase pricing pressure on
our fixed-line services. Furthermore, mobile operators are increasingly engaging
in reselling DSL product bundles provided by other fixed-line operators, and
this continues to have an adverse effect on our fixed-line network
revenues.
The
German markets for Internet access and portal services, especially within the
broadband market, have been, and will continue to be, highly competitive and are
increasingly saturated. Prices for broadband flat rates have been steadily
declining. Our future competitive position in the broadband/fixed-network
business in Germany will be affected by pricing, network speed and reliability,
services offered, customer support and its ability to be technologically adept
and innovative. The regulatory environment can also exert a significant
influence on the level of competition. We expect that our competitors will
continue to pursue new broadband customers aggressively. In the market for
portal services and content, competition is also intense due to low barriers to
entry. In addition, a weaker economy may increase pressure on our revenues and
margins in these markets. Furthermore, recent regulatory decisions have required
us to offer to our competitors an IP Bitstream Access product, which enables our
competitors to expand their operations throughout Germany without building their
own infrastructure.
Part of
the challenge in the fixed-network business in Germany continues to be the
improvement of our reputation for customer service while implementing
cost-saving measures. If we do not continue to improve our customer service
sustainably, there is a risk that we might not stop our overall continuing loss
of fixed-network customers in the German market.
Competition
in the German mobile telecommunications segment with established players such as
Vodafone, E-Plus and O2 is intensive and can be expected to increase further in
the future. Growing competition is also fostered by resellers and “no-frills”
operators, offering discount rates without significant minimum-contract term
obligations. With our “Congstar” brand, we also participate in this market,
primarily as a measure to prevent churn from our established “T-Mobile” premium
brand.
In terms
of the mobile share of “total telecommunications minutes”, Germany consistently
lags behind the European average. Although the number of “mobile minutes” is
still growing in Germany, the respective growth rates are constantly declining
since early 2008. This makes it all the more difficult to compensate price
declines by higher usage.
As the
German market for mobile telecommunications has become increasingly saturated
(we believe the overall penetration rate to be well above 100%), the focus of
competition has been shifting from customer acquisition to customer retention,
and increasing the quality and value of existing customers. Accordingly, if we
are unable to offer increased quality and better value to our customers, our
market share and revenues may not grow as we have anticipated in our
plans.
United
States
In the
United States, each of T-Mobile USA’s three main national competitors –
AT&T, Verizon Wireless and Sprint/Nextel – is significantly larger than
T-Mobile USA. Their scale could afford them significant structural and
competitive advantages in this market. This situation presents T-Mobile USA with
a long-term challenge to compete effectively in terms of pricing, products,
coverage and the introduction of new technologies and services. Intense
competition from various regional and other small national operators also exists
in T-Mobile USA’s markets. Partly, these competitors operate on alternative
business models within the traditional wireless space that pose potential to
negatively affect T-Mobile USA’s ability to attract and retain customers, such
as low-cost unlimited prepaid offerings (offered by, e.g., regional carriers
Leap and MetroPCS, as well as Boost).
In
addition to traditional competitors, the entrance and influence of non-wireless
carriers, such as manufacturers, service providers and cable providers, could
cause further pressure on the wireless industry and T-Mobile USA.
The
incumbent wireless industry is experiencing disruptive innovation on many
fronts. For example, Apple transformed the device market with the launch of the
iPhone, and Clearwire hopes to transform the market with fixed mobile
convergence. As wireless networks open in response to consumer demand
(and threatened legislative/regulatory actions) and diverse industries converge
on the wireless communications industry, the era of limited choices (walled
gardens controlled by incumbent wireless carriers) will increasingly shift to a
new era of an abundance of options in devices, providers, and
services. This dynamic environment poses opportunity for companies
who identify and recognize opportunities within the threats, although a
significantly higher level of inherent risk comes with dynamism than with a
stable industry landscape.
Despite
the continued difficult economic context, the wireless industry is faring better
than most industries (wireless spending is becoming less discretionary in the
U.S.), but the industry is not immune from the cost-reduction efforts of
consumers and changes in consumer credit-worthiness. As the overall
drop in customer growth intensifies, and price competition also in
the Contract area becomes more perceptible, a comprehensive 3G coverage and
attractive “smartphone” offerings will be key to T-Mobile USA’s sustained
commercial success.
Since
T-Mobile USA is a significant contributor to our overall revenues and customer
growth, a further slowdown or decline in the business of T-Mobile USA could have
a material adverse effect on the attainment of the growth targets and
profitability of our Group as a whole.
Europe
Competition
in the European mobile telecommunications markets run by our Europe operating
segment is intense and can be expected to increase in the future. Growing
competition results, in part, from the market entry of low cost carriers, such
as mobile virtual network operators, or MVNOs, which use the networks of other
operators at volume discounts, and from market consolidation. If prices for
mobile telecommunications services continue to decline through competition
and/or regulation more than anticipated and this decline is not compensated for
by higher usage, planned objectives may not be achieved. In addition, mobile
network operators’ expansion of product offerings into the fixed-line sector may
result in a competitive disadvantage for our mobile telecommunications
operations in countries in which we offer only mobile communications services.
Moreover, technologies such as W-LAN, WiMax and Voice over Internet Protocol
(VoIP), which can be used with existing hardware and platforms, could drive
voice and data traffic from mobile networks, which could lead to significant
price and revenue reductions.
As
European markets have become increasingly saturated, the focus of competition
has been shifting from customer acquisition to customer retention, and
increasing the quality and value of existing customers. Accordingly, if we are
unable to offer increased quality and better value to our customers, our market
share and revenues may not grow as we have anticipated in our
plans.
Southern
and Eastern Europe
Through
our investments in OTE, our subsidiary in Greece, and Magyar Telekom, our
subsidiary in Hungary, and our subsidiaries Hrvatski Telekom and Slovak Telekom,
we have market presence in various countries of the Southern and Eastern
European region, offering integrated or either mobile or fixed-network
telecommunications services.
All of
our Southern and Eastern European companies face intense competition and
difficult economic conditions. As in other operating segments, growing
competition results, to a different extent in each regional market, from the
market entry of alternative carriers (such as Cable TV operators) or low cost
carriers (such as MVNOs), technology shifts (such as IP-based telecommunications
networks) and from market consolidation.
In
Greece, risk exists in the area of infrastructure roll-out, including VDSL and
FTTX. The Greek government announcement an initiative to support a passive
optical network across Greece that would provide open access to all
fixed-network providers and, as a result, increase competition. The impact of
this development on OTE and the related financial risk to us cannot be
quantified at this point.
Systems
Solutions
Our
Systems Solutions business is subject to risks associated with the general and
regional economies of its customers and the willingness and ability of its
customers to invest in information and communications technology services and
products. The ICT market is shaped by long sales cycles, severe competition and
declining prices. The result is downward pressure on revenues and margins, which
has been exacerbated by the global economic crisis.
Depending
on the economic development and their impact on our customers in 2010, T-Systems
will continue to be affected. For example, cost-cutting programs and
postponement or cancellation of investments of our customers can have a negative
impact on T-System’s revenues and margins. In this business environment, further
cost reductions will force T-Systems to rely on the development of lower cost
near- and off shore capacities in both IT Outsourcing and the System Integration
business.
In
addition, the international growth potential of T-Systems may be constrained by
its limited brand recognition in some national markets, at least compared to
that of competitors who may be more established there, particularly as this
relates to maintaining and increasing business with multinational companies
outside of Germany. Additionally the relatively small size of some international
T-Systems units may require expensive additional management resources from
Germany.
If
T-Systems’ focus on multinational customers and its service offerings, such as
dynamic SAP services or Cloud Computing are not successful, T-Systems may lose
market share to its competitors, suffer reduced revenues and incur
losses.
For more
information, see “Item 4. Information on the Company – Description of
Business.”
We
may realize neither the expected level of demand for our products and services,
nor the expected level or timing of revenues generated by those products and
services, as a result of lack of market acceptance, technological change or
delays from suppliers, which could adversely affect our cash flows.
There is
a risk that we will not succeed in making customers sufficiently aware of
existing and future value-added services or in creating customer acceptance of
these services at the prices we would want to charge. There is also a risk that
we will not identify trends correctly, or that we will not be able to bring new
services to market as quickly or price-competitively as our competitors. These
risks exist, in particular, with respect to our anticipated future growth
drivers in the mobile telecommunications area, such as mobile data services or
other advanced technologies (which are supported by advanced “smartphone”
products such as the iPhone and the T-Mobile G1 phone), and in the fixed-line
telecommunications area, such as triple-play services, which include telephone,
Internet and television services.
Under the
“Entertain” product name, we provide our customers in Germany with comprehensive
triple-play offerings. The market acceptance for these new products and services
could be negatively affected by an unwillingness to pay for additional features.
Since the content and technology of the product are very complex, we may find it
difficult to convey an understanding of the product’s benefits to our customers
via our traditional sales channels. In addition, some of our competitors offer
similar or pared-down products. These factors could lead to a potential
reduction of the perceived value of “Entertain” to our customers with adverse
effects on our pricing models, revenues and profit margins.
Further,
as a result of rapid technological progress, and the trend towards technological
convergence, there is a danger that new and established information and
telecommunications technologies or products may not only fail to complement one
another, but in some cases may even substitute for one another. An example of
this is VoIP, a technology that is already established in the business customer
market. VoIP has now reached the consumer market as well and, as a technology
that competes directly with traditional fixed-line telephony services, VoIP has
the potential to reduce further our market share and revenues in our fixed-line
business. The introduction of mobile handsets with VoIP functionality may also
adversely affect our pricing structures and market share in our mobile voice
telephony business. If we do not appropriately anticipate the demand for new
technologies, and adapt our strategies and cost structures accordingly, we may
be unable to compete effectively, with the result that our business activities,
financial condition and results may suffer.
For more
information, see “Item 4. Information on the Company—Description of
Business.”
Some
of our investments (such as in new spectrum licenses) to develop future products
and services may involve substantial cash outlays with no certainty of market
acceptance or regulatory non-interference with license
requirements.
In 2010,
the German Federal Network Agency is set to auction off certain recently
released radio frequencies. The terms and conditions for the award of new
spectrum in the 800 MHz, 1.8 GHz, 2 GHz, and 2.6 GHz bands were published in
October 2009. In the United Kingdom, current proposals call for
a combined auction of 800 MHz and 2.6 GHz spectrum in late 2010
with certain bidding restrictions, such as spectrum caps for incumbents and
joint ventures, release of spectrum already held by mobile telecommunications
companies and wholesale and coverage obligations. In the Netherlands, parliament
began the discussion of new rules for the auction of 2.6 GHz spectrum in spring
2009, and it is officially still expected to take place in the first quarter of
2010. In Austria, an auction for 2.6 GHz spectrum is now expected to take place
in the second quarter of 2010. Depending on the outcome of these auctions, a
greater cash outlay than anticipated may be necessary to gain new spectrum in
these countries, which would negatively affect our cash-flow generation
goals.
There is
a risk that the return on our investments, in particular in new spectrum
licenses and network infrastructure, may negatively deviate from our plans. In
addition to the negative impact on our cash flows, this could result in
significant write-downs of the value of spectrum or other licenses or other
network-related investments.
Should we
face a continuously deteriorating economic climate, we may decide, or be
required, to scale back capital expenditures. We believe that we have
flexibility in terms of the amount and timing of our capital expenditure
program, but a lasting reduction in capital expenditure levels below certain
thresholds could affect our future growth, in particular in our mobile
operations.
Failure
to achieve our planned reduction and restructuring of personnel or our human
resources-related cost-savings goals could negatively affect our reputation and
the achievement of our financial objectives and profitability.
Staff
restructuring within the Deutsche Telekom Group in Germany continued on a
socially conscious basis in 2009. It was implemented essentially by means of
voluntary redundancies, partial and early retirement, and employment
opportunities for civil servants and employees offered by Vivento, especially in
the public sector. We will also continue to restructure our workforce as
required. If it is not possible to implement the corresponding measures to the
extent planned or not at all, this may have negative effects on our financial
targets and profitability.
Deutsche
Telekom and employee representatives agreed to 3,000 job cuts at T-Systems by
2010. The agreement incorporates a series of measures, including help in
searching for new jobs, a voluntary redundancy program and early retirement
options. In the first quarter of 2010, T-Systems will examine the level of
take-up for the voluntary offers. If the affected employees have not found
alternative employment opportunities or accepted voluntary offers by then, they
will be offered fixed-term employment in a transitional company. Should the
desired workforce reduction targets not be met, compulsory redundancies, which
could have a negative impact on our corporate reputation in Germany, cannot be
ruled out.
The
successful realization of our ongoing staff reduction program depends on a range
of factors that are beyond our control, such as the continued successful sale of
non-core businesses, general developments in the labor market, the demand for
our retrained labor force, and the level of acceptance of the various severance
offers and other voluntary reduction measures. If the planned staff reduction
targets are not achieved, this would have a negative effect on our operating
expenses and profitability.
For more
information, see “Item 4. Information on the Company—Description of
Business—Group Headquarters and Shared Services” and “Item 6. Directors, Senior
Management and Employees—Employees and Labor Relations—Other
Employees.”
As
a result of dispositions of certain non-core businesses in Germany, there is an
increased risk of return of civil servants transferred out of the Group, which
could have a negative impact on our staff and cost reduction
objectives.
Our
employees who have civil servant status can, based on German civil service law,
only be completely transferred to the buyer of a business from us in exceptional
cases. Therefore, as a general matter, such transferred civil servants are
placed on leave of absence while employed with the transferred business unit.
Accordingly, in the event of termination of employment with the transferred
business unit, there is a risk that such civil servants will return to the
Deutsche Telekom Group. This risk of return can be reduced by an agreement on
compensation payments, but it cannot be completely eliminated. As of December
31, 2009, the total number of civil servants that can avail themselves of this
right of return to the Deutsche Telekom Group was 3,467, which represented a
considerable decrease over the 2008 year-end figure, chiefly as a result of some
400 civil servants actually returning to the Deutsche Telekom Group from
Strabag, Nokia Siemens Networks and the cable network operators.
If
further Group units employing civil servants are disposed of, the risk of
additional civil servants returning after the end of their temporary leave may
again increase. For
further information regarding civil servants and general human resources-related
matters, see “Item 6. Directors, Senior Management and Employees—Employees and
Labor Relations.”
Alleged
health risks of wireless communications devices have led to litigation affecting
markets with our mobile telecommunications operations subsidiaries, and could
lead to decreased wireless communications usage or increased difficulty in
obtaining sites for base stations and, as a result, adversely affect the
financial condition and results of operations of our wireless services
business.
Media
reports have suggested that radio frequency emissions from wireless mobile
devices and cell sites may raise various health concerns, including cancer, and
may interfere with various electronic medical devices, including hearing aids
and pacemakers. Research and studies are ongoing. The World Health Organization
has indicated that it will publish its recommendations for public policy in its
Radio Frequency Environmental Health Criteria in 2011. However, on the basis of
current scientific knowledge, there are no known adverse effects on health from
emissions at levels below internationally recognized health and safety
standards. We cannot provide assurance that research in the future will not
establish links between radio frequency emissions and health risks.
Whether
or not such research or studies conclude there is a link between radio frequency
emissions and health, popular concerns about radio frequency emissions may
discourage the use of wireless devices and may result in significant
restrictions on the location and operation of cell sites by our mobile
telecommunications subsidiaries and the usage of T-Home’s wireless devices,
telephones or products using wireless technology. Such restrictions on use could
have material adverse effects on our results of operations.
T-Mobile
USA is subject to current and potential litigation relating to these health
concerns. Several class action and individual lawsuits have been filed in the
United States against T-Mobile USA and several other wireless service operators
and wireless telephone manufacturers, asserting product liability, breach of
warranty and other claims relating to radio frequency transmissions to and from
wireless mobile devices. The complaints seek substantial monetary damages as
well as injunctive relief. To date, the cases filed against T-Mobile USA have
been dismissed by the trial courts, although one class action case is pending on
appeal. The defense of lawsuits alleging adverse health effects from wireless
telephone use may divert management’s attention, and T-Mobile USA may be
required to pay significant awards or settlements and incur significant expenses
in defending these lawsuits.
We do not
know whether legislators, regulators or private litigants will refrain from
taking other actions adverse to us, based on the purported health-related risks
associated with radio frequency emissions. Any such litigation, legislation or
adverse actions may result in additional costs and loss of revenues in our
mobile communications businesses. For more
information, see “Item 8. Financial Information—Legal Proceedings.”
We
continuously engage in large-scale programs to reshape our information
technology (IT) infrastructure to adapt to changing customer needs and
organizational requirements. Failure to effectively plan and monitor these
activities could lead to misallocations of resources and impaired processes with
negative consequences for our operations.
The “Next
Generation IT (NG IT)” program was launched in 2008 as a Group-wide framework
for all IT-related components of our transformation programs and the development
of our future overall IT architecture. Its focus is on a common platform to
support IT projects and services in the future. The close cooperation between IT
and business areas plays a central role in this program. Flexibility, cost
reduction, short response time to market changes and secure management of
business information are the major challenges for our future IT landscape. In
order to tackle these challenges, an architectural approach was developed to
identify the necessary IT changes, taking into account developments in business
processes, in the production environment and in customer and product
management.
Due to
the enormous complexity of the implementation of this IT initiative,
malfunctions, connectivity issues, implementation delays, and other unforeseen
problems, could result in costly process impairments and remediation, and
possible extended down-times of IT processes, and therefore frustrate the
attainment of our goals in terms of cost savings and quality
improvements.
One of
our most important IT programs deals with the long-term development and
implementation of a comprehensive IP platform that will support both fixed-line
and mobile telephony services. This means that the traditional platform will be
completely replaced by an IP-based system. Upon implementing this joint IP
platform, we will be subject to risks inherent in all IT systems connected to
the Internet, such as hacker attacks, “spam calls” and other disruptions. These
risks could lead to a temporary interruption of our IT resources and, as a
result, impair the performance of our technical infrastructure.
System
failures due to natural or man-made disruptions and loss of data could result in
reduced user traffic and reduced revenues and could harm our reputation and
results.
Our
technical infrastructure (including our network infrastructure for fixed-line
network services and mobile telecommunications services) and data may be damaged
or disrupted by fire, lightning, flooding and other calamities, technology
failures, human error, terrorist attacks, hacker attacks and malicious actions
(e.g., theft or misuse of customer data), and other similar events. We attempt
to mitigate these risks by employing a large number of measures, including a
comprehensive monitoring of our telecommunications networks, backup systems and
protective systems such as firewalls, virus scanners, and building security. In
addition, we have implemented a global business continuity management system at
our corporate headquarters. We cannot, however, be certain that these measures
will be effective under all circumstances, and that disruptions (such as the
network outage at T-Mobile Deutschland in April 2009 or the outage of a critical
“Sidekick” user database in the U.S. in October 2009) or damages will not occur.
Disruption or damage to our infrastructure may result in reduced user traffic
and revenues, increased costs, and damage to our reputation.
Shortcomings
in our supply and procurement process could negatively affect our product
portfolio, revenues and profits.
As a
fully integrated ICT service provider, we cooperate with a wide range of
different suppliers for technical components and assemblies, as well as for
software and other goods and information important to the conduct of our
business. Although we do not believe that we are materially dependent on any
single supplier, our contractors may want to extend delivery times, raise prices
and limit supply due to their own shortages or changing business and product
strategies. Furthermore, our vendors may be subject to litigation with respect
to technology that is important for the conduct of our business. Especially in
times of economic turmoil, supply chains, credit access and financial stability
of our vendors may be negatively affected, which could disturb our commercial
relationship with them.
If our
commercial partners fail to deliver quality products and services in a timely
manner, the ensuing disruptions in our chain of supply could negatively affect
our product portfolio, cost structure, revenues and profits. We take a variety
of measures to shelter ourselves from these risks, but we cannot be sure that
these measures will be effective under all circumstances.
We
are continuously involved in disputes and litigation with regulators,
competition authorities, competitors and other parties. The ultimate outcome of
such legal proceedings is generally uncertain. When finally concluded, they may
have a material adverse effect on our results of operations and financial
condition.
We are
subject to numerous risks relating to legal and regulatory proceedings, in which
we are currently a party or which could develop in the future. Litigation and
regulatory proceedings, including patent infringement lawsuits, are inherently
unpredictable. Legal or regulatory proceedings in which we are or come to be
involved (or settlements thereof) may have a material adverse effect on our
results of operations or financial condition. For information concerning some of
the litigation in which we are involved, including with respect to Polska
Telefonia Cyfrowa Sp.z o.o (“PTC”) and Toll Collect, see “Item 8. Financial
Information—Legal Proceedings.” For information concerning our regulatory
environment, see “Item 4. Information on the Company—Regulation.”
We
face allegations of data misuse and flaws in our security systems. Despite
diverse measures taken to protect customer data, damage to our reputation
remains a significant risk, which may also affect our business.
The Bonn
public prosecutor's office is still investigating the circumstances surrounding
the illegal monitoring of phone calls and the theft of data relating to several
million mobile customers. As a result of these events, we implemented several
measures to further improve data security and transparency, including the
creation of a new Management Board position relating to data privacy, compliance
and legal affairs, which has the right to veto Management Board business
decisions related to data privacy. A first voluntary annual progress report,
prepared by the Group Privacy Officer, was published in April 2009 and submitted
to the Federal Commissioner for Data Protection, our Supervisory Board and the
public. A newly established Data Privacy Advisory Board advises our Management
Board on all issues related to data privacy. The Advisory Board closely consults
with leading data privacy experts from outside the Group with regard to the
handling of customer and employee data, data privacy audits, IT security and the
consequences of the introduction of new legal provisions. Data privacy contacts
were nominated at each level of the organization to ensure an intense
cooperation with our operating segments. Additionally, we established a
dedicated website to keep the public informed of ongoing developments in this
area. However, despite extensive testing by internal and external audits, there
can be no assurance that the current investigations will not result in the
imposition of additional remedial measures or that further breaches relating to
our customer data will not materialize in the future.
Future
sales of our shares by the Federal Republic or KfW Bankengruppe (“KfW”) may
adversely affect the trading prices of our shares and ADSs.
The
Federal Republic (which, together with KfW, owns approximately 31.7% of our
outstanding shares) has previously indicated an intent to continue with its
privatization policy. In this regard, we cannot predict if and when the Federal
Republic will further reduce its holdings of its equity interest in Deutsche
Telekom AG. The reduction in the Federal Republic’s direct or indirect holdings
may involve KfW. For shareholders, there is a danger that the market offering of
a significant volume of our shares by either the Federal Republic or KfW, or
speculation to this effect on the markets, could have a negative impact on the
price of our shares and ADSs.
Certain
of KfW’s debt instruments are exchangeable into shares of Deutsche Telekom AG,
which, upon exchange, could also have a negative impact on the price of our
shares. KfW issued a class of exchangeable bonds on May 16, 2008 that matures in
June 2013. Exchangeable bonds are debt securities that the holder may exchange
for shares in another company during a predefined period and at a predefined
price. When the exchange price is exceeded and when the holder exercises the
exchange right, KfW will be obligated to exchange the bonds offered for Deutsche
Telekom AG shares. When the exchangeable bonds mature in June 2013, KfW has the
right to settle them in Deutsche Telekom AG shares. These exchangeable bonds in
the aggregate amount of EUR 3.3 billion have a share exchange price of EUR
14.9341 per ordinary share. Accordingly, approximately 221 million shares may be
delivered by KfW in exchange for the outstanding bonds maturing in June 2013.
The delivery to debt holders by KfW of a significant amount of our shares could
have a negative impact on the market price of our shares.
Exchange-rate,
interest-rate and rating risks have had, and may continue to have, an adverse
effect on our revenue and cost development.
We are
exposed to currency risks related to our international business activities.
Generally, our Central Treasury hedges currency risks that may have an impact on
our cash flows (so called, known as a transaction risk), although there can be
no guarantee that our hedging strategies will succeed. Currency risks may have a
negative impact on our results of operations when amounts in local currencies
are translated into euros, particularly in connection with U.S. dollar- and
pound sterling-denominated results. For more
information with respect to the impact of exchange rates and currency
translation, see “Item 5. Operating and Financial Review and
Prospects—Consolidated Results of Operations.”
We are
also exposed to interest-rate risks, primarily in the Euro and U.S. dollar
currencies. Interest-rate risks arise as a result of fluctuations in interest
rates affecting the level of interest payments due on indebtedness at variable
rates in each of these currencies. Once per year, our Management Board specifies
ratios of fixed and variable debt in these two currencies. Our Central Treasury
then takes measures, using derivative instruments and other measures, to
implement the interest-risk management decisions of the Management Board.
For more
information about our hedging activities and interest-rate and market risks, see
“Item 11. Quantitative and Qualitative Disclosures about Market
Risk.”.
In 2009,
Fitch changed our long-term rating from A- to BBB+ with a stable outlook.
Moody’s Investor Service and Standard and Poor’s maintained our long-term rating
at Baa1 and BBB+ respectively with a stable outlook. A further decrease in our
credit ratings below certain thresholds by various rating agencies would result
in an increase in the interest rates on certain of our bonds and medium-term
notes due to step-up provisions and could raise the cost of our debt refinancing
activities generally. For more
information, see “Item 5. Operating and Financial Review and Prospects –
Liquidity and Capital Resources – Capital Resources – Step-up
Provisions.”
We aim to solely place our financial
investments at financial institutions that have high credit
ratings. As a result of international M&A transactions, the
investment portfolio of newly acquired entities may not always meet this
requirement. In individual cases, we thus may face a risk of
unplanned write offs.
Risky
financial exposures to financial institutions by subsidiaries in Southern and
Eastern Europe in particular exist on account of transfer restrictions or
shareholder resolutions. With our investment in OTE, exposures to credit risks
associated with deposits with various, mostly regional banks in Southern and
Eastern Europe became part of our exposure. The goal is to spread these
exposures in order to achieve a higher degree of
diversification.
As
a result of a major restructuring program, we will bring together our domestic
fixed-network business and our domestic mobile business within a new Germany
company. Failure to achieve a smooth transition to “One Company” could
negatively affect our business processes, operational systems and customer
service.
On
November 19, 2009, an extraordinary shareholders meeting approved the spin-off
of the fixed-network business in Germany into “T-Mobile Deutschland GmbH”. The
"new" company will be responsible for almost 27 million fixed-network lines – of
which some 13 million support DSL – and more than 39 million mobile lines. In
total, just under 85,000 employees will work in this company. With this move, we
plan to be in a better position to offer integrated solutions and services for
fixed network and mobile communications from a single source. In addition, we
project to reinforce customer service, safeguard jobs, and tap the potential for
additional revenue and cost synergies.
A
successful completion of creating “One Company” in the course of the second
quarter of 2010 will require major organizational efforts, and the realignment
of numerous people, processes and IT-systems. If the planned targets are not
achieved, there is a risk that the transition period will last longer than
expected, and that our operational performance in Germany will be periodically
disturbed.
Developments
in the telecommunications sector have resulted, and may in the future result, in
substantial write-downs of the carrying value of certain of our
assets.
We review
on a regular basis the value of each of our subsidiaries and their assets. In
addition to our regular annual impairment reviews, whenever indications exist
that goodwill, intangible assets or fixed assets may be impaired due to changes
in the economic, regulatory, business or political environment, we consider the
necessity of performing certain valuation tests, which may result in impairment
charges. The recognition of impairments of intangible assets, property, plant
and equipment and financial assets could cause us to take large, non-cash
charges against net profit, which could lead to a reduction in the trading price
of our shares and ADSs.
For more
information, see “Item 5. Operating and Financial Review and Prospects—Critical
Accounting Estimates.”
Potential
breaches of compliance requirements or the identification of material weaknesses
in our internal control over financial reporting may have an adverse impact on
our corporate reputation, financial condition and the trading price of our
securities.
In
general, compliance requirements for publicly traded companies and, in
particular, the investigation of potential breaches and corporate misconduct are
increasing and leading to major financial implications for the companies
concerned. At the same time, the legal framework governing the monitoring of
companies is becoming more comprehensive, which increases the liability risks
for executive bodies and associated costs.
While we
believe that we have established an appropriate compliance organization to
detect, assess, reduce and manage these risks, the global and diverse nature of
our operations means that these risks and their related consequences will
continue to exist. Although we intend to take prompt measures to remediate any
identified shortcomings in our internal controls over financial reporting,
activities of this kind may involve significant effort and expense, and
disclosure of any failures, material weakness or other conditions, may result in
a deterioration of our corporate image and negative market
reactions.
For more
information with regard to Section 404 of the Sarbanes-Oxley Act of 2002, see
“Item 15.Controls and Procedures – (b) Management’s Annual Report on Internal
Control over Financial Reporting.”
ITEM 4. Information on the Company
The legal
and commercial name of our company is Deutsche Telekom AG. We are a private
stock corporation organized under German law. Our registered office is located
at Friedrich-Ebert-Allee 140, 53113 Bonn, Germany, and our telephone number is
+49 (228) 181-0. Our agent for service of process in the United States is
Deutsche Telekom, Inc., 14 Wall Street, Suite 6B, New York, NY
10005.
We are an
integrated telecommunications provider offering our customers around the world a
comprehensive portfolio of state-of-the-art services in the areas of
telecommunications and IT.
The
provision of public telecommunications services in Germany was long a state
monopoly, as formerly provided in the constitution of the Federal Republic. In
1989, the Federal Republic began to transform the postal, telephone and
telegraph services administered by the former monopoly provider of such services
into market-oriented businesses, and divided the former monopoly into three
distinct entities along their lines of business, one of which was our
predecessor, Deutsche Bundespost Telekom. At the same time, the Federal Republic
also began the liberalization of the German telecommunications market. We were
transformed into a private stock corporation effective January 1,
1995.
The
operation of networks (including cable networks) for all telecommunications
services, other than public fixed-line voice telephony, was opened to
competition in Germany on August 1, 1996, when the new legal framework for
the regulation of the telecommunications sector in Germany, the
Telecommunications Act, became effective. As required by the Telecommunications
Act, and mandated by the directives of the EU Commission, the telecommunications
sector in Germany was further liberalized on January 1, 1998, through the
opening of the public fixed-line voice telephony services to competition. Since
then, we have faced intense competition and have been required, among other
things, to offer competitors access to our fixed-line network at regulated
interconnection rates. For more information on the regulatory effects on
competition in our fixed-line business, see “—Regulation.”
Important
events in the development of our business since January 1, 2009 have
included:
|
·
|
the
announcement of a joint venture between T-Mobile UK and Orange UK in the
United Kingdom;
|
|
·
|
the
creation of a more regional and integrated structure for third-party
domestic carriers and service providers as well as our company, including
the integration of our sales and customer service functions at our
fixed-line and mobile operations in
Germany;
|
|
·
|
the
acquisition in 2009 of an additional 5% in the Greek telecommunications
company OTE for EUR 0.7 billion;
and
|
|
·
|
the
first-time full consolidation of
OTE.
|
Additional
information regarding the foregoing events and other developments is contained
throughout this Item 4.
Since
July 1, 2009, our organizational structure has reflected the realigned
management structure approved by our Supervisory Board on April 29, 2009. The
new structure reflects a more regional focus, with a greater emphasis on
integrating our fixed-network and mobile communications business. In addition,
we centralized the responsibility for product development, IT and technology for
our European operations.
This
realignment resulted in a change to the structure of our operating segments from
July 1, 2009. The business activities in four of these five operating segments
are assigned by regions. In the fifth segment, the business activities are
assigned by customers and products as described below. Since July 1, 2009,
we have reported on the following five operating segments:
|
·
|
Germany,
which combines all fixed-network and mobile activities in Germany and also
includes wholesale telecommunications services for third-party domestic
carriers and service providers as well as our Group’s other operating
segments;
|
|
·
|
the
United States, which comprises all mobile activities in the U.S.
market;
|
|
·
|
Europe,
which covers all activities of the mobile communications companies in the
United Kingdom, Poland, the Netherlands, the Czech Republic and Austria,
as well as the International Carrier Sales and Solutions unit, which
mainly provides wholesale telecommunications services for our Group’s
other operating segments;
|
|
·
|
Southern
and Eastern Europe, which comprises all of our fixed-network and mobile
communications operations in Hungary, Croatia, Slovakia, Greece, Romania,
Bulgaria, Albania, the F.Y.R.O Macedonia, and Montenegro;
and
|
|
·
|
Systems
Solutions, which bundles business with ICT products and solutions for
large multinational corporations and public institutions under the
T-Systems brand.
|
We also
report on Group Headquarters and Shared Services, which includes our service
headquarters and our subsidiaries that are not allocated to the operating
segments.
Fixed-Network
and Mobile Communications Services
Fixed-Network
Services
Our
fixed-network business includes all voice and data communications activities
based on fixed-network and broadband technology. These product offerings are
marketed as basic telephony services, or single-play, telephony and high-speed
Internet access, or double-play, and packages comprising voice communication,
high-speed Internet access and television with interactive television-based
services, or triple-play. Our fixed-network business also includes the sale of
terminal equipment and other hardware, as well as the sale of services to
resellers.
Mobile
Communications Services
Our
mobile communications business offers digital mobile telephony voice services
and data services, such as Short Message Service, or SMS, Multimedia Messaging
Service, or MMS, mobile Internet and other data services, to retail and business
customers. Terminal equipment and other hardware are sold in connection with the
services offered. In addition, our mobile communications services are sold to
resellers and to companies that buy network services and market them
independently to third parties, such as MVNOs. Through our mobile communication
subsidiaries, we also operate one of the largest carrier-owned networks of W-LAN
(WiFi) HotSpots in Europe and the United States.
We offer
mobile voice and data services on both a contract basis and a prepay basis. Our
mobile communications customers generally purchase contract services on the
basis of fixed monthly fees, and pay time-based airtime and per-message fees.
Some contract service offerings include a specified amount of airtime, data
volume or messages in the monthly fee. Prepay services are purchased on the
basis of monetary increments that are recorded on the customers’ Subscriber
Identity Module, or SIM, cards and then deducted, based on airtime or messaging
usage fees, as the cards are used. Usage fees can vary according to the rate
plan selected by the customer, the day and time when a call is made, the
destination of the call, the location where the call originates and, in some
cases, other terms applicable to the rate plan, such as whether the called party
is also a customer of the same network. Furthermore, some contracts allow
unlimited usage at a set monthly rate. We offer national and international
roaming services to our customers through a number of roaming agreements with
third-party operators, which allow customers to access mobile services while
outside their home network service area. W-LAN services are sold on both a
monthly subscription basis and through various usage-based plans. Our mobile
communications subsidiaries provide their customers with access to our specific
and third-party content services as well as to the open Internet. Content
provided to customers is either at no additional charge, in which case the
customer only has to pay the normal connection charges to view the content, or
it is premium content, where a customer pays a specific charge through the
customer’s mobile telephone bill to access the content. Our goal is to provide
our mobile customers with an integrated portfolio of voice and data services,
using the most appropriate technologies available depending on local market
conditions.
We count
our mobile communications customers by the number of SIM cards activated and not
churned. Our customer figures include the SIM cards with which machines can
communicate automatically with one another, or M2M cards. Our mobile
communications subsidiaries count contract customers as customers for the length
of their contracts, and count prepay customers as customers as long as they
continue to use our services, and then for a prescribed period thereafter, which
differs according to the particular market. Generally, at the end of this
period, or in the case of payment default or voluntary disconnection, the
customers are cancelled or “churned.” The churn rate for any given period
represents the number of customers whose service was discontinued during that
period, expressed as a percentage of the average number of customers during the
period, based on beginning and period-end figures. Our competitors may calculate
their churn rates using methods different from ours. In addition, because we use
different calculation methodologies in different jurisdictions, our own churn
figures are not comparable across all of our national operations. Our churn
methodologies are described in greater detail in the discussion of our operating
segments below.
Sales
Channels
Our
Germany and Southern and Eastern Europe operating segments offer their
fixed-line and mobile products and services through a broad range of direct and
indirect sales channels. The direct distribution channels include
our:
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·
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retail
outlets, including our Telekom shops in Germany, and throughout Southern
and Eastern Europe such as OTEShops, Germanos and Cosmote shops
in Greece and T-Home Shops in
Hungary;
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·
|
toll-free
service hotlines that allow potential and current customers to obtain
information about, and place orders for, our various products and
services;
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·
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various
Internet websites, which provide a variety of online ordering options;
and
|
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·
|
sales
force, organized into various units that focus on our retail customers,
small- and medium-sized business customers, domestic carrier services
customers and services offered to network operators and other third-party
providers.
|
Indirect distribution channels include national retailers and independent
distributors, such as Internet and IT equipment retailers.
In
addition, our mobile communications subsidiaries in Europe and the United States
use various direct and indirect distribution channels to market their voice and
data products and services to their customers. In the United States, the United
Kingdom, Austria, Poland , the Netherlands and Czech Republic, our mobile
communications subsidiaries sell their products and services to retail customers
through networks of direct retail stores, including some franchise-like
exclusive dealer operations. Other direct sales channels include a direct sales
force dedicated to business customers and sales through toll-free service
hotlines and local websites, which are used for customer-relationship management
as well as for sales transactions. In addition, third-party distributors, who
typically market the products and services of multiple mobile network operators,
play a significant role in distribution. Our mobile telecommunications
subsidiaries use a variety of incentives to encourage third-party vendors to
sell our products and services, such as payment of associated marketing expenses
and commissions.
Mobile
telecommunications resellers and MVNOs are also an important distribution
channel for our mobile communications products and services, especially in
Germany and the United Kingdom. In the United States, MVNOs are currently a
growing distribution channel for T-Mobile USA products and services. In
general, mobile telecommunications resellers and MVNOs purchase minutes and data
at wholesale rates and mobile devices at a discount from network operators,
resell packaged services and mobile devices under their own brands through their
own distribution channels, charge their customers at retail rates that they set
independently and provide customer service and technical support.
For more
information on our marketing sales channels in our Systems Solutions operating
segment, see Systems Solutions.
Seasonality
In
general, our operations are not affected by any major seasonal
variations.
However,
certain seasonal factors are noticeable in our mobile operations in our Germany,
the United States, Europe and Southern and Eastern Europe operating
segments. Our mobile operations in our Germany, Europe and United
States operating segments generally experience an increase in sales of products
and services occurring during the fourth calendar quarter, due to holiday
purchases. As a result, performance during the fourth quarter can have a
significant influence on full-year performance. In addition, our mobile
operations in our Europe, Southern and Eastern Europe operating segments
generally experience an increase in visitor roaming revenues during the third
calendar quarter, due to the number of tourists who spend part of their summer
vacations in this area.
The
revenues of our Systems Solutions operating segment may be subject to quarterly
fluctuations depending on sales cycles (currently ranging between 6 and
18 months) and the purchasing patterns and resources of its customers,
which are subject to general economic conditions and, therefore, difficult to
predict. Accordingly, revenues received in a particular quarter by our Systems
Solutions operating segment may not be indicative of future revenues to be
received in any subsequent quarter.
Suppliers
Although
we do not believe we are dependent on any single supplier due to our
multiple-supplier strategy, there may be occasions when a particular product
from a certain supplier is delayed or back-ordered. We believe that we have
reduced our technological risks and the risk of delays in the supply of
equipment and other technologies, both by contracting with multiple suppliers
having significant market share in the network infrastructure, IT services and
mobile device businesses, and by negotiating contractual penalties to be
enforced in the event a supplier does not meet its obligations with respect to
timeliness and quality. However, these penalty provisions may not fully mitigate
the harm to our business caused by any such contractual breaches.
The
principal types of equipment purchased by our fixed-network operations in our
Germany and Southern and Eastern Europe operating segments are network
components, such as switching systems, transmission systems, access network
components, and customer premises equipment, such as telephones, fax machines,
broadband modems and similar items. The major suppliers to our fixed-network
operations are Siemens AG, Deutsche Post DHL, Alcatel-Lucent Deutschland
AG, Grey Global Group (MediaCom), AVM Computersysteme, Cisco Systems Inc.,
Corning Cable Systems GmbH & Co. KG, and IBM.
Our
mobile operations mainly purchase IT and network components, as well as mobile
devices for purposes of resale, from a number of different
suppliers.
The
principal goods and services purchased by our Systems Solutions operating
segment are computer hardware for client servers and mainframes, operating
systems and applications software, network capacity, network services,
telecommunications network components and IT consulting services.
Dependence
on Patents, Licenses and Industrial, Commercial or Financial
Contracts
We do not
believe that we are materially dependent on any particular patent or other
intellectual property rights. In addition, we do not believe that we are
dependent on any individual third-party customer or on any industrial,
commercial or financial contracts.
Our
mobile communications subsidiaries own a large number of registered patents and
generally have a number of patent applications outstanding at any given time for
technical innovations in the area of mobile telecommunications applications as a
consequence of our continuous development activities. Patent protection activity
is focused on countries where we have mobile operations. In addition, to enable
us to offer mobile telecommunications services in the different jurisdictions in
which we operate, we require, and therefore are dependent on, telecommunications
licenses from the relevant authorities in each of these jurisdictions. For
further information, see “—Regulation.”
For
a description of patent infringement litigation relating to certain DSL-related
technology that is relevant to our fixed-network business in our Germany
operating segment, “Item 8. Financial Information—Legal Proceedings—Other
Proceedings.”
Our
Systems Solutions operating segment is subject to third-party software licenses
in connection with the services it provides to its customers. Any breach,
violation or misuse of third-party software licenses could result in additional
costs with respect to the particular projects that are the subject of such
licenses.
Our
Systems Solutions operating segment intends to become less dependent on other
Deutsche Telekom Group companies and to improve its market position with respect
to external customers. In 2009, other Deutsche Telekom Group companies accounted
for approximately 30.9% of Systems Solutions’ total revenues, compared to 23.2%
in 2008 and 25.1% in 2007. No other customer accounted for a significant portion
of Systems Solutions’ total revenues in 2009.
The
following table shows the significant subsidiaries that we owned, directly or
indirectly, as of December 31, 2009.
|
Name
and registered office
|
|
%
Held
|
|
|
T-Mobile
USA, Inc., Bellevue, Washington, United States
|
|
|
100.00 |
|
|
T-Systems
International GmbH, Frankfurt/Main, Germany
|
|
|
100.00 |
|
|
T-Mobile
Deutschland GmbH, Bonn, Germany
|
|
|
100.00 |
|
|
Hellenic
Telecommunications Organization S.A. (OTE), Athens, Greece
|
|
|
30.00 |
|
|
T-Mobile
Holdings Ltd., Hatfield, United Kingdom
|
|
|
100.00 |
|
|
Magyar
Telekom Nyrt., Budapest, Hungary
|
|
|
59.20 |
|
|
T-Mobile
Netherlands Holding B.V., The Hague, Netherlands
|
|
|
100.00 |
|
|
PTC,
Polska Telefonia Cyfrowa Sp.z o.o., Warsaw, Poland
|
|
|
97.00 |
|
|
T-Mobile
Czech Republic a.s., Prague, Czech Republic
|
|
|
60.77 |
|
|
HT-Hrvatske
telekomunikacije d.d., Zagreb, Croatia
|
|
|
51.00 |
|
|
T-Mobile
Austria Holding GmbH, Vienna, Austria
|
|
|
100.00 |
|
|
Slovak
Telekom a.s., Bratislava, Slovakia
|
|
|
51.00 |
|
|
|
|
|
|
|
A list
of our subsidiaries as of December 31, 2009, is filed as Exhibit 8.1
to this Annual Report.
The
following table presents total revenues (the sum of external (net) revenues and
intersegment revenues), net revenues and intersegment revenues of our segments
for the years indicated.
|
millions
of €
|
Year
|
|
Net
revenue
|
|
|
Intersegment
revenue
|
|
|
Total
revenue
|
|
|
|
|
|
Germany
|
2009
|
|
|
23,813 |
|
|
|
1,610 |
|
|
|
25,423 |
|
|
|
|
|
|
2008
|
|
|
24,754 |
|
|
|
1,646 |
|
|
|
26,400 |
|
|
|
|
|
|
2007
|
|
|
26,134 |
|
|
|
1,982 |
|
|
|
28,116 |
|
|
|
|
|
United
States
|
2009
|
|
|
15,457 |
|
|
|
14 |
|
|
|
15,471 |
|
|
|
|
|
|
2008
|
|
|
14,942 |
|
|
|
15 |
|
|
|
14,957 |
|
|
|
|
|
|
2007
|
|
|
14,050 |
|
|
|
25 |
|
|
|
14,075 |
|
|
|
|
|
Europe
|
2009
|
|
|
9,486 |
|
|
|
548 |
|
|
|
10,034 |
|
|
|
|
|
|
2008
|
|
|
10,798 |
|
|
|
556 |
|
|
|
11,354 |
|
|
|
|
|
|
2007
|
|
|
10,675 |
|
|
|
559 |
|
|
|
11,234 |
|
|
|
|
|
Southern
and Eastern Europe
|
2009
|
|
|
9,510 |
|
|
|
175 |
|
|
|
9,685 |
|
|
|
|
|
|
2008
|
|
|
4,497 |
|
|
|
148 |
|
|
|
4,645 |
|
|
|
|
|
|
2007
|
|
|
4,458 |
|
|
|
142 |
|
|
|
4,600 |
|
|
|
|
|
Systems
Solutions
|
2009
|
|
|
6,083 |
|
|
|
2,715 |
|
|
|
8,798 |
|
|
|
|
|
|
2008
|
|
|
6,368 |
|
|
|
2,975 |
|
|
|
9,343 |
|
|
|
|
|
|
2007
|
|
|
6,911 |
|
|
|
3,660 |
|
|
|
10,571 |
|
|
|
|
|
Group
Headquarters and Shared Services
|
2009
|
|
|
253 |
|
|
|
2,157 |
|
|
|
2,410 |
|
|
|
|
|
|
2008
|
|
|
307 |
|
|
|
2,474 |
|
|
|
2,781 |
|
|
|
|
|
|
2007
|
|
|
288 |
|
|
|
2,855 |
|
|
|
3,143 |
|
|
|
|
|
Total
|
2009
|
|
|
64,602 |
|
|
|
7,219 |
|
|
|
71,821 |
|
|
|
|
|
|
2008
|
|
|
61,666 |
|
|
|
7,814 |
|
|
|
69,480 |
|
|
|
|
|
|
2007
|
|
|
62,516 |
|
|
|
9,223 |
|
|
|
71,739 |
|
|
|
|
|
Reconciliation
|
2009
|
|
|
- |
|
|
|
(7,219 |
) |
|
|
(7,219 |
) |
|
|
|
|
|
2008
|
|
|
- |
|
|
|
(7,814 |
) |
|
|
(7,814 |
) |
|
|
|
|
|
2007
|
|
|
- |
|
|
|
(9,223 |
) |
|
|
(9,223 |
) |
|
|
|
|
Group
|
2009
|
|
|
64,602 |
|
|
|
- |
|
|
|
64,602 |
|
|
|
|
|
|
2008
|
|
|
61,666 |
|
|
|
- |
|
|
|
61,666 |
|
|
|
|
|
|
2007
|
|
|
62,516 |
|
|
|
- |
|
|
|
62,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For more
information regarding our revenues on a segment and geographical basis, see
“Item 5. Operating and Financial Review and Prospects—Segment
Analysis.”
The
following table reflects the number of fixed-network and broadband lines in
operation and mobile customers in Germany.
|
|
|
As
of Dec. 31,
2009
millions
|
|
|
As
of Dec. 31,
2008
millions
|
|
|
%
Change
Dec.
31, 2009/
Dec
31, 2008
|
|
|
As
of Dec. 31,
2007
millions
|
|
|
%
Change
Dec.
31, 2008/
Dec.
31, 2007
|
|
|
Fixed
Network Germany
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-network
lines(1)
|
|
|
26.2 |
|
|
|
28.3 |
|
|
|
(7.4 |
) |
|
|
30.8 |
|
|
|
(8.1 |
) |
|
Retail
broadband lines(1)
|
|
|
11.5 |
|
|
|
10.6 |
|
|
|
8.5 |
|
|
|
9.0 |
|
|
|
17.8 |
|
|
Wholesale
bundled access lines(2)
|
|
|
1.6 |
|
|
|
2.5 |
|
|
|
(36.0 |
) |
|
|
3.5 |
|
|
|
(28.6 |
) |
|
ULLs(3)
|
|
|
9.1 |
|
|
|
8.3 |
|
|
|
9.6 |
|
|
|
6.4 |
|
|
|
29.7 |
|
|
Wholesale
unbundled access lines(4)
|
|
|
0.6 |
|
|
|
0.2 |
|
|
n.a.
|
|
|
0.0
|
|
|
n.a.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile
communications Germany
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile
customers(5)
|
|
|
39.1 |
|
|
|
39.1 |
|
|
|
0.0 |
|
|
|
36.0 |
|
|
|
8.6 |
|
|
n.a.—not
applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
were calculated on the basis of precise figures and rounded to millions.
Percentages are calculated on the basis of figures
shown.
|
|
(1)
|
Lines
in operation, including IP-based lines and congstar, but excluding
internal use and public telecommunications systems. Congstar is our
broadband and mobile brand aimed at younger, more price sensitive
customers.
|
|
(2)
|
Wholesale
bundled access lines: Sale of broadband lines based on DSL technology to
alternative providers outside Deutsche Telekom, including bundled IP
Bitstream Access, or IP-BSA. In the case of IP-BSA, we lease DSL lines to
our competitors and transport the datastream carried over the
lines.
|
|
(3)
|
Unbundled
local loop lines (ULL): Wholesale service that can be leased by
alternative telecommunications operators without upstream technical
equipment in order to offer their own customers a telephone or DSL
line.
|
|
(4)
|
Wholesale
unbundled access lines: Wholesale service not bundled with an analog
telephone line. Allows competitors to offer an all-IP product range, for
example IP- BSA Stand Alone.
|
|
(5)
|
Total
number of contract and prepay customers at year-end for the periods
presented based on the number of activated SIM cards. One SIM
card corresponds to one customer. Due to various rulings on the expiry of
prepaid credit and the limited validity of prepaid cards, T-Mobile
Deutschland changed its terms of contract and therefore its deactivation
policy in the first quarter of 2007 in favor of its prepay customers.
These customers can now use their prepaid credit longer than before. As a
result of the change in the terms of contract, prepaid contracts no longer
end automatically, but run for an unlimited duration and can be terminated
by the customer at any time and by T-Mobile with one month's notice.
T-Mobile Deutschland reserves the right to make use of this right of
termination and to deactivate cards in the
system.
|
The
Germany operating segment comprises our fixed network and mobile operations in
Germany. Since January 1, 2009, fixed network has been responsible for the
small- and medium-sized business customers that were previously included in our
System Solutions operating segment. Our Germany operating segment also includes
certain of our telecommunications facilities operations, including the
operation, management and servicing of our radio transmission sites in Germany.
For more information on our related network infrastructure, including our access
and transmission networks and service platforms, see “—Description of Property,
Plant and Equipment.”
We intend
to use convergence products that bring together mobile communications, Internet
and the fixed network in the context of connected life and work to enhance our
product portfolio and increase the number of high-value customer relationships
over the long term.
Fixed
Network
Network
Communications
Through
our fixed network business, we offer network access, including analog,
universal/ISDN and IP Access, as well as calling services to individual,
business and wholesale customers.
Analog
access lines, which we market under the name “Standard”, permit the customer to
use a single telecommunications channel for voice, data or facsimile
transmission. The number of analog access lines decreased year on year, from
22.2 million in 2007 to 20.0 million in 2008 and 18.3 million in 2009.
ISDN/Universal access lines, which we market under the name “Universal”, permit
a customer to use simultaneously two telecommunication channels to provide
multiple products and services, including voice, data and facsimile
transmission. The number of ISDN/Universal access lines decreased year-on-year,
from 8.6 million in 2007 to 8.3 million in 2008 and 7.9 million in 2009.
IP-Based access lines provide services such as telecommunication, IPTV and
data transfer, as well as other services to retail customers at home and
elsewhere.
The
number of fixed-network access line losses in Germany decreased, as expected, in
2009. The number of line losses includes fixed-network lines previously operated
by us but now operated as IP-based lines by other service providers using the
unbundled local loop line (ULL). In addition, the decrease in the number of
fixed-network access lines is mainly attributable to customers switching to
alternative cable, local network and mobile operators. In 2009, line losses also
resulted from the technology driven migration of Wholesale bundled customers to
the all-IP network. We expect the number of fixed-network access lines in
operation to continue to decrease in the future due to increased competition,
fixed-to-mobile substitution, as well as increased migration to IP-based
products.
Through
the network access product offerings described above, we provide comprehensive
national and international calling services and dial-up Internet access, and
also offer services such as three-way calling, call-waiting and caller ID. In
addition, our portfolio of integrated products, called “Complete Packages”
(Komplettpakete), includes an access line and a variety of flat-rates and
services for telephony and Internet access. Our Complete Packages with a
national voice flat-rate component have led to an increase in unbilled calling
minutes by customers using those plans. The trend towards flat-rate components
in Complete Packages continued to increase in 2009 and we believe that this
trend will continue in the future. Consequently, we expect calling revenues in
the future to decrease due to the decreasing proportion of billed minutes as a
result of customer acceptance of Complete Packages, continued loss of
fixed-network access lines and fixed-to-mobile substitution.
IP/Internet
Broadband
services allow customers to access the Internet and Internet-related services at
significantly higher speeds than traditional dial-up services. Broadband access
is used to refer to ADSL (asymmetric digital subscriber line), ADSL2 and ADSL2+
(advanced ADSL) and VDSL (very high-speed digital subscriber line) technologies,
for which the downstream data rate is greater than 128 Kbit/s. We believe
that broadband growth in Germany, particularly in the retail market, is largely
dependent on the acceptance of double-play and triple-play products and services
and improved customer services.
We offer
broadband and IP services based on ADSL, ADSL2+ and VDSL technologies, which
combine a high-speed data download transmission speed with a lower upload
transmission speed, primarily to retail customers. We also offer our Complete
Packages with a flat-rate component including offerings for voice communication
and high-speed data access. The total number of retail broadband lines operated
by us increased in 2009, due to the offer of Complete Packages with additional
features and options. For example, we offer our Complete Packages with
television services under the brand “Entertain”. Our Entertain products are
offered in a basic version, which includes voice, data and television services,
and an enhanced version, which includes a variety of additional services,
including HDTV, timeshift, Program Manager and TV-archive. In addition, we
introduced a new Entertain product in 2009 known as “Entertain pure”, which
comprises a telephone and TV connection without Internet access. The number of
Entertain lines in operation, which are included within the number of retail
broadband lines in the table above, increased to 806,000 by the end of 2009 from
352,000 in 2008. In 2009, we also launched a new LIGA total! product range. With
Entertain, customers can now watch all first- and second-division Bundesliga
soccer matches on television for an additional charge. We expect that our
Entertain product portfolio will continue to expand with the inclusion of new
features and new rates in response to customer demand. A topic for 2010 will be
the further development of Entertain products available to the retail market
through a combination of broadband lines and attractive content and features,
including flat-rate packages.
Our
broadband product portfolio also includes a variety of Internet website services
provided by the Scout-Group as well as the "Load" product portfolio, which
includes video, game, software and music offerings available for
download.
Wholesale
Services
Through
our wholesale services business, we provide products and services, including
access, interconnection, IP and network services, to third-party domestic
carriers and service providers as well as other Group companies in accordance
with regulatory guidelines stipulated by the Federal Network Agency. Network
operators and service providers implement their own business models based on our
wholesale services, such as unbundled local loop (ULL) lines, bitstream access
or resale, including the Wholesale Internet Access (WIA) and WIA Gate product
options. We expect that the results of regulatory decisions will continue to
have an effect on demand for our wholesale products.
Unbundled
local loop lines (ULL), can be leased by third-parties to provide their
customers with telephone and Internet services or DSL-based products. In 2009,
the number of ULLs rose compared to the end of 2008, mainly as a result of the
migration of competitors to all-IP lines. We expect that the number of ULLs in
operation will increase in the future. However, the rate of growth is expected
to decrease. In 2008, we were required by the Federal Network Agency to offer
wholesale unbundled access line products. Wholesale unbundled access lines in
operation increased to 0.6 million in 2009 compared to 0.2 million lines in
2008.
Through
our wholesale bundled product, we lease DSL lines combined with one of our
standard access lines to third-party providers and then transport the data from
our network to the third-party’s network. In 2008, we introduced regulatorily
mandated Wholesale bundled and unbundled products, including transport services
and symmetric DSL access, or SDSL. We also sell broadband access to competitors
through our Wholesale bundled products, which enable third-party operators to
offer an integrated service combining access and IP services to their retail
customers under their own brands. The growth in ULLs in 2009 mentioned above
primarily came at the expense of our Wholesale bundled products. The number of
wholesale bundled access lines in operation decreased from 3.5 million in 2007
to 2.5 million in 2008 and 1.6 million in 2009.
Our
interconnection wholesale services primarily consist of call origination and the
transit and termination of switched voice traffic. The terms under which we
interconnect our telephone network with the networks of other domestic carriers
and service providers are either bilaterally negotiated or imposed by the
Federal Network Agency. At December 31, 2009, we had 117 national
bilateral interconnection agreements and 45 national interconnection orders
issued by the Federal Network Agency. The Federal Network Agency mandated
interconnection prices from December 1, 2008 until June 30, 2011.
We
provide additional wholesale services, including:
|
·
|
IP-Services:
Internet transport services for broadband and fixed network service
providers, such as virtual ISP services, as well as transport services for
carrier interconnection;
|
|
·
|
Network
Services: leased lines, which can be used both for the transmission of
data and for voice traffic and are tailored to fit the specific needs of
carriers and mobile network operators;
and
|
|
·
|
Carrier
Services Networks, which combine leased lines with network management
services.
|
Other
Services
Other
services primarily includes:
|
·
|
value-added
telephone services, which include toll-free numbers and shared-cost
numbers, such as 0180, T-VoteCall for customer-relationship management,
directory-assistance numbers, the provision and administration of
directory databases and public payphones as well as premium-rate services
(which use the 0190 and 0900
exchanges);
|
|
·
|
our
terminal equipment business, through which we distribute, for purchase or
lease, an extensive range of telecommunications equipment that is either
manufactured by third-parties for us or sold under third-party brand
names;
|
|
·
|
data
communications solutions, such as Telekom Design Networks, platform
management, Internet solutions and IP-related services as well as
dedicated customer line products connecting two customer networks (located
up to 50 kilometers apart) with transmission speeds of up to one
Gbit/s;
|
|
·
|
support
services and publishing services, which include the sale of marketing and
advertising services to small- and medium-sized companies via our
telephone directories, such as DasTelefonbuch, GelbeSeiten, and
DasÖrtliche; and
|
|
·
|
the
sale of products and services through our Telekom Shop outlets and
services for energy-based products used to reliably operate
telecommunications systems.
|
Mobile
Communications
Through
T-Mobile Deutschland, we offer mobile telecommunications services to individual
and business customers in Germany. The following table summarizes certain
information regarding our customers and the German mobile communications
market.
|
Customers
(millions) (1)
|
|
|
As
of December 31, 2009
|
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
Total
|
|
|
|
39.1 |
|
|
|
39.1 |
|
|
|
36.0 |
|
| |
M2M |
|
|
|
1.0 |
|
|
|
0.9 |
|
|
|
0.7 |
|
|
Contract
|
|
|
|
17.2 |
|
|
|
17.0 |
|
|
|
16.1 |
|
|
Prepay
|
|
|
|
21.9 |
|
|
|
22.1 |
|
|
|
19.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
churn rate
|
|
|
For
the year ended
December
31, 2009
|
|
|
For
the year ended
December
31, 2008
|
|
|
For
the year ended
December
31, 2007
|
|
|
Total
|
|
|
|
1.5 |
% |
|
|
1.0 |
% |
|
|
1.1 |
% |
|
Contract
(2)
|
|
|
|
1.2 |
% |
|
|
1.1 |
% |
|
|
1.2 |
% |
|
Prepay
(3)
|
|
|
|
1.7 |
% |
|
|
0.9 |
% |
|
|
1.0 |
% |
|
(1)
|
Total
number of contract and prepay customers at year-end for the periods
presented based on the number of activated SIM cards. One SIM
card corresponds to one customer.
|
|
(2)
|
In
general, a contract customer of T-Mobile Deutschland is churned either
after voluntary termination upon the lapse of the customer’s contract or
after forced contract termination due to the customer’s failure to fulfill
contractual obligations.
|
|
(3)
|
Due
to various rulings on the expiry of prepaid credit and the limited
validity of prepaid cards, T-Mobile Deutschland changed its terms of
contract and therefore its deactivation policy in the first quarter of
2007 in favor of its prepay customers. These customers can now use their
prepaid credit longer than before. As a result of the change in the terms
of contract, prepaid contracts no longer end automatically, but run for an
unlimited duration and can be terminated by the customer at any time and
by T-Mobile Deutschland with one month's notice. T-Mobile Deutschland
reserves the right to make use of this right of termination and to
deactivate cards in the system.
|
T-Mobile
Deutschland offers mobile telecommunications services, including voice, SMS,
MMS, Mobile Internet and other data services to consumer and business customers
in Germany.
At
December 31, 2009, T-Mobile Deutschland had approximately 39.1 million
customers, including approximately 1.0 million M2M cards in use. With an overall
penetration rate of well over 100%, the focus in our German mobile operations
has been on the higher-value contract customer business. In 2009, the share of
contract customers in our overall customer base was 44% of the total customer
base.
T-Mobile
Deutschland’s total average churn rate for 2009 was 1.5% per month, compared to
an average churn rate of 1.0% per month in 2008, mainly due to an increase in
prepay churn rates. The average contract customer churn rate was 1.2% per month
in 2009, which is a slight increase compared to 1.1% per month in 2008. The
average prepay churn rate during 2009 was 1.7% per month, compared to the
average prepay churn rate of 0.9% per month during 2008. T-Mobile Deutschland’s
total average churn rate for 2008 was 1.0% per month, compared to an
average churn rate of 1.1% per month in 2007, due to a decrease in both
contract and prepay churn rates. The average contract customer churn rate was
1.1% per month in 2008, which is a slight decrease compared to 1.2% per
month in 2007. The average prepay churn rate during 2008 was 0.9% per
month, compared to the average prepay churn rate of 1.0% per month during
2007, which was primarily caused by a change in the churn policy in
2007.
Competition
Our
fixed-network operations in Germany face intense competition based primarily on
price in the market for fixed-line network voice telephony and broadband
services. Competitors include cable operators, such as Kabel
Deutschland GmbH & Co. KG, other fixed-line carriers, such as Vodafone,
Versatel AG or NetCologne Gesellschaft für Telekommunikation mbH, and mobile
operators. Average
consumer prices for telecommunications services in the fixed-network and in
mobile communications in Germany were once again lower than in the prior year.
The price index for fixed-network and Internet telephony was down
2.3 percent, while rates for mobile telephony were 2.5 percent lower.
Aside from pure call charges, prices for mobile data services also
decreased.
However,
continued competition in these markets resulted in higher service levels being
provided for these product packages, for example, increased broadband access
widths and higher number of flat-rate minutes. The increased use of complete
packages with a flat-rate component and a decrease in the overall prices for
these packages by our competitors have intensified the downward pricing pressure
on our own products, services and pricing packages. In particular, competition
through bundled offers from other fixed-line carriers has intensified.
Competition from local network operators, on the basis of ULLs or the
competitor’s own infrastructure is increasing, particularly from entities owned
by large European telecommunications companies, such as HanseNet (a subsidiary
of Telefonica).We expect that competition from cable operators will also
continue to increase. Depending on the degree to which alternative technologies,
such as VoIP, cable broadband and the Internet, gain market acceptance, the
usage of our network may be adversely affected.
The
growing appeal of cable TV lines is due to the very large bandwidths that are
already available – in some cases up to 100 Mbit/s – at attractive
prices.
Competitors
have invested in their own infrastructure. Given the significant competitive
advantage that high-speed networks offer in the broadband access market, we
expect that our competitors will continue to invest in their own network
infrastructure to offer their own IP-based products to compete with our products
and services.
The
impact of mobile substitution on our fixed-network operations in Germany is also
increasing, in part because of the increased market entry of Mobile Virtual
Network Operators (MVNOs). In addition, as prices for mobile telephony decline,
local and other calling services, as well as access services, face increasing
competition from mobile telephone operators, due to mobile substitution. These
factors, combined with the continued implementation of regulatory policies
intended to foster greater competition, are expected to yield similar trends in
the future.
T-Mobile
Deutschland faces intense competition from mobile network operators Vodafone,
E-Plus and O2. We believe that T-Mobile Deutschland maintained its market
leadership position, in terms of number of customers, at December 31, 2009. The
German mobile communications market is saturated in terms of customers with a
penetration rate of well over 100 percent. T-Mobile Deutschland will focus
mainly on value-driven growth, sustainable customer growth and customer
retention in the higher-value contract customer business.
The
United States operating segment offers mobile voice and data telecommunications
services to individual and business customers in the United States through
T-Mobile USA.
|
Customers (millions)
(1)
|
|
As
of December 31, 2009
|
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
Total
|
|
|
33.8 |
|
|
|
32.8 |
|
|
|
28.7 |
|
|
Contract
|
|
|
26.8 |
|
|
|
26.8 |
|
|
|
23.9 |
|
|
Prepay
|
|
|
7.0 |
|
|
|
6.0 |
|
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
churn rate
|
|
For
the year ended
December
31, 2009
|
|
|
For
the year ended
December
31, 2008
|
|
|
For
the year ended
December
31, 2007
|
|
|
Total
|
|
|
3.2 |
% |
|
|
2.9 |
% |
|
|
2.8 |
% |
|
Contract
|
|
|
2.3 |
% |
|
|
2.1 |
% |
|
|
1.9 |
% |
|
Prepay
|
|
|
7.0 |
% |
|
|
6.9 |
% |
|
|
7.2 |
% |
|
|
(1) Total
number of contract and prepay customers at year-end for the periods presented
based on the number of activated SIM cards. One SIM card corresponds
to one customer.
At
December 31, 2009, T-Mobile USA had approximately 33.8 million customers,
an increase of 1.0 million customers during the year. Of the total customers at
December 31, 2009, approximately 79 percent, were contract customers
(including machine-to-machine customers), compared to approximately 82 percent
at December 31, 2008. The number of contract customers decreased
as a proportion of the customer base due to a decline in the number of T-Mobile
USA branded customers (wireless customers excluding MVNO and machine-to-machine
customers), offset by growth in wholesale customers.
At
December 31, 2008, T-Mobile USA had approximately 32.8 million customers,
compared to approximately 28.7 million at December 31, 2007. Included
in the increase of 4.1 million customers in 2008 were 1.1 million customers
related to our acquisition of SunCom Wireless in February 2008. Of the total
customers at December 31, 2008, approximately 26.8 million, or 82
percent, were contract customers, compared to approximately 23.9 million,
or 83 percent, at December 31, 2007, and approximately 6.0 million
were prepay customers at December 31, 2008, compared to approximately
4.8 million at December 31, 2007.
T-Mobile
USA’s average churn rate for 2009 was 3.2 percent per month, up from 2.9
percent in 2008. The contract customer churn rate increased to 2.3 percent in
2009, from 2.1 percent in 2008. This was due in part to competitive intensity,
including competition based on handset innovation. T-Mobile
USA’s average churn rate for 2008 was 2.9 percent per month, up from 2.8
percent in 2007. The contract customer churn rate increased to 2.1 percent in
2008, from 1.9 percent in 2007. This was largely due to the second anniversary
of the introduction of two-year customer contracts in the second quarter of
2006, and competitive intensity particularly in the second half of the
year.
Competitive
differences, differences in features and services due to the use of multiple
wireless technologies, and general differences in consumer behavior between the
United States and Europe factor into the higher industry churn rates in the
United States compared to Europe. However, the churn rate of T-Mobile USA’s
operations is higher than the U.S. industry average due in part to the higher
proportion of prepay customers in T-Mobile USA’s customer base relative to most
of its U.S. competitors, competitive intensity particularly relating to handset
innovation and due to the greater focus on individual consumers than other U.S.
carriers (who have a larger focus on lower-churn enterprise and government
customers). Prepay customers in the United States typically churn at
substantially higher rates than contract customers.
Generally,
a contract customer of T-Mobile USA is churned either after voluntary
termination or after forced contract termination due to the customer’s failure
to fulfill contractual obligations. A prepay customer in the United States is
churned after a period of 90 days of inactivity (i.e., the customer has neither
originated nor received a voice communication, and has not originated a data
communication in that period).
Through
the acquisition of SunCom Wireless Holdings, Inc. on February 22, 2008,
T-Mobile USA expanded its network in the southeastern United States, Puerto
Rico and the U.S. Virgin Islands.
During
2009, T-Mobile USA invested in network infrastructure in certain markets to
utilize the Advanced Wireless Services spectrum in the 1700 MHz and 2100 MHz
frequency bands it acquired in 2006. By the end of 2009, T-Mobile USA’s 3G
network covered over 205 million people compared to 107 million people at the
end of 2008.
Marketing
and Sales
The
United States operating segment comprises all of Deutsche Telekom’s wireless
activities in the U.S. market and offers mobile voice and data services to
consumers and business customers through T-Mobile USA. Mobile devices and
accessories are usually sold in connection with the services offered. In late
2009, T-Mobile USA introduced its Even More rate plans, which feature unlimited
nationwide voice, text, and data services. In addition, T-Mobile USA offers its
customers a number of service options, including rate plans with and without
contracts, the ability to pay in advance or in arrears, and rate plans with and
without subsidized handsets.
T-Mobile
USA uses a mix of direct and indirect distribution channels to market its mobile
voice and mobile data products and services to its customers. T-Mobile USA sells
its products and services to retail customers through a network of direct retail
stores. Additionally, T-Mobile USA has a direct sales force dedicated to
business customers and sales through customer service and the T-Mobile USA
website. In addition, third-party distributors, who may market the products and
services of one or multiple mobile network operators, play a significant role in
distribution. T-Mobile USA uses a variety of incentives to encourage third-party
vendors to sell T-Mobile products and services, such as payment of associated
marketing expenses and commissions.
Wholesale
entities such as MVNOs and machine-to-machine operators are a growing
distribution channel for T-Mobile USA unbranded products and services. In
general, wholesale entities purchase minutes and data at wholesale rates, resell
packaged services and mobile devices under their own brands through their own
distribution channels, charge their customers at retail rates that they set
independently, and provide customer service and technical support.
T-Mobile
USA provides its customers with access to T-Mobile USA specific and third-party
content services as well as to the open Internet. Content provided to customers
is either at no additional charge, in which case the customer only has to pay
the normal connection charges to view the content, or it is premium content,
where a customer pays a specific charge, e.g., a charge is added to the
customer’s mobile telephone bill to access the content.
Competition
General
The
United States operating segment faces intense competition in the United States
mobile telecommunications market from the three other large national mobile
providers, Verizon, AT&T and Sprint, and from MVNOs and two growing regional
operators offering low-priced unlimited services. In addition to competitive
factors, the three largest national mobile providers have been involved in more
significant acquisition activity in the last five years than T-Mobile
USA.
Verizon,
AT&T and Sprint have potential advantages through size, scale and bundling
with other non-wireless communication services. These advantages could allow
them to deliver services in a more cost-efficient manner and disproportionately
increase their customer base, thereby negatively affecting T-Mobile USA’s
competitive position.
Furthermore,
AT&T has had a competitive advantage in the past two years with the
exclusive distribution of the Apple iPhone. Verizon and AT&T, in
particular, achieved proportionately higher net customer additions in 2009,
which combined with pressure from the regional unlimited discount operators,
resulted in T-Mobile USA’s slight decline in market share in 2009.
The
United States mobile telecommunications market is quite different in a number of
respects from the European mobile telecommunications markets. For example, there
is no single communications standard. In addition, licenses used to provide
wireless services do not cover the entire country and different frequency ranges
may be required within a nationwide footprint. It can therefore be difficult for
network operators to obtain the spectrum needed in some localities to expand
customer base, upgrade the quality of service and add new services, particularly
in densely-populated urban areas. Low population density in other areas can
cause problems with network efficiency and result in geographic areas with no or
limited coverage. For these and other reasons, penetration levels for mobile
telecommunications services in the United States are generally lower than
penetration levels in western European countries, although the difference
continues to decrease over time. Mobile telecommunications operators in the
United States generally continue to invest heavily in their networks in order to
generate customer and revenue growth. Slowing wireless industry customer growth
expectations indicate that the market is maturing, with focus moving towards
data services growth.
Usage and
pricing practices in the United States mobile market also differ significantly
from typical usage and pricing in European markets. Average voice usage per
customer per month is generally much higher in the United States than in Europe
primarily due to lower priced plans for usage and the increasing popularity of
unlimited plans, resulting in a higher number of postpay plans in the United
States. Contract pricing in the United States is typically in the form of a
fixed monthly charge at various price points for specified bundles of features
and services, which permit usage up to prescribed limits with no incremental
charges. Usage in excess of the limits results in incremental charges. The
majority of prepay service is priced solely on a usage basis, similar to Europe,
but the percentage of prepay customers is significantly smaller in the United
States than Europe. Typically, both inbound and outbound usage counts against
the contract usage limits, and both are subject to incremental charges for
excess contract usage and prepaid usage. Monthly average revenue per user (ARPU)
is typically higher in the United States than in Europe. However, average
revenue per minute of use is substantially lower in the United States than in
Europe. Furthermore, in the United States unlimited voice and data services
offerings have expanded, eliminating incremental usage charges at certain price
points. In late 2009, T-Mobile USA introduced its Even More rate plans, which
feature unlimited nationwide voice, text, and data services. These
plans also allow customers the option of being on a service contract and
receiving a subsidized handset, or a no-contract option at lower rates but
without a discounted handset. The no-contract plan also includes the option of
no-interest handset financing over a period of up to 20 months.
The
differences between the United States and European mobile telecommunications
markets result in different competitive pressures. Like the European market,
handset lineup and the perceived value of bundles of voice, messaging, and data
services are key competitive factors in the United States. In
addition, 3G network coverage and quality in the United States has recently
become a more important factor than in the past. To the extent that the
competitive environment requires T-Mobile USA to decrease prices, or increase
service and product offerings, there could be significant adverse impacts to
revenues, costs and customer retention.
United
Kingdom
T-Mobile
UK offers mobile telecommunications services to individual and business
customers in the United Kingdom.
|
Customers
(millions)
|
|
As
of December 31, 2009
|
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
Total
|
|
|
17.2 |
|
|
|
16.8 |
|
|
|
17.3 |
|
|
Contract
|
|
|
4.1 |
|
|
|
4.1 |
|
|
|
3.9 |
|
|
Prepay
|
|
|
13.1 |
|
|
|
12.7 |
|
|
|
13.4 |
|
|
Thereof
: Virgin Mobile
|
|
|
4.3 |
|
|
|
4.8 |
|
|
|
5.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
churn rate
|
|
For
the year ended
December
31, 2009
|
|
|
For
the year ended
December
31, 2008
|
|
|
For
the year ended
December
31, 2007
|
|
|
Total
|
|
|
2.6 |
% |
|
|
3.4 |
% |
|
|
3.2 |
% |
|
Contract
|
|
|
2.1 |
% |
|
|
2.1 |
% |
|
|
2.0 |
% |
|
Prepay
|
|
|
2.8 |
% |
|
|
4.0 |
% |
|
|
3.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2009,
T-Mobile UK’s total customer base increased compared to 2008. The number of
prepay customers (not including Virgin Mobile customers) increased by 0.8
million, which was mainly caused by focusing on SIM card only sales.
At
December 31, 2008, T-Mobile UK had approximately 16.8 million customers,
compared to approximately 17.3 million at December 31, 2007.
The
number of Virgin Mobile Telecoms Limited, or Virgin Mobile, customers decreased
by 0.5 million year on year. Customers of Virgin Mobile, an MVNO, are included
in T-Mobile UK’s reported customer base as prepay customers because it is
currently impossible for T-Mobile UK to differentiate between Virgin Mobile
customers as contract customers or prepay customers. As an MVNO, Virgin Mobile
purchases airtime minutes and basic mobile services from T-Mobile UK and resells
these minutes and services under the “Virgin Mobile” brand name.
Of the
total number of T-Mobile UK customers at December 31, 2008 and 2007,
approximately 4.8 million and 5.2 million, respectively, were customers of
Virgin Mobile. M2M cards
are also included in the T-Mobile UK customer base. M2M cards account for one
percent of the overall customer base.
On November
5, 2009, we and France Télécom entered into an agreement to merge their
mobile units in the UK. The closing of the transaction is expected during the
course of 2010, depending on the approval of the respective authorities. The
outcome of the merger will be a 50:50 joint venture with a balanced
governance structure. Through this merger, we and France Télécom are creating a
company in the UK mobile market that will serve a combined customer base of
approximately 32.7 million customers (as of the end of third quarter 2009
and including Virgin Mobile customers). The transaction also has synergy
potential through costs savings that we expect to realize through integration
and scale and includes the Orange broadband activities.
Under the
terms of the joint venture agreement, if a third party were to take a
controlling stake in Deutsche Telekom, France Télécom would be relieved of all
restrictions imposed on the shareholders relating to the transfer of their
shares for a period of one year. However, even in this situation, transferring
shares to competitors would remain prohibited.
In
December 2007, “3” (a brand name of Hutchison 3G UK Limited) and T-Mobile UK
entered into a network sharing agreement to consolidate their 3G Radio
Access Networks to provide customers with enhanced network coverage and faster
access to high-speed mobile services at a lower cost. In early 2008, the joint
venture they established, Mobile Broadband Network Limited, or MBNL, introduced
its first integrated cell site using the new network consolidation technology.
With the continued strong cooperation with our joint venture partner, Hutchison
3G, MBNL has significantly advanced the progress of its network roll out.
We expect considerable further progress in the expansion of the 3G network
in 2010 to provide the UK's largest 3G network to our customers in
terms of number of sites.
During
2009, T-Mobile UK’s average monthly churn rate (not including Virgin Mobile
customers) was 2.6%, compared to 3.4% in 2008. This decrease in churn rate was
predominantly caused by the decrease in T-Mobile UK’s prepay churn rate of 2.8%
per month in 2009, compared to 4.0% per month in 2008. This positive development
was caused mainly by improved prepay retention programs. The contract churn rate
remained unchanged.
During
2008, T-Mobile UK’s average monthly churn rate (not including Virgin Mobile
customers) was 3.4%, compared to 3.2% in 2007. The increase in churn was
predominantly caused by an increase in T-Mobile UK’s prepay churn rate of 4.0%
per month in 2008, compared to 3.8% per month in 2007, which was mainly caused
by an intense focus on the contract customer base. The contract churn rate was
2.1% per month in 2008, which slightly increased compared to 2007
Generally,
a contract customer of T-Mobile UK is churned either after the voluntary
termination upon the lapse of a contract or after forced contract termination
due to the customer’s failure to fulfill contractual obligations. A prepay
customer in the United Kingdom is churned after a period of 180 days of
inactivity, i.e., the customer has neither originated nor received a voice or
data communication in that period. Virgin Mobile reports to T-Mobile UK the
number of customers using a churn policy whereby a customer is churned after a
period of 180 days of inactivity.
In the
UK, T-Mobile UK faces intense competition from mobile network operators
Vodafone, O2, Orange
and “3”. In addition, in the retail market, T-Mobile UK competes against
resellers and MVNOs.
Poland
Through
PTC, we offer mobile telecommunications services to individual and business
customers in Poland. We hold a 97% interest in PTC.
|
Customers
(millions)
|
|
As
of December 31, 2009
|
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
Total
|
|
|
13.5 |
|
|
|
13.3 |
|
|
|
13.0 |
|
|
Contract
|
|
|
6.7 |
|
|
|
6.3 |
|
|
|
5.4 |
|
|
Prepay
|
|
|
6.8 |
|
|
|
6.9 |
|
|
|
7.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
churn rate
|
|
For
the year ended
December
31, 2009
|
|
|
For
the year ended
December
31, 2008
|
|
|
For
the year ended
December
31, 2007
|
|
|
Total
|
|
|
2.7 |
% |
|
|
3.1 |
% |
|
|
3.1 |
% |
|
Contract
|
|
|
0.8 |
% |
|
|
0.6 |
% |
|
|
0.7 |
% |
|
Prepay
|
|
|
4.6 |
% |
|
|
5.2 |
% |
|
|
4.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2009,
the customer base of PTC increased compared with 2008 due to a positive
development in the number of contract customers, as a result of successful
retention campaigns.
The
monthly churn decreased in 2009 compared with 2008. This reduction was due to a
high prepay churn in 2008 as a result of disconnections of SIM cards that were
being used improperly at that time.
PTC’s
average churn rate during 2008 and 2007 was 3.1% per month. The average contract
churn rate during 2008 was 0.6% per month, which represents a decrease from 0.7%
per month in 2007, primarily due to intensive retention campaigns. The average
prepay churn rate increased from 4.6% per month in 2007 to 5.2% per month in
2008, primarily due to disconnections of improperly used SIM cards.
In
general, a contract customer of PTC is churned either after the voluntary
termination upon the lapse of a contract or after forced contract termination
due to the customer’s failure to fulfill contractual obligations. PTC’s prepay
churn policy generally states that a customer can originate calls or data
traffic and receive data or voice communications during the relevant validity
period. The length of the validity period can be up to 12 months depending on
the recharge amount (account validity). The validity period can be extended by
additional top-up credits. If a customer exceeds the account validity date, the
customer will receive a grace period depending on the applicable tariff. During
the grace period, the customer can only receive voice and data communications.
The grace period is either 3 months or 12 months depending on the tariff plan.
If the prepay account has not been topped-up during this grace period, the
customer is churned.
PTC
includes in its customer base machine-to-machine cards. M2M cards account for
1.4% of the overall customer base in 2009.
In
Poland, PTC faces competition from network operators Polkomtel, Centertel and P4
and in addition from MVNOs.
For
information regarding a dispute concerning our investment in PTC, including
challenges to our ownership of PTC shares, see “Item 8. Financial
Information—Legal Proceedings.”
The
Netherlands
Through
T-Mobile Netherlands, we offer mobile telecommunications and broadband
fixed-line services to individual and business customers in The
Netherlands.
|
Customers
(millions)
|
|
As
of December 31, 2009
|
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
Total
|
|
|
4.6 |
|
|
|
5.3 |
|
|
|
4.9 |
|
|
Contract
|
|
|
2.4 |
|
|
|
2.3 |
|
|
|
2.1 |
|
|
Prepay
|
|
|
2.2 |
|
|
|
3.0 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
churn rate
|
|
For
the year ended
December
31, 2009
|
|
|
For
the year ended
December
31, 2008
|
|
|
For
the year ended
December
31, 2007
|
|
|
Total
|
|
|
3.8 |
% |
|
|
2.5 |
% |
|
|
2.8 |
% |
|
Contract
|
|
|
1.5 |
% |
|
|
1.6 |
% |
|
|
1.4 |
% |
|
Prepay
|
|
|
5.6 |
% |
|
|
3.1 |
% |
|
|
4.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
T-Mobile Netherlands, the overall customer base decreased in 2009 compared with
2008. This decline was attributable to a reduction in the prepay customer base
as a result of an increase in prepay churn. The contract customer base increased
in 2009, despite a highly competitive market situation in The
Netherlands.
In 2009,
the overall churn rate increased sharply as a result of an increase in the
prepay churn rate. The increase of prepay churn was caused by an initiative
resulting from the Orange customer migration. Prepay customers of Orange
Nederland N.V. who had been migrated to the T-Mobile Netherlands customer base
in the middle of 2009, but who did not show any activity within 180 days after
the migration, were churned by the end of 2009. This led to a significant
decrease of customer base in the prepay segment. The churn rate in the contact
customer segment decreased in 2009 compared with 2008 as a result of enhanced
initiatives for customer retention.
T-Mobile
Netherlands’ average churn rate for 2008 (including Orange Nederland for a full
year) was 2.5% per month, compared to an average churn rate of 2.8% per month in
2007. This decrease in 2008 was due to a decrease in prepay churn
rate.
In
general, a contract customer of T-Mobile Netherlands is churned either after the
voluntary termination upon the lapse of a contract or after forced contract
termination due to the customer’s failure to fulfill contractual obligations. If
a prepay customer of T-Mobile Netherlands has neither originated nor received
voice or data activity (or received only SMS/MMS messages) for a period of
180 days, the customer is churned and removed from the customer
base.
In the
Dutch retail market, in addition to competition from the mobile network
operators KPN Mobile and Vodafone, T-Mobile Netherlands competes with an
increasing number of MVNOs.
Czech
Republic
Through
T-Mobile Czech Republic, we offer mobile telecommunications services to
individual and business customers in the Czech Republic and since December 2009
fixed line services. We hold an interest of approximately 61% in T-Mobile Czech
Republic.
|
Customers
(millions)
|
|
As
of December 31, 2009
|
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
Total
|
|
|
5.5 |
|
|
|
5.4 |
|
|
|
5.3 |
|
|
Contract
|
|
|
2.7 |
|
|
|
2.5 |
|
|
|
2.2 |
|
|
Prepay
|
|
|
2.8 |
|
|
|
2.9 |
|
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
churn rate
|
|
For
the year ended
December
31, 2009
|
|
|
For
the year ended
December
31, 2008
|
|
|
For
the year ended
December
31, 2007
|
|
|
Total
|
|
|
1.4 |
% |
|
|
1.4 |
% |
|
|
1.4 |
% |
|
Contract
|
|
|
0.5 |
% |
|
|
0.5 |
% |
|
|
0.6 |
% |
|
Prepay
|
|
|
2.2 |
% |
|
|
2.1 |
% |
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2009,
the overall customer base of T-Mobile Czech Republic slightly increased compared
with 2008. As a result of our strategy to focus on high value contract
customers, the contract customer base increased year-over-year, while the prepay
customer base slightly decreased.
The
slight increase in the prepay churn rate in 2009 was the result of a stable
level of prepay disconnections relative to a smaller average customer base due
to lower prepay customer gross additions.
T-Mobile
Czech Republic’s average churn rate during 2008 was 1.4% per month, which is
approximately the same as in 2007. The average contract churn rate during 2008
was 0.5% per month, compared to the average contract churn rate of 0.6% per
month during 2007. The average prepay churn rate during 2008 was 2.1% per month,
compared to the average prepay churn rate of 1.9% per month during 2007. The
year-over-year changes of contract and prepay churn are caused by an ongoing
trend of migration to prepay segment instead of deactivation the customer in
contract segment, which allows T-Mobile Czech Republic to save part of contract
customers in prepay segment. Nevertheless it is also increasing the prepay
churn.
At
T-Mobile Czech Republic, generally, a contract customer is churned either after
the voluntary termination upon the lapse of a contract or after forced contract
termination due to the customer’s failure to fulfill contractual obligations. In
the absence of re-charging, a prepay customer is churned 30 days after
completing a period of 12 months without charged voice or data
communications activity.
In the
Czech Republic, T-Mobile Czech Republic faces competition from Telefónica O2 Czech Republic
(formerly Eurotel Praha), Vodafone Czech Republic (formerly Oskar Mobil) and
since mid-2008 MobilKom under its brand “U:Fon”.
Austria
Through
T-Mobile Austria, we offer mobile telecommunications services to individual and
business customers in Austria.
|
Customers
(millions)
|
|
As
of December 31, 2009
|
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
Total
|
|
|
3.4 |
|
|
|
3.4 |
|
|
|
3.3 |
|
|
Contract
|
|
|
2.3 |
|
|
|
2.3 |
|
|
|
2.1 |
|
|
Prepay
|
|
|
1.1 |
|
|
|
1.1 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
churn rate
|
|
For
the year ended
December
31, 2009
|
|
|
For
the year ended
December
31, 2008
|
|
|
For
the year ended
December
31, 2007
|
|
|
Total
|
|
|
1.8 |
% |
|
|
1.8 |
% |
|
|
2.0 |
% |
|
Contract
|
|
|
1.1 |
% |
|
|
1.0 |
% |
|
|
1.2 |
% |
|
Prepay
|
|
|
3.5 |
% |
|
|
3.3 |
% |
|
|
3.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2009,
the customer base of T-Mobile Austria remained unchanged compared with 2008,
both in the contract and the prepay customer segment. This result was achieved
despite intense competition in the Austrian mobile communication market. M2M
cards account for one percent of T-Mobile Austria’s overall prepay customer base
at the end of 2009.
The
overall churn rate at T-Mobile Austria remained stable in 2009 compared with
2008, despite a slight churn rate increase in prepay and contract. This effect
was attributable to a slightly higher average contract customer share in the
overall average customer base in 2009 compared with 2008. The prepay churn rate
increased as a result of intense competition in the Austrian mobile
communication market.
T-Mobile
Austria’s average churn rate during 2008 slightly decreased to 1.8% per month
(tele.ring’s average churn rate was 2.1% per month during 2008), as compared to
the average churn rate of 2.0% per month during 2007. The average churn rate for
contract customers during 2008 decreased to 1.0% per month compared to 1.2% per
month in 2007 (tele.ring’s average contract churn rate was 1.2% per month during
2008) due to increased retention measures. The average prepay churn rate during
2008 was 3.3% per month, compared to the average prepay churn rate of 3.4% per
month during 2007.
In
general, a contract customer is churned either after the voluntary termination
upon the lapse of a contract or after forced contract termination due to the
customer’s failure to fulfill contractual obligations. Since the beginning of
September 2007, T-Mobile Austria has generally churned prepay customers if
they had 13 months and two weeks without any charged data or voice
communication.
tele.ring,
which we manage as a separate brand within T-Mobile Austria, generally churned
prepay customers after three months without any charged data or voice
communication. Beginning in January 2010, the churn policy of T-Mobile Austria
for prepay customers will also be used for tele.ring prepay customers. The
alignment of the churn policies will result in a higher reported subscriber base
and thus, a lower amount of average revenue per customer.
In
Austria, T-Mobile Austria primarily faces competition from mobilkom austria,
Orange (formerly ONE) and “3”.
Our
Southern and Eastern Europe (SEE) operating segment includes the fixed-network
and mobile communications subsidiaries of T-Hrvatski Telekom, Slovak Telekom,
Magyar Telekom, Makedonski Telekom, Crnogorski Telekom and the OTE group: OTE,
COSMOTE, Romtelecom, COSMOTE Romania, Globul (Bulgaria) and AMC
(Albania).
|
|
|
As
of December 31, 2009
|
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
Fixed-network
lines (1)
|
|
|
11.9 |
|
|
|
12.8 |
|
|
|
13.6 |
|
|
Retail
broadband lines
|
|
|
3.5 |
|
|
|
3.0 |
|
|
|
2.1 |
|
|
Wholesale
bundled lines (2)
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.4 |
|
|
ULLs
(3)
|
|
|
1.1 |
|
|
|
0.7 |
|
|
|
0.3 |
|
|
Mobile
customers (4)
|
|
|
34.6 |
|
|
|
31.6 |
|
|
|
26.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTE
has been consolidated since February 2009. Prior-year figures in
all tables have been adjusted accordingly on a pro forma
basis.
|
|
(1)
|
Lines
in operation excluding internal use and public telecommunications,
including IP-based lines.
|
|
(2)
|
Wholesale
bundled lines: sale of broadband lines based on DSL technology to
alternative providers outside Deutsche Telekom, including bundled
IP-Bitstream Access (IP-BSA). In the case of IP-BSA, we lease DSL lines to
the competitor and transport the datastream carried over these
lines.
|
|
(3)
|
Unbundled
local loop line: Deutsche Telekom wholesale service that can be leased by
alternative telecommunications operators without upstream technical
equipment in order to offer their own customers a telephone or DSL
line.
|
|
(4)
|
One
mobile communications card corresponds to one
customer.
|
Hungary
We hold a
59.2% interest in Magyar Telekom, the leading full-service telecommunications
provider in terms of customers and revenues in Hungary. The following table
summarizes our key customer information for Hungary.
|
Fixed
network
|
|
|
|
|
|
|
|
|
|
|
Lines
(millions)(1)
|
|
As
of December 31, 2009
|
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
Broadband
access lines
|
|
|
0.8 |
|
|
|
0.8 |
|
|
|
0.7 |
|
|
Fixed
network access lines
|
|
|
1.8 |
|
|
|
2.0 |
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile
communications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers
(millions)(2)
|
|
As
of December 31, 2009
|
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
Total
|
|
|
5.1 |
|
|
|
5.4 |
|
|
|
4.9 |
|
|
Contract
|
|
|
2.3 |
|
|
|
2.1 |
|
|
|
1.8 |
|
|
Prepay
|
|
|
2.8 |
|
|
|
3.3 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
churn rate
|
|
For
the year ended
December
31, 2009
|
|
|
For
the year ended
December
31, 2008
|
|
|
For
the year ended
December
31, 2007
|
|
|
Total
|
|
|
2.1 |
% |
|
|
1.3 |
% |
|
|
1.3 |
|
|
Contract
(3)
|
|
|
1.1 |
% |
|
|
0.9 |
% |
|
|
0.8 |
|
|
Prepay
(4)
|
|
|
2.8 |
% |
|
|
1.6 |
% |
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Lines
in operation, including IP-based lines, but excluding internal use and
public telecommunications systems. Broadband include bundled and unbundled
resale and retail services.
|
|
(2)
|
Total
number of contract and prepay customers at year-end for the periods
presented based on the number of activated SIM cards. One SIM
card corresponds to one customer.
|
|
(3)
|
A
contract customer of T-Mobile Hungary is churned either after the
voluntary termination upon the lapse of his contracted loyalty period or
after forced contract termination due to the customer’s failure to fulfill
payment obligations.
|
|
(4)
|
In
the absence of re-charging, a prepay customer is suspended after a period
of 12 to 16 months depending on the amount charged on the prepay
card.
|
Magyar
Telekom offers telecommunications services, such as fixed-line and mobile
telephone services, data communications services, wholesale services,
IP/Internet services, multimedia broadcast services and other services for
customers throughout Hungary. Magyar Telekom’s systems integration and IT
operations are reported under our operating segment Systems
Solutions.
In 2009,
the number of Magyar Telekom's fixed-network access lines in operation decreased
compared to 2008 and 2007 mainly due to ongoing fixed-mobile
substitution. The positive development of the broadband market and high demand
for broadband solutions influenced Magyar Telekom's number of
broadband access lines in operation. Broadband access lines in operation
increased in 2009 to 789,000, compared to 761,000 at December 31, 2008 and
715,000 at December 31, 2007.
In
September 2008, Magyar Telekom decided to roll-out a fiber-optic network that
would enable it to offer innovative products, including television services.
Magyar Telekom’s multimedia services business primarily consists of its cable
television business. The number of Magyar Telekom’s cable television
customers decreased to 407,000 at December 31, 2009 from 423,000
at December 31, 2008 and 419,000 at December 31, 2007, mainly driven
by the entry of new competing technologies. As part
of Magyar Telekom’s strategy to provide international network and carrier
services in southeastern Europe, Magyar Telekom currently offers wholesale
services in Romania, Bulgaria and the Ukraine.
T-Mobile
Hungary, the mobile brand of Magyar Telekom, offers mobile telecommunications
services to individual and business customers in Hungary. At December 31,
2009, the number of T-Mobile Hungary’s customers declined compared with 2008 due
mainly to the impact of the economic crisis and the churn of inactive SIM cards.
Growth in
the number of contract customers, as a result of attractive tariff packages,
sales commission schemes and loyalty programs, partially offset the decline in
prepay customers.
T-Mobile
Hungary’s average churn rate during 2009 was 2.1% per month, which represents an
increase from 2008. The average contract churn rate in 2009 was approximately
1.1% per month, compared to approximately 0.9% per month in 2008 due to
continued competitive pressure in the Hungarian market. The corresponding prepay
customer churn rate was approximately 2.8% in 2009 compared to approximately
1.6% in 2008 due to increased churn of inactive customers and cancellations
related to the economic crisis.
Croatia
We own
51% of T-Hrvatski Telekom, the leading full-service telecommunications provider
in the Croatia in terms of revenues. The following table summarizes our key
customer information for Croatia.
|
Fixed
network
|
|
|
|
|
|
|
|
|
|
|
Lines
(millions) (1)
|
|
As
of December 31, 2009
|
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
Broadband
access lines
|
|
|
0.6 |
|
|
|
0.5 |
|
|
|
0.3 |
|
|
Fixed
network access lines
|
|
|
1.5 |
|
|
|
1.6 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile
communications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers
(millions) (2)
|
|
As
of December 31, 2009
|
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
Total
|
|
|
2.9 |
|
|
|
2.7 |
|
|
|
2.4 |
|
|
Contract
|
|
|
0.9 |
|
|
|
0.8 |
|
|
|
0.7 |
|
|
Prepay
|
|
|
1.9 |
|
|
|
1.9 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
churn rate
|
|
For
the year ended
December
31, 2009
|
|
|
For
the year ended
December
31, 2008
|
|
|
For
the year ended
December
31, 2007
|
|
|
Total
|
|
|
1.9 |
% |
|
|
1.4 |
% |
|
|
1.3 |
% |
|
Contract
(3)
|
|
|
0.8 |
% |
|
|
0.7 |
% |
|
|
0.7 |
% |
|
Prepay
(4)
|
|
|
2.3 |
% |
|
|
1.7 |
% |
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Lines
in operation, including IP-based lines, but excluding internal use and
public telecommunications systems. Broadband
access lines include bundled and unbundled resale and retail
services.
|
|
(2)
|
Total
number of contract and prepay customers at year-end for the periods
presented based on the number of activated SIM cards. One SIM card
corresponds to one customer.
|
|
(3)
|
A
contract customer is churned either after the voluntary termination upon
the lapse of his contract or after forced contract termination due to the
customer’s failure to fulfill contractual
obligations.
|
|
(4)
|
A
prepay customer is churned after a period of 270 days without
recharging.
|
T-Hrvatski
Telekom offers access and local, long-distance and international fixed-line
telephone services, data communications services, IP/Internet services,
including IPTV, and wholesale services and mobile telecommunications services
through T-Mobile Hrvatska d.o.o., or T-Mobile Croatia, to individual and
business customers in Croatia. As of January 1, 2010, T-Hrvatski Telekom merged
its fixed network and mobile communication businesses to improve customer
service and operational efficiencies.
T-Hrvatski
Telekom operates a digitalized fixed-line telecommunications network and started
the commercial roll-out of a fiber network in 2008. In 2009, the number of
T-Hrvatski Telekom’s fixed network access lines in operation decreased slightly
compared to 2008 and 2007. The number of broadband access lines provided by
T-Hrvatski Telekom continued to increase in 2009. The number of broadband access
lines in operation at December 31, 2009 was 555,000 compared to 473,000 at
December 31, 2008 and 345,000 at December 31, 2007. The fixed-line business
continues to be characterized by increasing competition, particularly the
broadband business, as a result of the unbundled local loop. However,
mobile substitution is the main competitive challenge in Croatia.
Through
its wholly-owned subsidiary, T-Mobile Croatia, T-Hrvatski Telekom offers mobile
telecommunications services to individual and business customers in Croatia. At
December 31, 2009, T-Mobile Croatia had approximately 2.8 million
customers, an increase compared to 2008. Of the total customers at
December 31, 2009, approximately 0.9 million were contract customers,
a slight increase over 2008 primarily as a result of attractive
tariffs. The number of prepay customers slightly increased in 2009
compared with 2008.
T-Mobile
Croatia’s average monthly churn rate during 2009 increased to 1.9% from 1.4% per
month in 2008, primarily as a result of increased contract and prepay churn. The
average contract churn rate was 0.8% per month in 2009, a slight increase
compared with 2008 primarily as a result of increasing
competition. The average prepay churn rate during 2009 was 2.3% per
month compared with 1.7% per month in 2008, mainly as a result of increased
competition in the lower-margin prepay segment.
Slovakia
We hold a
51% interest in Slovak Telekom, a leading full-service telecommunications
provider in the Slovak Republic. The following table summarizes our key customer
information for Slovakia.
|
Fixed
network
|
|
|
|
|
|
|
|
|
|
|
Lines
(millions) (1)
|
|
As
of December 31, 2009
|
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
Broadband
access lines
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
Fixed
network access lines
|
|
|
1.1 |
|
|
|
1.1 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile
communications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers
(millions)
(2)
|
|
As
of December 31, 2009
|
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
Total
|
|
|
2.4 |
|
|
|
2.3 |
|
|
|
2.4 |
|
|
Contract
|
|
|
1.4 |
|
|
|
1.4 |
|
|
|
1.2 |
|
|
Prepay
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
churn rate
|
|
For
the year ended
December
31, 2009
|
|
|
For
the year ended
December
31, 2008
|
|
|
For
the year ended
December
31, 2007
|
|
|
Total
|
|
|
1.4 |
% |
|
|
1.8 |
% |
|
|
1.5 |
% |
|
Contract
(3)
|
|
|
1.0 |
% |
|
|
0.8 |
% |
|
|
0.8 |
% |
|
Prepay
(4)
|
|
|
2.0 |
% |
|
|
3.0 |
% |
|
|
2.1 |
% |
|
(1)
|
Lines
in operation, including IP-based lines, but excluding internal use and
public telecommunications systems. Broadband access lines include bundled
and unbundled resale and retail
services.
|
|
(2)
|
Total
number of contract and prepay customers at year-end for the periods
presented based on the number of activated SIM cards. One SIM
card corresponds to one customer.
|
|
(3)
|
A
contract customer is churned either after the voluntary termination upon
the lapse of his contract or after forced contract termination due to the
customer’s failure to fulfill contractual
obligations.
|
|
(4)
|
A
prepay customer is churned after a period of 12 months without
re-charging since the most recent
use.
|
Slovak
Telekom offers access and local, long-distance and international fixed-line
telephone services, data communications services, wholesale services, and
IP/Internet services. In January 2010, Slovak Telekom officially launched
satellite TV services. Through its wholly-owned subsidiary, T-Mobile Slovensko,
Slovak Telekom offers mobile telecommunications services to individual and
business customers in Slovakia. In December 2009, the Boards of Directors of
Slovak Telekom and T-Mobile Slovensko approved a plan to combine the fixed-line
and mobile businesses into one integrated company in 2010 with the objective of
improving customer service and internal efficiency.
Slovak
Telekom’s total number of fixed-network access lines decreased slightly in 2009
by 2.2% compared to 2008. The decrease in traditional fixed network lines was
partially offset by an increase in the number of All-IP access lines compared to
previous year. Slovak Telekom’s total number of fixed-network access lines
decreased in 2008 by 1.3% compared to 2007, despite a substantial increase in
demand for All-IP access lines. In 2009, Slovak Telekom continued to increase
its triple-play services offering and believes that triple-play is one of the
main drivers for the success of its broadband business. The number of broadband
access lines in operation in Slovak Telekom’s network continued to increase in
2009. The number of broadband access lines in operation at December 31, 2009 was
391,000 compared with 339,000 at December 31, 2008 and 261,000 at
December 31, 2007. Mobile substitution remains one of the main competitive
challenges for Slovak Telekom’s fixed-network business.
At
December 31, 2009, T-Mobile Slovensko had approximately 2.4 million customers,
compared with 2.3 million at December 31, 2008 and 2.4 million at
December 31, 2007. The slight increase in the number of customers in 2009
compared to 2008 was primarily a result of overall market growth. T-Mobile
Slovensko’s average churn rate during 2009 was 1.4% per month, which
represents a decrease from 1.8% in 2008, primarily as a result of the decline in
prepay churn, which was partially offset by an increase in contract churn. The
average prepay churn decreased from 3.0% per month in 2009 to 2.0% per month in
2008, primarily as a result of less competition. The average contract
churn rate increased from 0.8% per month to 1.0% per month in 2009, primarily as
a result of increasing competition.
Greece
We
currently own 30% plus one share in OTE and control additional shares through a
shareholders’ agreement with the Hellenic Republic or HR, pursuant to which
we have assumed management control of OTE. We have consolidated OTE since
February 2009. The Hellenic Republic also has a put option with respect to its
current holdings in OTE. For more information, see “Item 5. Operating and
Financial Review and Prospects—Liquidity and Capital Resources—Contractual
Obligations and Other Commitments—Contractual Cash Obligations.” In addition to
its presence in Greece, OTE also has subsidiaries in Romania, Bulgaria and
Albania.
The
following table summarizes our key customer information for Greece.
|
Fixed
network
|
|
|
|
|
|
|
|
|
|
|
Lines
(millions) (1)
|
|
As
of December 31, 2009
|
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
Broadband
access lines
|
|
|
1.1 |
|
|
|
1.0 |
|
|
|
0.8 |
|
|
Fixed
network access lines
|
|
|
4.2 |
|
|
|
4.6 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile
communications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers
(millions)
(2)
|
|
As
of December 31, 2009
|
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
Total
|
|
|
9.2 |
|
|
|
7.9 |
|
|
|
6.3 |
|
|
Contract
|
|
|
2.3 |
|
|
|
2.2 |
|
|
|
2.0 |
|
|
Prepay
|
|
|
6.9 |
|
|
|
5.7 |
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
churn rate
|
|
For
the year ended
December
31, 2009
|
|
|
For
the year ended
December
31, 2008
|
|
|
For
the year ended
December
31, 2007
|
|
|
Total
|
|
|
3.2 |
% |
|
n.a.
|
|
|
n.a.
|
|
|
Contract
(3)
|
|
|
2.0 |
% |
|
n.a.
|
|
|
n.a.
|
|
|
Prepay
(4)
|
|
|
3.6 |
% |
|
n.a.
|
|
|
n.a.
|
|
|
n.a.—not
applicable
|
|
|
|
|
|
|
|
|
|
|