dtagq1interimreport.htm
 

 
UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
 
Form 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
 
For the month of May 2010
 
Commission file number 001-14540
 
Deutsche Telekom AG
(Translation of Registrant’s Name into English)
 
 
Friedrich-Ebert-Allee 140,
53113 Bonn,
Germany
(Address of Principal Executive Offices)
 
 
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
Form 20-F x            Form 40-F o
 
Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
 
Yes o            No x
 
This report is deemed submitted and not filed pursuant to the rules and regulations of the Securities and Exchange Commission.


 
 
 



Deutsche Telekom at a glance.
 
   
Q1
2010
millions of €
    
Q1
2009
millions of €
    
Change
 
%
    
FY
2009
millions of €
  
Revenue and earnings
                        
Net revenue
     15,812       15,902       (0.6 )     64,602  
Domestic
     6,739       6,943       (2.9 )     28,033  
International
     9,073       8,959       1.3       36,569  
Proportion generated internationally
(%)
     57.4       56.3               56,6  
Profit from operations (EBIT)
     2,029       244    
n.a.
       6,012  
Net profit (loss)
     767       (1,124 )  
n.a.
       353  
Net profit (loss) (adjusted for special factors)
     891       655       36.0       3,390  
EBITDA
     4,690       4,942       (5.1 )     19,906  
EBITDA (adjusted for special factors)
     4,890       4,812       1.6       20,668  
EBITDA margin (adjusted for special factors)
(%)
     30.9       30.3               32,0  
Earnings per share basic/diluted
(€)
     0.18       (0.26 )  
n.a.
       0,08  
                                 
Statement of financial position
                                  
Total assets
     130,803       133,764       (2.2 )     127,774  
Shareholders’ equity
       44,279       45,158       (1.9 )     41 937  
Equity ratio
(%)
     33.9       33.8               32,8  
Net debt
     40,418       42,833       (5.6 )     40,911  
Cash capex
     (1,934 )     (2,611 )     25.9       (9,202 )
                                 
Cash flows
                                
Net cash from operating activities
     3,271       2,966       10.3       15,795  
Free cash flow (before dividend payments)
     1,439       416    
n.a.
       6,969  
Net cash used in investing activities
     (1,793 )     (1,509 )     (18.8 )     (8,649 )
Net cash used in financing activities
     (899 )     (387 )  
n.a.
       (5,123 )
                                 

 
Number of employees at the reporting date.
 
   
Mar. 31, 2010
    
Dec. 31, 2009
    
Change
Mar. 31, 2010/
Dec. 31, 2009
%
    
Mar. 31, 2009
    
Change
Mar. 31, 2010/
Mar. 31, 2009
%
  
Deutsche Telekom Group
     258,240       259,920       (0.6 )     260,798       (1.0 )
Non-civil servants
     229,299       230,732       (0.6 )     228,928       0.2  
Civil servants (domestic)
     28,941       29,188       (0.8 )     31,870       (9.2 )
                                         

 
Number of fixed-network and mobile customers.
 
   
Mar. 31, 2010
    
Dec. 31, 2009
    
Change
Mar. 31, 2010/
Dec. 31, 2009
%
    
Mar. 31, 2009
    
Change
Mar. 31, 2010/
Mar. 31, 2009
%
  
Fixed-network lines
(millions)
     37.5       38.2       (1.8 )     40.3       (6.9 )
Retail broadband lines
(millions)
     15.4       15.0       2.7       14.2       8.5  
Mobile customers
(millions)
     150.2       151.7       (1.0 )     148.5       1.1  
                                         

For a detailed explanation of the performance indicators used in this Interim Group Report (special factors affecting EBIT, adjusted EBIT, the EBIT margin, and the special factors affecting EBITDA, adjusted EBITDA, the adjusted EBITDA margin and the special factors affecting profit/loss after income taxes and the adjusted net profit, cash capex, free cash flow, and net debt), please refer to “Reconciliation of pro forma figures,” page 60 et seq. The performance indicators used by Deutsche Telekom are defined in the Glossary.

 
 
 

 
Contents
To our shareholders
  
Developments in the Group
  
T-Share price performance
  
Corporate governance
  
Highlights in the first quarter of 2010
  
Interim Group management report
  
The economic environment
  
Group strategy
  
Development of business in the Group
  
Development of business in the operating segments
  
Risks and opportunities
  
Events after the reporting period
  
Development of revenue and profits
  
Interim consolidated financial statements
  
Consolidated statement of financial position
  
Consolidated income statement
  
Consolidated statement of comprehensive income
  
Consolidated statement of changes in equity
  
Consolidated statement of cash flows
  
Selected explanatory notes
  
Review report
  
Further information
  
Reconciliation of pro forma figures
  
Financial calendar
  
Glossary
  
Disclaimer
  

 

 
 
 

To our shareholders.
 
Developments in the Group.
 
§  
Net revenue of the Group decreased slightly by 0.6 percent year-on-year in the first quarter of 2010 to EUR 15.8 billion.
 
§  
The proportion of net revenue generated internationally increased from 56.3 percent to 57.4 percent. Domestic net revenue was EUR 6.7 billion in the first quarter of 2010, EUR 0.2 billion lower than in the first quarter of 2009. International net revenue increased year-on-year by EUR 0.1 billion to EUR 9.1 billion.
 
§  
Group EBITDA decreased in the first quarter of 2010 by EUR 0.3 billion to EUR 4.7 billion compared with the first three months of 2009. Group EBITDA adjusted for special factors increased from EUR 4.8 billion in the prior-year period to EUR 4.9 billion.
 
§  
Net profit increased by EUR 1.9 billion in the first quarter of 2010 to EUR 0.8 billion.
 
§  
Earnings per share increased in the first quarter of 2010 by EUR 0.44 to EUR 0.18 compared with the prior-year quarter.
 
§  
Free cash flow before dividend payments increased to EUR 1.4 billion compared with EUR 0.4 billion in the first quarter of 2009.
 
§  
Net debt decreased by EUR 0.5 billion compared with the end of 2009 to EUR 40.4 billion.
 


 
 
 

T-Share price performance.
 
 
Performance of the T-Share in the first quarter of 2010.
 
 
T-Share performance.
 
      Q1 2010       Q1 2009    
FY
2009
  
Xetra closing prices
(€)
                      
Share price on the last trading day
     10.04       9.35       10.29  
Quarterly high
     10.60       11.39       11.39  
Quarterly low
     9.21       9.07       7.93  
                         
Weighting of the T-Share in major stock indexes
                        
DAX 30
(%)
     5.5       7.5       5.8  
Dow Jones Euro STOXX 50©
(%)
     1.8       2.6       1.9  
Dow Jones Europe STOXX Telecommunications©
(%)
     9.2       10.4       9.3  
                         
Market capitalization
(billions of €)
     43.9       40.9       44.9  
Shares issued
(millions)
     4,361       4,361       4,361  
                         
 
The equity markets continued their recovery in the first quarter of 2010. Stocks dipped briefly in early February on weak U.S. labor market figures and concern about debt levels in a number of EU Member States, causing a minor relapse in equity markets in Europe and the United States in particular. Positive economic indicators and proposed solutions to the debt problems of several EU Member States, most notably Greece, led the stock markets to rebound in February. The DAX 30 gained 3.3 percent over the quarter, while in the United States the S&P500 and the Dow Jones Industrial Average Index increased by 4.7 percent and 4.1 percent respectively during the same period. The Dow Jones STOXX 50 rose by 1.5 percent and the much larger Dow Jones STOXX 600 by 3.8 percent.
 
Financial equities and other stocks that are sensitive to economic fluctuations were both the losers in February and the winners in March, whereas defensive securities such as telecommunications stocks slightly underperformed the market.
 
The T-Share recorded its quarterly low of EUR 9.21 on February 5, 2010, but made a strong recovery to EUR 10.04 by March 31, 2010. The figures for the 2009 financial year published on February 25, 2010 and the announcement at the same time of a new shareholder remuneration policy for the years 2010 through 2012 together with the presentation of Deutsche Telekom’s new strategy entitled Fix – Transform – Innovate from Telco to Telco Plus at the Investors’ Day on March 17 and 18, 2010 shored up confidence in the T-Share on the capital markets. This was manifested in the T-Share’s development compared with the Dow Jones Europe STOXX Telecommunications© index between February 25 and March 31, 2010. The T-Share gained 6.8 percent, while the sector index gained only 4.9 percent.
 

 
 
 

Corporate governance.
 
The Supervisory Board and Board of Management of Deutsche Telekom AG declared on January 5, 2010 that, in the period since submission of the most recent declaration of conformity pursuant to § 161 of the German Stock Corporation Act on August 28, 2009, Deutsche Telekom AG has complied with the recommendations of the Government Commission of the German Corporate Governance Code, published by the Federal Ministry of Justice on August 5, 2009 in the official section of the electronic Federal Gazette (elektronischer Bundesanzeiger), without exception.
 
The Supervisory Board and Board of Management of Deutsche Telekom AG declared further on January 5, 2010 that Deutsche Telekom AG complies with the recommendations of the Government Commission of the German Corporate Governance Code, published by the Federal Ministry of Justice in the official section of the electronic Federal Gazette (elektronischer Bundesanzeiger) on August 5, 2009, without exception.
 
The full text of the Declaration of Conformity can be found on the Deutsche Telekom Web site (www.telekom.com) under Investor Relations in the Corporate Governance section.
 

 
 
 

Highlights in the first quarter of 2010.
 
 
Development of the Group’s strategy.
 
Group strategy developed further by Board of Management. As part of its new Fix – Transform – Innovate strategy, Deutsche Telekom is aiming to refocus its business and drive up revenue in growth areas by investing in intelligent networks with IT services and in Internet and network services. For further explanations on the new strategy, please refer to the section “Group strategy.”
 
 
Shareholder remuneration policy for the 2010 to 2012 financial years announced.
 
Shareholder remuneration policy for the 2010 to 2012 financial years approved. The Board of Management and Supervisory Board of Deutsche Telekom expect continued sound balance sheet figures and high free cash flow in the current and subsequent two financial years on the basis of mid-term planning, including the investments required to expand business. The Board of Management and Supervisory Board of Deutsche Telekom therefore decided to pursue a shareholder remuneration policy for the 2010 through 2012 financial years that will involve an annual dividend of at least EUR 0.70 per share and the buy-back of shares with the remaining amount up to an unchanged total of around EUR 3.4 billion. This policy is subject to the requisite unappropriated net income being posted in the single-entity financial statements of Deutsche Telekom AG for the financial year in question and the ability to form the necessary reserves for the share buy-back. It is also contingent upon the executive bodies adopting resolutions to this effect taking account of the Company’s situation at the time.
 
One Company.
 
Official launch of Telekom Deutschland GmbH. The spin-off of T-Home into T-Mobile Deutschland GmbH became effective upon entry in the commercial register on March 30, 2010, and with it the merger of German fixed-network and mobile operations within a single entity. At the same time, T-Mobile Deutschland GmbH was renamed Telekom Deutschland GmbH – a step which also became effective upon entry in the commercial register on March 30, 2010. By combining its domestic operations, Deutsche Telekom aims to increase its competitiveness relative to other globally structured telecommunications companies that offer integrated fixed-network and mobile solutions.
 
 
Corporate transactions.
 
STRATO fully consolidated for the first time. Deutsche Telekom fully consolidated STRATO AG and STRATO Rechenzentrum AG (STRATO) as of January 1, 2010. The transaction will make Deutsche Telekom a leading provider of Web hosting products, especially for consumers and small business customers in the German market.
 
European Commission approves T-Mobile UK and Orange UK merger. The European Commission has approved the merger between Deutsche Telekom’s and France Télécom’s UK mobile operations, thus paving the way for the integration of the two companies.
 
Deutsche Telekom takes over ClickandBuy. Deutsche Telekom has acquired the remaining shares in the Internet payment service provider Firstgate. Via its venture capital company, T-Venture, Deutsche Telekom has held shares in Firstgate, best known for the ClickandBuy brand, since 2006. The agreement was signed on March 23, 2010 and took economic effect on April 1, 2010. The supervisory bodies of the companies concerned and the United Kingdom’s Financial Services Authority have already approved the transaction.
 
Employees.
 
Deutsche Telekom is the first DAX 30 company to introduce a women’s quota for management positions. In March 2010, Deutsche Telekom became the first DAX 30 company to introduce a women’s quota for upper and middle management positions. By 2015, 30 percent of these positions across the Group are to be filled by women. In addition to broadening its talent pool, Deutsche Telekom is also expecting to add value to the Company in the long term thanks to greater diversity at management level.
 
2010 collective bargaining successfully concluded through arbitration. On February 26, 2010, the negotiating parties reached an agreement in the arbitration proceedings governing the 2010 collective bargaining for employees of T-Systems entities. The wage settlement is valid for 24 months. Following two months without adjustments, salaries for pay-scale employees will increase on a straight-line basis by 2.5 percent from March 1, 2010. A further two percent increase will take effect from February 1, 2011. This contract runs until December 31, 2011.

 
Investments in network upgrade and new devices in the United States.
 
T-Mobile USA to rollout the fastest 3G wireless network with HSPA+ in the United States. T-Mobile USA unveiled plans to upgrade its national high-speed 3G service to the High Speed Packet Access Plus (HSPA+) technology, which will deliver customers data speeds faster than the current 3G network technology. By the end of 2010, T-Mobile expects to have HSPA+ deployed across its 3G footprint, covering more than 100 metropolitan areas and 185 million people. As of the end of the first quarter of 2010, T-Mobile USA had already launched HSPA+ service in Philadelphia, New York, New Jersey, Long Island, and the Western suburbs of Washington, D.C. T-Mobile USA now offers fifteen 3G-capable converged devices to their customers, including the T-Mobile myTouch 3G, Motorola Cliq XT and Blackberry® Bold 9700. Additionally, T-Mobile USA is leveraging its nationwide 3G network through new devices such as the HTC HD2, the Dell Inspiron Mini 10 netbook, and the T-Mobile webConnect Rocket USB data stick. The HTC HD2 features a comprehensive mobile entertainment experience, offering the largest touch screen on a smartphone in the United States and comes ready with access to eBooks, movies, television programs and more. The Dell Inspiron Mini 10 is T-Mobile USA’s first netbook and features built-in access to T-Mobile’s 3G wireless broadband service and Wi-Fi capability. The T-Mobile webConnect Rocket USB data stick provides customers with seamless connectivity to the Internet via Wi-Fi or T-Mobile USA’s 3G wireless network and is the first HSPA+ device from a national U.S. wireless carrier.
 
 
New products/Connected life and work.
 
Germany LAN. Deutsche Telekom has launched an innovative all-inclusive package for connected work involving a broadband connection and Web-based applications for voice and data communication via fixed-network and mobile channels. An integrated communication center makes connected work at the office and on the go simple and convenient. Customers have total control over their costs with numerous inclusive services for a fixed monthly charge.
 
T-Systems demonstrates new solutions for a connected working environment. T-Systems and Continental presented an open, flexible and future-proof infotainment concept at CeBIT 2010 that runs on the AutoLinQ communications network. This enables vehicles to be connected to cell phones, home PCs and entertainment systems, online databases and diverse app-like, Internet-based value-added services anytime and any place via a mobile connection.
 
Deutsche Telekom manages cell phone payment for SPIEGEL and BILDmobil. Deutsche Telekom is managing the distribution and billing for the new high-value paid content section of SPIEGEL magazine and for the BILDmobil portal. In future, SPIEGEL will also be distributed via the t-online.de portal, giving its 17 million-plus users fast and convenient access to the e-magazine. Deutsche Telekom’s around 39 million mobile customers can now access the new regional services on BILDmobil using any Internet-enabled cell phone.
 
 
Customer service/awards.
 
TÜV seal of approval for customer service. Deutsche Telekom has received the TÜV (Technical Inspection Association) seal of approval for excellent telephone customer service for the third time running. The independent testers surveyed customers who had used Deutsche Telekom’s service hotlines shortly beforehand. The findings were exceedingly positive. Almost 89 percent of those surveyed rated the hotline staff as “highly competent” or “competent.” Around 94 percent of callers said that the agents had been particularly friendly.
 
Musicload again gets top marks from consumer organization Stiftung Warentest. Of a total of nine online music providers tested, Musicload, Germany’s best-known download portal, has received top marks from Stiftung Warentest with an overall rating of 2.6. In the current issue (4/2010) of “test” magazine, the independent testing institute was particularly impressed by the convenient search functions, easy payment options, and the treatment of sensitive customer data.
 
T-Mobile USA earns highest rank for wireless retail sales satisfaction. During the first quarter of 2010, T-Mobile USA was ranked highest in wireless retail sales satisfaction by J.D. Power and Associates. Winning this award continues to demonstrate T-Mobile USA’s commitment to delivering an industry-leading retail experience, this is the eighth such top ranking from J.D. Power and Associates in the Wireless Retail Sales Satisfaction Study’s past 11 volumes, dating back to 2004.
 
Awards for T-Mobile products, services and networks in the Europe operating segment. Polska Telefonia Cyfrowa (PTC)’s Era brand came top in the Mobile Operator category for the second time in a row in a service quality survey carried out by an independent portal in Poland in 2009.
 

German technology magazine CHIP awarded Deutsche Telekom the “CHIP AWARD for the innovation of the year” with special praise from the editors for the Group’s strong commitment to LTE (Long Term Evolution), a potential technology for the next generation of mobile communications. In 2009 Deutsche Telekom successfully staged the world’s first large-scale trial using the LTE standard in Austria with T-Mobile Austria. By carrying out this pilot trial, Deutsche Telekom made an essential contribution to the rapid further development of this technology.
 
 
T-Systems closes new deals and retains major customers.
 
T-Systems introduces digital police radio. T-Systems is helping ten German federal states set up and operate flexible solutions drawn from the “digital radio toolbox,” an anti-interception solution for the entire transmission path. Ten federal states – among them Hesse, North Rhine-Westphalia, Rhineland Palatinate, Saarland and Thuringia – are receiving extensive support from T-Systems. The Deutsche Telekom subsidiary has developed a flexible range of digital police radio solutions and services to provide and operate the security networks that connect up the base stations in the federal states. On request, T-Systems also supports the federal states in setting up and operating the control centers which monitor network operation and perform other functions as required. For example, they manage the users, provide applications, enable remote maintenance, and store data from the different systems in a central database.
 
DLR awards contract to T-Systems. The German Aerospace Center (Deutsches Luft- und Raumfahrtzentrum – DLR) will continue to source all of its basic IT services from T-Systems over the next five years plus one optional year. T-Systems had previously won the Europe-wide invitation to tender. T-Systems will develop, set up, operate and support DLR’s workstations, communication infrastructure and application systems and provide consulting services. The portfolio includes everything from telephones, standardized and highly specialized IT workstations through to supercomputers and grid computing.
 
Deutsche Post DHL outsources further IT functions in Germany to T-Systems. Deutsche Post DHL and T-Systems have agreed to step up their collaboration: The existing contracts covering the provision of data center, infrastructure and network services in addition to the operation of desktop services have been extended ahead of schedule by a further five years to 2014. At the same time, the world’s leading mail and logistics services group reached agreement on other services with T-Systems. The contract is part of a global initiative launched by Deutsche Post DHL to achieve efficiency gains in IT and telecommunications services.
 
SBB and T-Systems set to continue cooperation. Swiss Federal Railways (SBB) intends to continue its strategic partnership with T-Systems and will not be exercising its early termination option. Existing agreements regarding IT services, dating back to 2005, have been revised and will run until the end of 2015, with some services continuing until 2018. SBB has been using T-Systems’ infrastructure services for more than 10 years.
 
T-Systems sets up new pan-European telecommunications network for TUI Travel. The London-based group TUI Travel has commissioned T-Systems, Deutsche Telekom’s corporate customers arm, to set up and operate a Europe-wide telecommunications network linking its corporate sites in seven countries. For the next five years, T-Systems will take responsibility for all telephone, data and mobile communications services for TUI Travel’s traditional travel operations (its Mainstream business unit). With this new integrated network, the world’s leading travel group intends to exploit further synergies and reduce its costs significantly.
 


 
 
 

Interim Group management report.
 
The economic environment.
 
This section provides additional information and explains recent changes in the economic situation described in the Group management report for the 2009 financial year, focusing on global economic development, the outlook, the overall economic risks, the telecommunications market, and the regulatory situation.
 
Global economic development.
 
The nascent stabilization in the global economy, driven in particular by growth in emerging economies, continued in the first quarter of 2010. Deutsche Telekom’s core markets in Germany and the United States have also started to grow again, whereas other countries such as Greece and the United Kingdom continue to shrink or stagnate. The capital markets have increasingly interpreted the risk of insolvency in some smaller industrialized countries such as Greece and Portugal as a threat to the euro. This caused the euro to lose ground against the U.S. dollar and led to stronger fluctuation in interest rates and risk premiums for government bonds and credit default swaps.
 
Outlook.
 
Western industrialized economies are expected to grow again, albeit moderately, in 2010 and 2011. They will be affected to differing extents by the impending tightening of budgets which is likely to hamper economic growth. While most leading economic indicators such as the OECD’s Composite Leading Indicator (CLI) and the consumption climate are showing positive signs of development, lagging indicators – and the rate of unemployment in particular – are still distinctly more negative. Current expectations are that the German economy will regain momentum in 2010 and 2011 and will be regarded as strong in relation to other European economies. The situation in Southern and Eastern Europe on the other hand is considered far more volatile and uncertain. The development of the Greek economy in particular is expected to be weak for some considerable time as a result of the massive savings imposed by the Greek state as a result of the European rescue package. The U.S. dollar is expected to remain strong against the euro due to the relative weakness of the euro zone as a whole due to the uncertainty regarding the levels of public debt in several Member States. Even if the momentum of the economic recovery in the United States were to ease off in the medium term following the strong second half of 2009, growth forecasts for the U.S. economy are still considerably higher than for most European countries.
 
 
Overall economic risks.
 
It is not possible to give the all-clear regarding the economic risks for 2010. Growing doubts about the solvency of industrialized nations, the current crisis in Greece, and the constraining effect of restrictive fiscal policies could be a drag on economic activity. Only modest increases are thus projected for most European economies in 2010 and 2011.
 
 
Telecommunications market.
 
The effects of the follow-on economic trends may impact consumer business in particular in Europe and the United States and, in a lagging effect, also lead to restraint in expenditure on telephone and data services. Bitkom predicts that revenues in Germany’s ITC market will remain flat in 2010 and forecasts growth of 1.6 percent in 2011 to EUR 142 billion. In the telecommunications market, revenue in Germany will probably decline 1.1 percent this year to EUR 63 billion, before stabilizing at this level in 2011.
 
After crisis-ridden 2009, an upturn in revenue is anticipated in the information technology market again in 2010 and 2011, mainly due to the gradual clearing of the backlog of investments in IT solutions and telecommunications systems. According to Bitkom forecasts, IT revenues in Germany will grow by 1.4 percent in 2010 to EUR 64.4 billion, with an even higher increase of 3.8 percent in 2011.
Regulatory situation.
 
On March 26, 2010, in its second partial ruling on eleven applications for injunction by competitors, the Federal Network Agency fixed the charges for access to Deutsche Telekom’s multi-functional street cabinet and cable ducts. The use of a module slot in the multi-functional street cabinets will cost EUR 113.94 per month, to be divided equally among the number of street cabinet users (including Deutsche Telekom). Competitors will have to pay EUR 0.12 per month per meter (excluding administrative expenses) to use one of Deutsche Telekom’s cable ducts. Deutsche Telekom duly filed suits against these rulings.
 

 
 
 

Group strategy.
 
 
Fix – Transform – Innovate. Deutsche Telekom’s new strategy.
 
Deutsche Telekom’s long-term goal is to become a market leader for connected life and work. On this path, the Group intends to refocus its business in the coming years with investments in intelligent networks and with IT, Internet and network services. The new Fix – Transform – Innovate strategy will enable Deutsche Telekom to broaden its revenue mix by focusing on new pockets of growth in addition to its traditional access business in fixed-network and mobile communications. The aim of this strategic approach is to expand the activities of Deutsche Telekom across the entire value chain and position the Company as an open partner for consumers and business customers.
 
The five new strategic action areas in the Group strategy specifically focus on the challenges and opportunities in the market and will safeguard Deutsche Telekom’s successful positioning in the long term:
 
§  
Improve the performance of mobile-centric assets.
 
§  
Leverage One Company in integrated assets.
 
§  
Build networks and processes for the gigabit society.
 
§  
Connected life across all screens.
 
§  
Connected work with unique ICT solutions.
 
The Group has defined five growth areas in line with these action areas: mobile Internet, the connected home, proprietary Internet services, systems solutions, intelligent network solutions for energy, healthcare, media and the connected car. Overall, revenue is to be almost doubled in these areas from EUR 15 billion today to around EUR 29 billion in 2015. The Group has again set itself ambitious targets. By the year 2012, costs are to be cut by a further EUR 4.2 billion in the second phase of the Save for Service program, the return on capital employed (ROCE) throughout the Group is to be increased by at least 150 basis points and free cash flow is to be increased compared with the 2010 level.
 
Improve the performance of mobile-centric assets.
 
In countries like the United States, the United Kingdom, Austria, the Netherlands, the Czech Republic, and Poland, in which Deutsche Telekom’s presence primarily centers around mobile communications services, the Company is planning to enhance its performance and invest in next-generation technologies, develop innovative services, and expand its portfolio of mobile devices. In the United States, T-Mobile USA is pushing ahead with its network upgrade initiative to cover a population of around 185 million with high-speed HSPA+ technology by the end of 2010. It also aims to double the number of 3G smartphones to approximately 8 million. In the United Kingdom, the Group intends to make the joint venture between T-Mobile UK and Orange UK a success story. With an aggregate customer base of around 29.4 million, the joint venture will be the leader in the UK mobile communications market. Market leadership in Poland and the Czech Republic will be consolidated and the strong position in the Netherlands and Austria further strengthened to challenge established operators.
 
Leverage One Company in integrated assets.
 
The new strategy will also systematically continue the approach taken under the One Company project of integrating fixed-network and mobile communications. In Germany and Europe this will stabilize revenues, improve service levels, and leverage synergies from integration in marketing, distribution, and service. Cross-selling opportunities will open up additional revenue potential. New innovative services and rate plans will further differentiate Deutsche Telekom from the competition. Through the Media Center, for example, customers already have access 24/7 to their music, photos, and other media content on their PCs, TVs, and smartphones. LIGA Total!, the Group’s soccer league service in Germany, can likewise be watched on various screens at home or on the move. By offering this service, Deutsche Telekom intends to play a more active role as an integrated provider of convergent products from a single source.
 

 
 
 

 
Build networks and processes for the gigabit society.
 
Deutsche Telekom is forecasting a rapid increase in global data volumes in the coming years. This growth will be driven by numerous applications including Web videos and social media for consumers as well as cloud computing and services such as teleconferences for business customers. Deutsche Telekom’s aim is therefore to continue to transform its operations – to increase its efficiency on the one hand and satisfy the growing demand for larger bandwidth on the other. Among the issues are fiber roll-out and the HSPA+ and LTE push, convergence and adaptability of the networks on the basis of an all-IP concept, increased flexibility and speed in the IT factory through systematic standardization and, last but not least, ongoing expansion of key enabling skills in wholesale services and retail products. Deutsche Telekom’s capital expenditure will remain at the prior-year level to drive this transformation ahead and to increase efficiency. In Germany alone, the Company plans to invest around EUR 10 billion in infrastructure in the next three years.
 
 
Connected life across all screens.
 
Another strategic goal is the provision of innovative, non-device-specific mobile services on TVs and PCs, and on other screens and devices that will enter the market in the future. The mobile Internet is thought to offer the best growth opportunities in this context. Deutsche Telekom intends to develop and market its own centralized offerings, for example innovative communication solutions based on users’ personal network-based address books. The Company is also positioning itself as a pioneer for digital content, offering targeted, personalized linking and distribution of media content. By making specific purchases such as the acquisition of the remaining shares in Firstgate (ClickandBuy), Deutsche Telekom is positioning itself as a leading provider of online payment solutions and expanding its portfolio in the high-growth Internet business. A further topic being pushed is ‘connected home.’ Entertain and Home Gateway will become hubs for media, entertainment, and home automation. Deutsche Telekom’s activities in this area aim to further strengthen its position in the European TV business and make it the market leader in Germany’s pay TV market. Besides its own services and solutions, Deutsche Telekom is entering into selected cooperative ventures elsewhere and is positioning itself long-term as a strategic partner to the key players in other sectors, e.g., as an exclusive online content partner or for the marketing of innovative terminal equipment such as Apple’s iPhone.
 
 
Connected work with unique ICT solutions.
 
Deutsche Telekom provides customized ICT solutions for business customers and draws on the services of T-Systems in the ongoing standardization of its internal IT solutions. The reorganization at T-Systems will continue to lift its profitability to industry level. T-Systems intends to increase external revenues from IT services, focusing on strong growth outside Germany. There are plans to launch innovative offerings in the field of secure B2B cloud services and further reinforce T-Systems’ quality lead. Using its global infrastructure of data centers and networks, T-Systems offers multinational corporations and public-sector institutions unique expertise and an increasingly appealing product portfolio due to the service partnership with SAP. Under the Global Services Partner program, T-Systems will make SAP services available worldwide and develop mobile SAP applications.
 
On the back of its new strategic approach, Deutsche Telekom is also positioning itself as an open partner for other sectors with the aim of exploiting opportunities for growth in ICT solutions for energy, healthcare, media distribution, and the connected car. At CeBIT 2010, Continental and T-Systems agreed to develop an open, flexible and future proof infotainment concept that will use mobile communications to connect vehicles with cell phones, home PCs and entertainment systems and diverse Internet-based value-added services – anywhere and any time. At E-world 2010, Deutsche Telekom also showcased an end-to-end solution for the energy market – smart metering & home management – which will allow power, gas, and water consumption data to be read, processed, and presented automatically.
 


 
 
 

Development of business in the Group.
 
 
Net revenue.
 
In the first quarter of 2010, Deutsche Telekom generated net revenue of EUR 15.8 billion, a slight decrease compared with the first three months of 2009. This trend was influenced by positive effects from changes in the composition of the Group of EUR 0.5 billion and negative exchange rate effects of EUR 0.1 billion. Adjusted for these two factors, revenue in the first quarter was down EUR 0.5 billion or 3.3 percent compared with the first three months of the prior year. The effects of changes in the composition of the Group were mainly attributable to the fact that the Hellenic Telecommunications Organization S.A. (OTE/OTE group) has only been fully consolidated since February 2009 and was therefore not included in revenue for the entire first quarter of 2009. The exchange rate effects were primarily the result of the translation of U.S. dollars to euros.
 
   
Q1
2010
millions of €
    
Q1
2009
millions of €
    
Change
 
millions of €
    
Change
 
%
    
FY
2009
millions of €
  
Net revenue
     15,812       15,902       (90 )     (0.6 )     64,602  
Germany
     6,189       6,331       (142 )     (2.2 )     25,423  
United States
     3,814       4,137       (323 )     (7.8 )     15,471  
Europe
     2,412       2,436       (24 )     (1.0 )     10,034  
Southern and Eastern Europe
     2,387       1,964       423       21.5       9,685  
Systems Solutions
     2,131       2,106       25       1.2       8,798  
Group Headquarters & Shared Services
     565       618       (53 )     (8.6 )     2,410  
Intersegment revenue
     (1,686 )     (1,690 )     4       0.2       (7,219 )
                                         
Revenue in Deutsche Telekom’s operating segments developed as follows:
 
The Germany operating segment recorded a revenue decrease of 2.2 percent in the first quarter of 2010 compared with the first three months of the prior year. The 4.1 percent decrease in fixed-network revenue was only partially offset by a 2.5-percent improvement in mobile revenue. The revenue decrease in the fixed-network business was primarily attributable to continuing line losses resulting from intensified competition, the increased sales of complete packages (telephony and Internet) with a flat-rate component, and falling usage-related charges. Revenue from non-voice (data and messaging) services contributed to revenue growth in mobile communications. The more restrictive regulatory environment, however, had a negative effect on the development of revenue.
 
The decline in revenue of EUR 0.3 billion or 7.8 percent in the United States operating segment compared with the first quarter of 2009 was primarily the result of negative exchange rate effects. Adjusted for these effects of EUR 0.2 billion, the decline would have been much lower at EUR 0.1 billion or 2.2 percent. The main reason for the revenue decline was lower voice revenue due to the loss of contract customers.
 
Revenue in the Europe operating segment remained virtually on a par with the prior-year period. Adjusted for exchange rate effects of EUR 0.1 billion mainly from the translation of Polish zlotys, revenue in this operating segment decreased by EUR 0.1 billion or 4.6 percent compared with the first quarter of 2009, primarily as a result of lower service revenues in all mobile companies. Higher revenues generated at International Carrier Sales and Solutions (ICSS) coupled with an increase in handset revenues partly compensated for these negative effects.
 
Revenue in the Southern and Eastern Europe operating segment increased EUR 0.5 billion due to the effects of changes in the composition of the Group. Excluding these and exchange rate effects, revenue decreased by EUR 0.1 billion or 5.5 percent compared with the first quarter of 2009. The strained economic situation and continuing intense competitive pressure in both mobile communications and the traditional fixed network negatively affected revenue. Taxation of mobile revenue in Croatia and Greece also had a negative impact. Broadband growth in all countries did not make up for the decline in revenue in the traditional fixed-network area.
 
Revenue generated in the Systems Solutions operating segment in the first quarter of 2010 remained on a par with the first three months of 2009. Effects from changes in the composition of the Group and exchange rate effects had only an immaterial impact on this operating segment. While revenue in Germany declined, international revenue increased. The decrease in Germany was attributable to both the postponement or cancelation of projects in the systems integration business and the price trend in IT and telecommunications. The falling price trend in IT business was partially offset by new contracts. Growth in international business continued as a result of the large number of contracts with corporate customers.
 

 
 
 

 
Contribution of the operating segments to net revenue (after elimination of revenue between segments).
 
   
Q1
2010
 
millions of €
    
Proportion of net revenue of the Group
%
    
Q1
2009
 
millions of €
    
Proportion of net revenue of the Group
%
    
Change
 
 
millions of €
    
Change
 
 
%
    
FY
2009
millions of
€
  
Net revenue
     15,812       100.0       15,902       100.0       (90 )     (0.6 )     64,602  
Germany
     5,804       36.7       5,969       37.5       (165 )     (2.8 )     23,813  
United States
     3,810       24.1       4,133       26.0       (323 )     (7.8 )     15,457  
Europe
     2,264       14.3       2,307       14.5       (43 )     (1.9 )     9,486  
Southern and Eastern Europe
     2,349       14.9       1,929       12.1       420       2.8       9,510  
Systems Solutions
     1,532       9.7       1,496       9.4       36       2.4       6,083  
Group Headquarters & Shared Services
     53       0.3       68       0.5       (15 )     (22.1 )     253  
                                                         
With 36.7 percent, the Germany operating segment provided the largest contribution to the net revenue of the Group. The Southern and Eastern Europe operating segment’s share of net revenue increased to 14.9 percent compared with the first three months of 2009. This was primarily due to the full consolidation of the OTE group for the whole quarter, in contrast to the first quarter of 2009, when the OTE group was not included in the consolidated financial statements until February. The contributions of the other operating segments to net revenue remained almost constant.
 
 
Breakdown of revenue by regions.
 
The proportion of net revenue generated internationally increased by 1.1 percentage points year-on-year to 57.4 percent in the first quarter of 2010, primarily due to changes in the composition of the Group. In contrast to the prior-year period, the OTE group was consolidated for the full three months of the first quarter of 2010. In the first quarter of 2009, the OTE group was not included in the consolidated financial statements until February.
 
   
Q1
2010
millions of €
    
Q1
2009
millions of €
    
Change
 
millions of €
    
Change
 
%
    
FY
2009
millions of €
  
Net revenue
     15,812       15,902       (90 )     (0.6 )     64,602  
Domestic
     6,739       6,943       (204 )     (2.9 )     28,033  
International
     9,073       8,959       114       1.3       36,569  
Proportion generated internationally
(%)
     57.4       56.3                       56.6  
Europe
(excluding Germany)
     5,074       4,684       390       8.3       20,573  
North America
     3,837       4,148       (311 )     (7.5 )     15,527  
Other
     162       127       35       27.6       469  
                                         
 
 
EBITDA.
 
In the first quarter of 2010, Deutsche Telekom generated EBITDA of EUR 4.7 billion, 5.1 percent less than in the same period in 2009.
 
 
Adjusted EBITDA.
 
In the first quarter of 2010, EBITDA was negatively impacted by special factors totaling EUR 0.2 billion. These related in particular to expenses of EUR 0.1 billion for staff-related measures and non-staff-related restructuring and to expenses of EUR 0.1 billion from the write-off of receivables from the German Main Customs Office for the years 2005 to 2009.
 

 
 
 

EBITDA in the first quarter of 2009 was positively affected by special factors totaling EUR 0.1 billion, primarily attributable to the reversal of provisions and staff-related measures and non-staff-related restructuring.
 
   
Q1
2010
millions of €
    
Q1
2009
millions of €
    
Change
 
millions of €
    
Change
 
%
    
FY
2009
millions of €
  
Adjusted EBITDA in the Group
     4,890       4,812       78       1.6       20,668  
Germany
     2,299       2,363       (64 )     (2.7 )     9,607  
United States
     1,008       1,061       (53 )     (5.0 )     4,261  
Europe
     665       467       198       42.4       2,557  
Southern and Eastern Europe
     925       799       126       15.8       3,826  
Systems Solutions
     196       211       (15 )     (7.1 )     923  
Group Headquarters & Shared Services
     (172 )     (50 )     (122 )  
n.a.
       (315 )
Reconciliation
     (31 )     (39 )     8       20.5       (191 )
                                         
EBITDA adjusted for the aforementioned special factors was up 1.6 percent compared with the first three months of 2009. The change in the composition of the Group attributable to the consolidation of the OTE group in the Southern and Eastern Europe operating segment generated an effect of EUR 0.2 billion.
 
The Germany, United States, and Systems Solutions operating segments recorded a year-on-year decrease in adjusted EBITDA in the first quarter of 2010, while adjusted EBITDA in the Europe and Southern and Eastern Europe operating segments increased in the same period.
 
Adjusted EBITDA in the Germany operating segment declined in the first quarter of 2010, mainly due to the decrease in revenue in the traditional fixed-network business and the resulting narrower margins. This decline was only partially offset by growth in the mobile business.
 
The United States operating segment only partially offset the revenue decline by reduced revenue-related costs and by lower customer acquisition costs caused by fewer customer additions. As a result, adjusted EBITDA declined compared with the first three months of 2009.
 
Adjusted EBITDA in the Europe operating segment increased in the first three months of 2010 compared with the same period in 2009. This growth can be attributed in particular to lower costs for customer acquisition and retention measures than in the first quarter of 2009, especially at T-Mobile UK, PTC, and T-Mobile Netherlands.
 
The increase in adjusted EBITDA in the Southern and Eastern Europe operating segment resulted primarily from the effects of changes in the composition of the Group following the consolidation of the OTE group.
 
Adjusted EBITDA in the Systems Solutions operating segment decreased year-on-year. This decrease is largely attributable to higher costs of goods and services purchased which were incurred in connection with contracts won. The increased costs were partially offset by savings made as part of the comprehensive Save for Service restructuring and efficiency enhancement program.
 
In addition to the developments described here within the operating segments, adjusted EBITDA at Group Headquarters & Shared Services decreased by EUR 0.1 billion compared with the first quarter of the previous year, mainly due to income recorded in the previous year from the reclassification of real estate from assets held for sale to non-current assets.
 
 
EBIT.
 
EBIT (profit from operations) of the Deutsche Telekom Group increased significantly by EUR 1.8 billion year-on-year to EUR 2.0 billion in the first quarter of 2010. In addition to the effects already described, this increase was also attributable to the lower year-on-year level of depreciation, amortization and impairment losses in the first quarter of 2010. In the first quarter of 2009 an impairment loss of EUR 1.8 billion was recorded on the goodwill of the cash-generating unit T-Mobile UK in the Europe operating segment.
 
In the Germany operating segment, cost savings did not compensate for the reduction in revenue.
 
EBIT in the Southern and Eastern Europe operating segment declined year-on-year. This was primarily the result of a one-time positive effect in the first quarter of 2009 mainly due to income from the reversal of provisions through the Hellenic Republic’s contribution to the costs of the voluntary severance program in the OTE group.
 

 
 
 

EBIT in Deutsche Telekom’s operating segments developed as follows:
 
   
Q1
2010
millions of €
    
Q1
2009
millions of €
    
Change
 
millions of €
    
Change
 
%
    
FY
2009
millions of €
  
EBIT (profit (loss) from operations) of the Group
     2,029       244       1,785    
n.a.
       6,012  
Germany
     1,171       1,325       (154 )     (11.6 )     5,062  
United States
     544       530       14       2.6       2,233  
Europe
     375       (1,786 )     2,161    
n.a.
       (905 )
Southern and Eastern Europe
     304       504       (200 )     (39.7 )     1,037  
Systems Solutions
     18       11       7       63.6       (11 )
Group Headquarters & Shared Services
     (365 )     (309 )     (56 )     (18.1 )     (1,249 )
Reconciliation
     (18 )     (31 )     13       41.9       (155 )
                                         

 
Profit/loss before income taxes.
 
Profit before income taxes for the first quarter of 2010 increased by EUR 1.8 billion to EUR 1.3 billion in line with EBIT. At EUR 0.7 billion, the Group’s loss from financial activities remained at the same level as in the first three months of 2009.
 
Net profit.
 
Deutsche Telekom recorded an increase in net profit of EUR 1.9 billion to EUR 0.8 billion in the first quarter of 2010, primarily due to the aforementioned effects.
 
 
Free cash flow.
 
Free cash flow increased from EUR 0.4 billion in the prior-year period to EUR 1.4 billion in the first quarter of 2010.
 
Net cash from operating activities amounted to EUR 3.3 billion in the first quarter of 2010, an increase of EUR 0.3 billion over the prior-year quarter. Several factors, some of which offset each other, contributed to this improvement. Group EBITDA was EUR 0.3 billion lower year-on-year in the first three months of 2010; this was partially offset by effects of other non-cash transactions amounting to EUR 0.2 billion. In addition, net payments resulting from the canceling of interest rate swaps decreased by EUR 0.1 billion due to the non-recurrence of one-time effects from the prior-year quarter. This was offset by the improved year-on-year change in provisions of EUR 0.4 billion, as a result of increased additions to provisions for personnel costs while the utilization of provisions for dealers’ commissions and for reimbursements were lower in the first quarter of 2010. The net change in assets and liabilities carried as working capital improved by EUR 0.1 billion, which is partly attributable to the lower level of redundancy and severance payments compared with the first quarter of the prior year.
 

 
 
 

Cash outflows for intangible assets and property, plant and equipment decreased by EUR 0.7 billion, which was primarily a result of the postponement of projects in Germany partly due to weather conditions and lower cash outflows in the United States in the first quarter of 2010.
 
   
Q1
2010
millions of €
    
Q1
2009
millions of €
    
Change
 
millions of €
    
Change
 
%
    
FY
2009
millions of €
  
Cash generated from operations
     3,918       3,596       322       9.0       18,271  
Interest received (paid)
     (647 )     (630 )     (17 )     (2.7 )     (2,476 )
Net cash from operating activities
     3,271       2,966       305       10.3       15,795  
Cash outflows for investments in intangible assets (excluding goodwill) and property, plant and equipment
     (1,934 )     (2,611 )     677       25.9       (9,202 )
Free cash flow before proceeds from disposal of intangible assets (excluding goodwill) and property, plant and equipment
     1,337       355       982    
n.a.
       6,593  
Proceeds from disposal of intangible assets (excluding goodwill) and property, plant and equipment
     102       61       41       67.2       376  
Free cash flow before dividend payments
     1,439       416       1,023    
n.a.
       6,969  
                                         

 
 
Net debt.
 
Net debt decreased by EUR 0.5 billion or 1.2 percent compared with the end of 2009. Free cash flow of EUR 1.4 billion contributed to the reduction in net debt of the Group, but was partially offset by an increasing effect from cash outflows of EUR 0.3 billion for the acquisition of STRATO and exchange rate effects in particular.
 
   
Mar. 31,
2010
 
millions of €
    
Dec. 31,
2009
 
millions of €
    
Change
Mar. 31, 2010/
Dec. 31, 2009
%
    
Mar. 31,
2009
 
millions of €
    
Change
Mar. 31, 2010/
Mar. 31, 2009
%
  
Bonds
     38,722       38,508       0.6       39,659       (2.4 )
Liabilities to banks
     4,559       4,718       (3.4 )     4,670       (2.4 )
Liabilities to non-banks from promissory notes
     1,124       1,057       6.3       1,036       8.5  
Derivative financial liabilities
     731       924       (20.9 )     755       (3.2 )
Lease liabilities
     1,899       1,909       (0.5 )     1,987       (4.4 )
Other financial liabilities
     839       1,001       (16.2 )     1,030       (18.5 )
Gross debt
     47,874       48,117       (0.5 )     49,137       (2.6 )
Cash and cash equivalents
     5,553       5,022       10.6       4,113       35.0  
Available-for-sale/
held-for-trading
financial assets
     162       162       -       436       (62.8 )
Derivative financial assets
     901       1,048       (14.0 )     1,211       (25.6 )
Other financial assets
     840       974       (13.8 )     544       54.4  
Net debt
     40,418       40,911       (1.2 )     42,833       (5.6 )
                                         

 

 
 
 

Development of business in the operating segments.
 
 
 
Germany.
 
 
Customer development.
 
   
Mar. 31,
2010
 
millions
    
Dec. 31,
2009
 
millions
    
Change
Mar. 31, 2010/
Dec. 31, 2009
%
    
Mar. 31,
2009
 
millions
    
Change
Mar. 31, 2010/
Mar. 31, 2009
%
  
Fixed network
                              
Fixed-network lines
     25.8       26.2       (1.5 )     27.7       (6.9 )
Retail broadband lines
     11.7       11.5       1.7       11.0       6.4  
Wholesale bundled lines
     1.5       1.6       (6.3 )     2.2       (31.8 )
Unbundled local loop lines (ULLs)
     9.2       9.1       1.1       8.6       7.0  
Wholesale unbundled lines
     0.7       0.6       16.7       0.3    
n.a.
  
                                         
Mobile communications
                                        
Mobile customersa
     38.5       39.1       (1.5 )     39.0       (1.3 )
                                         
 
a
As a result of the change in the terms of contract, prepay contracts no longer end automatically, but run for an unlimited duration and can be terminated by the customer at any time and by Telekom Deutschland GmbH with one month’s notice. Telekom Deutschland GmbH reserves the right to make use of this right of termination and to deactivate cards in the system.

 
Business in Germany progressed despite the challenging economic environment, regulatory requirements, and more intense competition. Since 2007, Deutsche Telekom’s broadband market share has remained stable at 46 percent. Deutsche Telekom further extended its market leadership in service revenues in the mobile communications sector and focused on value-driven growth.
 
Fixed network. As growth on the broadband market in Germany became more restrained, the number of retail lines increased by 0.2 million compared with the end of 2009 to a total of 11.7 million. The number of Entertain products connected increased again in the first quarter of 2010. With 0.9 million Entertain products connected and 1.2 million lines sold as of March 31, 2010, the positive development continued.
 
Fixed-network line losses totaled 0.4 million in the first quarter of 2010, down slightly compared with the end of 2009. These line losses are mainly attributable to customers switching to alternative telecommunications carriers, cable companies, and mobile operators.
 
The number of unbundled local loop lines (ULLs) increased slightly compared with the end of 2009 to 9.2 million. The number of unbundled wholesale lines rose slightly by 0.1 million compared with the end of 2009 to 0.7 million. The increase in both ULLs and unbundled wholesale lines resulted in a slight decrease in bundled wholesale lines of 0.1 million compared with the end of 2009.
 
Mobile communications. Compared with the end of 2009, the number of mobile customers decreased by 0.6 million in the first quarter of 2010 to 38.5 million. While the number of contract customers increased by 0.1 million to 17.3 million, the number of prepay customers declined by 0.7 million to 21.2 million. One of the main causes was the deregistration of inactive prepay customers. The share of contract customers increased by around one percentage point to 45 percent of the customer base, encouraged by attractive smartphones like the Apple iPhone and a rise in the proportion of customers with integrated flat-rate plans for telephony and data usage.

 
 
 

 
Development of operations.
 
   
Q1
2010
millions of €
    
Q1
2009
millions of €
    
Change
 
millions of €
    
Change
 
%
    
FY
2009
millions of €
  
Total revenue
     6,189       6,331       (142 )     (2.2 )     25,423  
Fixed network
     4,530       4,724       (194 )     (4.1 )     18,736  
Mobile communications
     2,000       1,952       48       2.5       8,109  
                                         
EBIT (profit from operations)
     1,171       1,325       (154 )     (11.6 )     5,062  
EBIT margin
(%)
     18.9       20.9                       19,9  
                                         
Depreciation, amortization and impairment losses
     (1,014 )     (1,016 )     2       0.2       (4,196 )
EBITDA
     2,185       2,341       (156 )     (6.7 )     9,258  
Special factors affecting EBITDA
     (114 )     (22 )     (92 )  
n.a.
       (349 )
Adjusted EBITDA
     2,299       2,363       (64 )     (2.7 )     9,607  
Fixed network
     1,468       1,609       (141 )     (8.8 )     6,247  
Mobile communications
     828       761       67       8.8       3,373  
Adjusted EBITDA margin
(%)
     37.1       37.3                       37,7  
Fixed network
     32.4       34.1                       33.3  
Mobile communications
     41.4       39.0                       41.6  
                                         
Cash capex
     (651 )     (800 )     149       18.6       (3,158 )
                                         
Number of employees (average)
     80,729       86,086       (5,357 )     (6.2 )     84,584  
Fixed network
     74,893       80,075       (5,182 )     (6.5 )     78,507  
Mobile communications
     5,836       6,011       (175 )     (2.9 )     6,077  
                                         
The contributions of the Fixed Network and Mobile Communications sub-segments generally show the unconsolidated view, and do not take consolidation effects at operating segment level into consideration.

 
Total revenue.
 
Total revenue in the Germany operating segment decreased in the first quarter of 2010 by 2.2 percent year-on-year to EUR 6.2 billion, a less pronounced decline than in the full 2009 financial year (3.7 percent). This revenue decrease was mainly caused by the continuing losses of fixed-network lines due to competition and by regulatory pricing measures in fixed-network and mobile communications.
 
Fixed network. Revenue in the first quarter of 2010 decreased by 4.1 percent year-on-year to EUR 4.5 billion. The continuing line losses resulting from increased competition and falling usage-related charges were the main factors leading to the decline in revenue. Growth in the volume of unbundled local loop lines and the migration to premium complete packages (e.g., those including TV components), had a positive effect but only partially compensated for the decline in revenue.
 
Mobile communications. In the first quarter of 2010, total revenue from mobile operations increased by EUR 48 million or 2.5 percent to EUR 2.0 billion, largely due to year-on-year increases in service revenues to EUR 1.8 billion driven by a continued improvement in non-voice revenues by 3.3 percent. The more restrictive regulatory environment had an offsetting effect on revenue. This was driven in particular by lower mobile termination charges from April 1, 2009, the EU roaming regulation effective since July 1, 2009, and the expiry of the national roaming agreements with O2 and others at the end of 2009.
 

 

 
 
 

 
Adjusted EBITDA, EBITDA, EBIT.
 
Adjusted EBITDA in the Germany operating segment was down 2.7 percent to EUR 2.3 billion, mainly due to the decrease in revenue in the traditional fixed-network business that was only partially offset by growth in the mobile business.
 
In the fixed network, adjusted EBITDA totaled EUR 1.5 billion, the decrease in revenue being largely offset by effective cost management. Factors including increased expenditure for personnel costs and legal risks had a negative effect on EBITDA. EBITDA in the first quarter of 2010 was affected by special factors totaling EUR 0.1 billion, mainly comprising a write-off of receivables from the German Main Customs Office for 2005 to 2009.
 
Adjusted EBITDA from mobile communications increased by 8.8 percent to EUR 0.8 billion and the adjusted EBITDA margin grew by 2.4 percentage points compared with the first quarter of the previous year. This was attributable to the positive revenue trend and lower general and administrative expenses.
 
EBIT (profit from operations) in the Germany operating segment decreased year-on-year by EUR 0.2 billion to EUR 1.2 billion in the first quarter of 2010, largely as a result of the effects already described.
 
 
Cash capex.
 
Cash capex in the first quarter of 2010 was EUR 0.1 billion lower than in the first quarter of 2009. The high level of investment activity at the end of 2008 resulted in disproportionately high cash capex in the first quarter of 2009. Additions to non-current assets in the Germany operating segment remained at the prior-year level, partially as a result of weather conditions, and consisted mainly of fixed-network technology.
 
 
Personnel.
 
Average headcount decreased by 6.2 percent compared with the first quarter of 2009 to 80,729 as a result of the workforce reduction mainly in fixed-network operations in spite of new hires and the first-time consolidation of STRATO as of January 1, 2010.
 


 
 
 

 
 
United States.
 
 
Customer development.
 
   
Mar. 31,
2010
 
millions
    
Dec. 31,
2009
 
millions
    
Change
Mar. 31, 2010/
Dec. 31, 2009
%
    
Mar. 31,
2009
 
millions
    
Change
Mar. 31, 2010/
Mar. 31, 2009
%
  
United States
                              
Mobile customers
     33.7       33.8       (0.3 )     33.2       1.5  
                                         
At March 31, 2010, the United States operating segment (T-Mobile USA) had 33.7 million customers, a net decrease in customers of 77,000 in the first quarter of 2010, compared to 415,000 net customers added in the first quarter of 2009 and 371,000 in the fourth quarter of 2009. In the first quarter of 2010, net contract customers (including connected devices) declined by 118,000 compared to 160,000 net contract customer additions in the first quarter of 2009. Net prepay customer additions were 41,000 in the first quarter of 2010 compared to 255,000 net prepay customer additions in the first quarter of 2009. The decrease in net customers in the first quarter of 2010 was related primarily to lower branded (wireless customers excluding MVNO and connected devices) customer additions caused by continued competitive intensity and a slowdown in U.S. wireless industry growth. This decrease in branded customer additions during the first quarter of 2010 was partially offset by wholesale (MVNO and connected devices) customer additions. Holiday season sales contributed to higher customer additions in the fourth quarter of 2009 compared to the first quarter of 2010.
 
T-Mobile USA’s blended churn rate was steady at 3.1 percent per month in the first quarter of 2010 and the first quarter of 2009. Contract customer churn slightly decreased in the first quarter of 2010 to 2.2 percent from 2.3 percent in the first quarter of 2009.
 
Development of operations.
 
   
Q1
2010
millions of €
    
Q1
2009
millions of €
    
Change
 
millions of €
    
Change
 
%
    
FY
2009
millions of €
  
Total revenue
     3,814       4,137       (323 )     (7.8 )     15,471  
                                         
EBIT (profit from operations)
     544       530       14       2.6       2,233  
EBIT margin
(%)
     14.3       12.8                       14,4  
                                         
Depreciation, amortization and impairment losses
     (464 )     (531 )     67       12.6       (2,028 )
EBITDA
     1,008       1,061       (53 )     (5.0 )     4,261  
Special factors affecting EBITDA
     -       -       -       -       -  
Adjusted EBITDA
     1,008       1,061       (53 )     (5.0 )     4,261  
Adjusted EBITDA margin
(%)
     26.4       25.6                       27,5  
                                         
Cash capex
     (481 )     (865 )     384       44.4       (2,666 )
                                         
Number of employees (average)
     38,663       37,720       943       2.5       38,231  
                                         

Total revenue.
 
Revenue from the United States operating segment (T-Mobile USA) decreased by 7.8 percent year-on-year to EUR 3.8 billion in the first quarter of 2010, primarily as a result of currency fluctuations. In U.S. dollars revenues of the operating segment decreased by 2.2 percent year-on-year. The main factor driving the decrease in revenue in local currency was a fall in voice access revenues related to net losses of branded customers (wireless customers excluding MVNO and connected devices). Additionally, contract average revenue per user (ARPU) decreased year-on-year due primarily to a change in the customer mix towards lower ARPU customers, such as connected devices. Lower voice usage revenues related to customers converting to unlimited rate plans were offset by higher data revenues from customers adopting 3G data plans. The number of 3G-capable converged device users increased considerably from 1.5 million at the end of the first quarter of 2009 to 5.2 million at the end of the first quarter of 2010.
 

 
 
 

 
EBIT, adjusted EBITDA.
 
EBIT (profit from operations) grew year-on-year by 2.6 percent. However, adjusted EBITDA decreased by 5.0 percent year-on-year to EUR 1.0 billion. In U.S. dollars, adjusted EBITDA was broadly stable year-on-year with lower revenues (as discussed above) being offset by lower operating costs, including lower commissions expense related to fewer customer additions in the first quarter of 2010. The adjusted EBITDA margin increased slightly to 26.4 percent in the first quarter of 2010 from 25.6 percent in the first quarter of 2009.
 
Cash capex.
 
Cash capex decreased year-on-year from EUR 0.9 billion to EUR 0.5 billion in the first quarter of 2010. The primary reason for lower capex relates to the aggressive build-out of the national UMTS/HSDPA (3G) network in the first quarter of 2009. The 3G national network now covers 208 million people as of the end of the first quarter of 2010. In 2010, network capex spend will be driven by continued network investment, coverage expansion, and the upgrade to HSPA+. By the end of 2010, T-Mobile USA expects to have HSPA+ technology deployed across its 3G footprint with coverage of more than 185 million people.
 
Personnel.
 
The average number of employees rose year-on-year related to retail distribution growth, but was partially offset by fewer customer support employees driven by lower customer care call volumes.
 

 
 
 

 
 
Europe.
 
 
Customer development.
 
   
Mar. 31,
2010
 
millions
    
Dec. 31,
2009
 
millions
    
Change
Mar. 31, 2010/
Dec. 31, 2009
%
    
Mar. 31,
2009
 
millions
    
Change
Mar. 31, 2010/
Mar. 31, 2009
%
  
Europea
     44.0       44.2       (0.5 )     44.0       0.0  
Of which: T-Mobile UKa
     17.2       17.2       0.0       16.7       3.0  
Of which: T-Mobile NL
     4.4       4.6       (4.3 )     5.2       (15.4 )
Of which: PTC
     13.4       13.5       (0.7 )     13.3       0.8  
Of which: T-Mobile CZ
     5.4       5.5       (1.8 )     5.4       0.0  
Of which: T-Mobile Austria
     3.6       3.4       5.9       3.4       5.9  
                                         
 
a
Including Virgin Mobile customers: March 31, 2010: 4.2 million; December 31, 2009: 4.3 million; March 31, 2009: 4.6 million.

 
The customer base in the Europe operating segment stabilized in the first quarter of 2010, reaching 44.0 million customers overall by March 31, 2010 despite intense competition in the individual countries.
 
The changes in the total customer base since the end of 2009 were largely attributable to the prepay segment. At T-Mobile CZ, PTC and T-Mobile Netherlands, the number of prepay customers decreased by 0.5 million in total as a result of the focus on the high-value contract customer business and the increased deregistration of inactive prepay customers in the Netherlands. At T-Mobile UK, the number of customers stabilized at 17.2 million. Compared with the end of 2009, T-Mobile UK compensated for the decrease in Virgin customers with its own prepay additions as of March 31, 2010. Virgin customers are assigned to the prepay segment at T-Mobile UK. In Austria, the total number of customers increased compared with the end of 2009, primarily as a result of a new rule for deregistering prepay customers who used its secondary brand, tele.ring. Until December 31, 2009, tele.ring’s prepay customers used to be deregistered from the customer base after a period of inactivity of 90 days. Effective January 1, 2010, the period of inactivity was extended to 180 days, bringing it in line with the deregistration rule for prepay customers of the T-Mobile Austria brand. As a result tele.ring customers are now included in the customer base for longer.
 
The contract customer base showed a positive trend in the first quarter of 2010. All companies in the Europe operating segment further expanded their contract customer bases. Poland, the Netherlands and the Czech Republic in particular reported sound growth with a total of around 0.2 million net additions. Since the end of 2009 the percentage of contract customers in the total customer base (including Virgin) in the Europe segment has increased by 0.5 percentage points to 41.5 percent.
 
This sound development in the number of contract customers is due to the focused customer acquisition strategy that offers premium contract customers calling plans with minute buckets, flat-rate plans, and new hardware in conjunction with a fixed-term contract. In addition, innovative mobile Internet services on high-performance cell phones – introduced as part of the connected life and work strategy – successfully attracted new groups of customers. The ongoing successful marketing of Android-based smartphones and the Apple iPhone also further expanded the contract customer base.
 


 
 
 

 
Development of operations.
 
   
Q1
2010
millions of €
    
Q1
2009
millions of €
    
Change
 
millions of €
    
Change
 
%
    
FY
2009
millions of €
  
Total revenue
     2,412       2,436       (24 )     (1.0 )     10,034  
Of which: T-Mobile UK
     783       836       (53 )     (6.3 )     3,390  
Of which: T-Mobile NL
     442       444       (2 )     (0.5 )     1,807  
Of which: PTC
     441       416       25       6.0       1,757  
Of which: T-Mobile CZ
     279       275       4       1.5       1,191  
Of which: T-Mobile A
     248       267       (19 )     (7.1 )     1,038  
Of which: Othera
     233       216       17       7.9       909  
EBIT (profit (loss) from operations)
     375       (1,786 )     2,161    
n.a.
       (905 )
EBIT margin
(%)
     15.5       (73.3 )                     (9,0 )
                                         
Depreciation, amortization and impairment losses
     (285 )     (2,247 )     1,962       87.3       (3,411 )
EBITDA
     660       461       199       43.2       2,506  
Special factors affecting EBITDA
     (5 )     (6 )     1       16.7       (51 )
Adjusted EBITDA
     665       467       198       42.4       2,557  
Of which: T-Mobile UK
     167       113       54       47.8       611  
Of which: T-Mobile NL
     102       64       38       59.4       430  
Of which: PTC
     169       110       59       53.6       616  
Of which: T-Mobile CZ
     135       127       8       6.3       614  
Of which: T-Mobile A
     83       53       30       56.6       283  
Of which: Otherb
     8       0       8    
n.a.
       1  
Adjusted EBITDA margin
(%)
     27.6       19.2                       25,5  
                                         
Cash capex
     (205 )     (368 )     163       44.3       (879 )
                                         
Number of employees (average)
     17,594       18,277       (683 )