UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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 August 2003

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 [ ]

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 [ ]    No [X]

This report is deemed submitted and not filed pursuant to the rules and regulations of the Securities and Exchange Commission.

Group Report

January 1 to June 30, 2003

Contents

Contents.


         
• Deutsche Telekom at a glance   4
         
• Key financial figures for the first half of 2003   5
         
• Significant events   6
         
• Business developments   8
  • Overview 8
  • Divisions   14
  •  T-Com   14
  •  T-Mobile   19
  •  T-Systems   24
  •  T-Online   27
  •  Group Headquarters & Shared Services (Other)   30
  • Outlook 33
  •  Significant events after the balance sheet date (June 30, 2003)   33
  •  Development of revenue and income   36
  • Risk situation 38
         
• Reconciliation to pro forma figures   39
  • EBITDA and EBITDA adjusted for special factors 39
  • Special factors 40
  • Pro forma figures 44
  • Reconciliation to new structures 46
         
• Consolidated financial statements   49
  • Notes to the consolidated statement of income 53
  • Other disclosures 56
  • Notes to the consolidated balance sheet 58
  • Notes to the consolidated statement of cash flows 63
  • Segment reporting 64
  • Accounting 66
         
• Summary of differences between German GAAP and U.S. GAAP   67
         
• Investor Relations calendar   69

3

At a glance

Deutsche Telekom at a glance.

At a glance


  Second quarter of 2003 First half of 2003
  Q2 2003
millions
of €		 Q2 2002
millions
of €		 Change
%		 H1 2003
millions
of €		 H1 2002
millions
of €		 Change
%		 FY 2002
millions
of €
Total revenue   13,593     12,984     4.7     27,211     25,754     5.7     53,689  
Domestic   8,630     8,683     (0.6 )    17,136     17,201     (0.4 )    35,288  
International   4,963     4,301     15.4     10,075     8,553     17.8     18,401  
Results from ordinary business activities   598     (1,671 ) 8  n.a.   1,092     (3,347 ) 8    n.a.     (27,150 ) 8 
Financial income/(expense), net   (853 )    (1,182 )    27.8     (1,945 )    (2,930 )    33.6     (6,022 ) 
Depreciation and amortization   (3,212 )    (4,220 )    23.9     (6,481 )    (7,874 )    17.7     (36,880 ) 
of property, plant and equipment   (2,032 )    (2,585 )    21.4     (4,133 )    (4,750 )    13.0     (9,525 ) 
of intangible assets   (1,180 )    (1,635 )    27.8     (2,348 )    (3,124 )    24.8     (27,355 ) 
Other taxes   (47 )    (46 )    (2.2 )    (96 )    (102 )    5.9     (364 ) 
EBITDA1   4,710     3,777     24.7     9,614     7,559     27.2     16,116  
Special factors affecting EBITDA   112     (198 )    n.a.     540     (198 )    n.a.     (198 ) 
Adjusted EBITDA1   4,598     3,975     15.7     9,074     7,757     17.0     16,314  
Adjusted EBITDA margin (%)1   33.8     30.6           33.3     30.1           30.4  
Net income/(loss)   256     (2,083 )    n.a.     1,109     (3,891 )    n.a.     (24,587 ) 
Earnings/(loss) per share2/ADS3
(German GAAP)		   0.06     (0.50 )    n.a.     0.26     (0.93 )    n.a.     (5.86 ) 
Investments in property, plant
and equipment and intangible assets7		   (1,196 )    (1,874 )    36.2     (2,105 )    (3,497 )    39.8     (7,928 ) 
Net cash provided by operating activities   3,143     4,382     (28.3 )    6,260     6,645     (5.8 )    12,463  
Equity ratio (%)   —     —           28.6     36.3           28.1  
Net debt4   —     —           53,009     64,529     (17.9 )    61,106  

  June 30,
2003		 March 31,
2002		 Change
June 30,
2003/
March 31,
2003
%		 Dec. 31,
2002		 Change
June 30,
2003/
Dec. 31,
2002
%		 June 30,
2002		 Change
June 30,
2003/
June 30,
2002
%
Number of employees at balance sheet date
Deutsche Telekom Group   250,533     252,406     (0.7 )    255,969     (2.1 )    254,806     (1.7 ) 
Salaried employees (excl. civil servants)   200,554     202,176     (0.8 )    205,193     (2.3 )    202,048     (0.7 ) 
Civil servants   49,979     50,230     (0.5 )    50,776     (1.6 )    52,758     (5.3 ) 
Number of customers in fixed network and mobile services
Telephone lines (incl. ISDN channels)5 (millions)   58.1     58.2     (0.2 )    58.1     0     57.9     0.3  
Mobile communications subscribers (majority shareholdings)6 (millions)   61.4     59.8     2.7     58.6     4.8     52.9     16.1  
1 Deutsche Telekom defines EBITDA as the results from ordinary business activities excluding other taxes, financial income/(expense), net, amortization, and depreciation. Deutsche Telekom considers EBITDA to be a measure of the development of its operating activities before the effect of start-up costs for the development of new business areas and markets that are not matched by any relevant income. As such, EBITDA is an important indicator used by Deutsche Telekom's senior management in order to measure Deutsche Telekom's operating activities and the performance of the individual divisions and the Group as a whole. EBITDA is not a measure determined in accordance with GAAP. A detailed explanation of the special factors affecting EBITDA, adjusted EBITDA and the adjusted EBITDA margin can be found under "Reconciliation to pro forma figures".
2 Earnings per share (according to German GAAP) for each period are calculated by dividing net income (loss) by the weighted average number of outstanding shares.
3 One ADS – American Depositary Share – corresponds in economic terms to one share of Deutsche Telekom AG in common stock.
4 Bonds, liabilities to banks, liabilities to non-banks from loan notes, and other liabilities after deduction of liquid assets, marketable securities, other investments in noncurrent securities, other assets, and loan discounts (prepaid expenses, deferred charges). For more detailed explanations, please refer to "Reconciliation of pro forma figures."
5 Telephone lines of the Group, including for internal use; number of lines includes the MATÁV subsidiary Maktel for the first time. The figures for the previous year have been adjusted accordingly.
6 Number of subscribers of T-Mobile's fully consolidated mobile communications companies, plus HT Mobilne Telekomunikacije and Westel. Number of subscribers at balance sheet date.
7 Excluding goodwill.
8 Different from amount reported in the previous year due to the change to cost-of-sales accounting.

4

Key financial figures

Key financial figures for the first half of 2003.

• Group revenue increased by 5.7 percent year-on-year to EUR 27.2 billion.
• Net income of EUR 1.1 billion, up EUR 5.0 billion from net loss in same period last year.
• 27.2 percent year-on-year increase in Group EBITDA to EUR 9.6 billion;
adjusted EBITDA improved by 17.0 percent to EUR 9.1 billion.
• "6+6 program" already well underway: Net debt reduced by EUR 11.3 billion to EUR 53.0 billion compared with EUR 64.3 billion as of September 30, 2002.
• Sharp year-on-year increase in free cash flow1 after dividend from EUR 1.3 billion to EUR 3.9 billion.
• Capital expenditure2 reduced by EUR 1.4 billion from EUR 3.5 billion to EUR 2.1 billion.
• Significant increase in adjusted EBITDA margin in the first six months in all operational divisions compared with the prior-year period; efficiency gains and economies of scale generate cost savings of EUR 0.8 billion year-on-year:
• T-Com increases adjusted EBITDA by 3.5 percent to EUR 5.2 billion.
• T-Mobile records an adjusted EBITDA margin of 30 percent; adjusted EBITDA continues to grow rapidly – up 27.3 percent to EUR 3.3 billion.
• T-Systems reports considerable rise in adjusted EBITDA of 22.4 percent to EUR 0.6 billion.
• T-Online increases adjusted EBITDA3 by EUR 163 million to EUR 151 million.
• Group Headquarters & Shared Services and consolidation effects generated adjusted EBITDA of EUR -0.2 billion.
1 For a detailed explanation and calculation of free cash flow please refer to "Reconciliation to pro forma figures".
2 Investments in property, plant and equipment, and intangible assets excluding goodwill.
3 The T-Online figures shown here were calculated in accordance with German GAAP, as applied throughout the Deutsche Telekom Group, and do not correspond to the figures published by T-Online International AG in accordance with IFRS, as T-Online International AG and Deutsche Telekom AG do not apply the same accounting policies.

5

Significant events

Significant events.

Deutsche Telekom's new corporate vision and values: T-SPIRIT.

• The Deutsche Telekom vision was formulated in the second quarter of 2003 following discussions with the Group's managers: "As the leading services companies in the telecommunications and information technology industry, we network society for a better future. With top quality, efficiency and innovation, to the benefit of the customer. In every respect".
In this new vision, the "T" stands for quality, innovation and efficiency. It is the binding element in the Group and the joint performance promise to Deutsche Telekom's customers. In addition to the vision, T-SPIRIT also comprises a single set of six corporate values which, together with the vision, apply to all units within the Group. The divisions will take the vision a step further by deriving from it their own specific missions. The six central values can be easily recalled from the acronym SPIRIT: S uperior value, P assion for our customers, I nnovation, R espect , I ntegrity and Top Excellence.

Triple-E program leads to EBITDA increase of EUR 0.8 billion.

• Deutsche Telekom improved its EBITDA margin considerably in the first six months of 2003. This progress is partially attributable to the sale of non-core activities and to the first effects of the Triple-E program for the realization of comprehensive cost savings in the T-Com and T-Systems divisions, and economies of scale in the T-Mobile and T-Online divisions in the 2003 financial year. T-Com in particular made a major contribution to efficiency gains in the Group in the first six months of 2003. In a large number of cost items, T-Com benefited from savings due to stringent targets and the successful implementation of cost saving programs, for example in the areas of receivables management, maintenance, marketing expenses and rental costs. Furthermore, significant economies of scale were achieved by T-Mobile due to continued new customer business, particularly in the U.S., and by T-Online, thanks to substantially increased network utilization also recorded in the second quarter. T-Systems also made good progress in implementing the cost reduction program, recording extensive cost savings in rental and consulting charges in particular.

6

Significant events
 

"6+6 program" already well underway.

Deutsche Telekom's net debt at June 30, 2003 was EUR 11.3 billion lower than at September 30, 2002. The majority of the target for reducing net debt in 2003 has therefore already been achieved after nine months. In the quarter under review, a number of individual measures were implemented, such as sales of real estate and tax refunds. A further improvement resulted from cash flow. These effects and the following transactions together had a net effect of EUR 3.3 billion in the second quarter:

• In the second quarter of 2003, Deutsche Telekom sold a 15 percent stake in the Russian mobile operator Mobile Telesystems (MTS). T-Mobile International's co-shareholder in MTS, AFK Sistema JCSC (Sistema), exercised a call option on 10 percent of the shares in MTS on April 16, 2003. Deutsche Telekom had already sold a 5 percent stake in MTS on April 15, 2003 as part of an institutional placement. The proceeds of the two transactions amount to a total of around EUR 0.5 billion.
• In June 2003, Deutsche Telekom accepted a mandatory general offer from Telekom Malaysia (TM) for its 6 percent stake in the Malaysian mobile operator Celcom. At the offer price of MYR 2.75 per share, Deutsche Telekom will receive approximately EUR 0.1 billion for the sale of the shares held by DeTeAsia Holding GmbH. The arbitration proceedings already initiated by Deutsche Telekom according to the rules of the International Chamber of Commerce in Paris with respect to contractual disputes relating to the price of these shares remain unaffected by the acceptance of this offer.

7

Business developments

Business developments.

Overview.

Revenue

Deutsche Telekom generated revenue of EUR 27.2 billion in the first half of 2003, this equates to a year-on-year increase of EUR 1.5 billion, or 5.7 percent. Although U.S. dollar and pound sterling currency translation adjustments reduced revenue figures by around EUR 1 billion, consolidation measures had an overall positive influence of EUR 172 million. The first-time consolidation of T-Mobile Netherlands made a 1.5 percent contribution to the increase in Group revenue. At T-Com, revenue decreased by EUR 0.2 billion as a result of the deconsolidation of the cable businesses.

Continuing the trend from the first quarter of the year, the T-Mobile and T-Online divisions were the major contributors to revenue growth in the second quarter and the first half of 2003. T-Mobile's revenue growth is mainly attributable to the increase in subscriber numbers and average revenue per user. The first-time consolidation of T-Mobile Netherlands in the fourth quarter of 2002 also contributed to the growth of the division. Revenue at T-Online increased as a result of the continued growth of the broadband customer base and considerably higher levels of usage than in the previous year. Revenues at T-Systems in the second quarter of 2003 remained almost constant compared with the second quarter of 2002 and the first quarter of 2003. It should be noted, however, that there was a considerable increase in revenues from telecommunications business in the months of April to June in particular, while revenues from IT business continued to decline. The year-on-year increase in T-Systems' revenues in the first half year is thus a result of the considerable growth in revenues in the Telecommunications unit in the second quarter. In addition to the effect of the sale of the cable businesses, lower call revenues and reduced revenue from business customers – a consequence of the weak economy, among other reasons – also contributed to the decrease in revenues at T-Com in the second quarter of 2003 compared with the second quarter of 2002 and the first quarter of 2003. This development was offset by T-Com's improvement of its market position in the core business area of access revenue.


  Second quarter of 2003 First half of 2003
  Q1
2003
millions
of €		 Q2
2003
millions
of €		 Q2
2002
millions
of €		     
    
Change
%		 H1
2003
millions
of €		 H1
2002
millions
of €		     
    
Change
%		 FY
2002
millions
of €
Group revenue   13,618     13,593     12,984     4.7     27,211     25,754     5.7     53,689  
T-Com1, 2   7,490     7,153     7,509     (4.7 )    14,643     15,042     (2.7 )    30,559  
T-Mobile2   5,310     5,557     4,675     18.9     10,867     9,140     18.9     19,735  
T-Systems1, 2   2,560     2,567     2,588     (0.8 )    5,127     5,079     0.9     10,489  
T-Online1, 2, 3   445     449     372     20.7     894     738     21.1     1,584  
Group Headquarters & Shared Services2   1,093     1,071     966     10.9     2,164     1,923     12.5     4,411  
Intersegment revenue4   (3,280 )    (3,204 )    (3,126 )    (2.5 )    (6,484 )    (6,168 )    (5.1 )    (13,089 ) 
1 Total revenue under the new structure (see "Reconciliation to new structures" for explanation).
2 Total revenue (including revenue between divisions).
3 Figures are calculated in accordance with German GAAP, as applied throughout the Deutsche Telekom Group, and differ from those published in the reports of T-Online International AG under IFRS.
4 Elimination of revenue between divisions.

The contribution of the divisions to Group revenue (after consolidation of revenue between the divisions) is presented below:

8

Business developments

The contribution of the divisions to the Group revenue (after elimination of revenue between the divisions)


      
    
    
H1
2003
millions
of €		     
Proportion
of net
revenue of
the Group
%		     
    
    
H1
2002
millions
of €		     
Proportion
of net
revenue of
the Group
%		     
    
    
Change
millions
of €		     
    
    
    
Change
%		     
    
    
FY
2002
millions
of €
Group revenue   27,211     100.0     25,754     100.0     1,457     5.7     53,689  
T-Com1   12,564     46.2     13,105     50.9     (541 )    (4.1 )    26,491  
T-Mobile1   10,239     37.6     8,439     32.8     1,800     21.3     18,339  
T-Systems1   3,469     12.8     3,400     13.2     69     2.0     6,895  
T-Online1, 2   796     2.9     649     2.5     147     22.7     1,391  
Group Headquarters & Shared Services   143     0.5     161     0.6     (18 )    (11.2 )    573  
1 Net revenue under the new structure (see "Reconciliation to new structures" for explanation).
2 Figures are calculated in accordance with German GAAP, as applied throughout the Deutsche Telekom Group, and differ from those published in the reports of T-Online International AG under IFRS.

Deutsche Telekom AG's largest contributor to revenue continued to be T-Com, which generated around 46 percent of the Group's net revenue in the first half of 2003. The relative significance of the T-Com division for the Group's revenues is, however, declining due to the strong growth of T-Mobile and T-Online. Accounting for almost 38 percent of revenue, the T-Mobile division once more considerably improved its revenue position in comparison with the other divisions in the first six months of the current financial year.

Breakdown of international net revenue

Compared with the same periods in the previous year, the proportion of total revenue generated outside Germany increased in both the second quarter and the first half of 2003. Despite the negative foreign currency translation effects from the conversion of revenue figures into euros (especially from U.S. dollars and pounds sterling), the proportion of international revenue in the first half of 2003 increased considerably to 37.0 percent from 33.2 percent in the first half of 2002. T-Mobile made a significant contribution to this positive development. T-Mobile USA was once again one of the main revenue drivers in the Group in the second quarter of 2003 as well as in the first half of 2003. The first-time consolidation of T-Mobile Netherlands also made a contribution to the further expansion of international business.


  Second quarter of 2003 First half of 2003
  Q1
2003
millions
of €		 Q2
2003
millions
of €		 Q2
2002
millions
of €		     
    
Change
%		 H1
2003
millions
of €		 H1
2002
millions
of €		     
    
Change
%		 FY
2002
millions
of €
Group revenue   13,618     13,593     12,984     4.7     27,211     25,754     5.7     53,689  
Domestic   8,506     8,630     8,683     (0.6 )    17,136     17,201     (0.4 )    35,288  
International   5,112     4,963     4,301     15.4     10,075     8,553     17.8     18,401  
Proportion international (%)   37.5     36.5     33.1           37.0     33.2           34.3  
of which: European Union (excl. Germany)   2,044     1,797     1,582     13.6     3,841     3,123     23.0     6,836  
of which: Rest of Europe   1,261     1,242     1,204     3.2     2,503     2,432     2.9     5,067  
of which: North America   1,715     1,815     1,456     24.7     3,530     2,877     22.7     6,166  
of which: Other   92     109     59     84.7     201     121     66.1     332  

9

Business developments

Net income/(loss)

In the first six months of 2003, Deutsche Telekom increased its net income by EUR 5 billion to EUR 1.1 billion compared with the corresponding period of 2002. This is a result of favorable tax effects, recorded especially in the first quarter, as well as an improvement in the results from ordinary business activities.

Results from ordinary business activities


  Second quarter of 2003 First half of 2003
  Q1
2003
millions
of €		 Q2
2003
millions
of €		 Q2
2002
millions
of €4		     
    
Change
%		 H1
2003
millions
of €		 H1
2002
millions
of €4		     
    
Change
%		 FY
2002
millions
of €4
Results from ordinary business activities   494     598     (1,671 )    n.a.     1,092     (3,347 )    n.a.     (27,150 ) 
T-Com1, 3   1,418     859     971     (11.5 )    2,277     1,672     36.2     3,604  
T-Mobile1, 3   (77 )    475     (682 )    n.a.     398     (1,543 )    n.a.     (23,754 ) 
T-Systems1, 3   (18 )    (71 )    (438 )    83.8     (89 )    (540 )    83.5     (1,990 ) 
T-Online1, 2, 3   2     21     (56 )    n.a.     23     (149 )    n.a.     (471 ) 
Group Headquarters & Shared
Services1, 3		   (826 )    (626 )    (1,494 )    58.1     (1,452 )    (2,731 )    46.8     (4,690 ) 
Reconciliation1   (5 )    (60 )    28     n.a.     (65 )    (56 )    (16.1 )    151  
1 Results from ordinary business activities under the new structure (see "Reconciliation to new structures" for explanation).
2 Figures are calculated in accordance with German GAAP, as applied throughout the Deutsche Telekom Group, and differ from those published in the reports of T-Online International AG under IFRS.
3 Results from ordinary business activities at segment level.
4 Different from amount reported in the previous year due to a change to cost-of-sales accounting.

Results from ordinary business activities improved considerably in the second quarter of 2003 compared with the second quarter of 2002 and the first quarter of 2003. This figure increased by EUR 4.4 billion year-on-year from EUR -3.3 billion in the first half of 2002 to EUR 1.1 billion in the first half of 2003. This very encouraging development in the first half year is attributable to an improvement in adjusted EBITDA – driven by revenue growth and improvements in efficiency as well as a further increase in other operating income, mainly as a result of the sale of noncore activities. Furthermore financial expense, net improved by around EUR 1 billion to EUR 1.9 billion year-on-year. This development is due to the non-recurrence of last year's write-down on the net carrying amount of the stake in France Telecom and other financial assets.

EBITDA

Deutsche Telekom's EBITDA improved by 27.2 percent in the first half of 2003 to EUR 9.6 billion, compared with EUR 7.6 billion in the same period last year. All the divisions of the Group contributed to this improvement. In the second quarter of 2003 alone, the improvement in Group EBITDA over the same period last year was around 25 percent, driven by high growth rates in the EBITDA of the T-Mobile, T-Systems and T-Online divisions.

Special factors

While EBITDA in the first quarter of 2003 was increased by special factors totaling EUR 0.4 billion net, special factors boosting EBITDA were also recorded in the period April to June 2003, with a net total of EUR 0.1 billion, as a result of the income from the sale of financial assets (principally from T-Mobile's disposal of interests in MTS), which was offset, however, by a number of expenses, primarily higher additions to pension accruals

10

Business developments

resulting from changes in discount rates (additional minimum liability, AML), particularly at T-Com. No special factors were recorded during the first quarter of the 2002 financial year. EBITDA in the second quarter of last year was negatively impacted by special factors totaling EUR 0.2 billion net, primarily as a result of expenses relating to the sale of the stake in France Telecom.

Adjusted EBITDA

Adjusted for the special factors mentioned above, EBITDA in the second quarter of 2003 increased by EUR 0.6 billion or approximately 16 percent year-on-year to EUR 4.6 billion. The adjusted EBITDA margin improved considerably from 30.6 percent to 33.8 percent at the same time. The largest contribution to adjusted EBITDA growth, EUR 0.4 billion, was recorded by the T-Mobile division. This was due to the qualitative growth in new additions to the customer base, aided by economies of scale and synergy effects. Improvements in cost structures and profitable business with new customers at T-Systems – in its Telecommunications unit – contributed to the increase in adjusted EBITDA quarter-on-quarter. T-Com succeeded in stabilizing adjusted EBITDA at a high level in the second quarter of 2003 in spite of a decline in revenue. Continuing the upward trend in the first quarter, adjusted Group EBITDA grew appreciably by a double-digit percentage figure in the first half of the year, up by EUR 1.3 billion to EUR 9.1billion. Factors influencing this development include revenue increases in the core business areas of all the divisions and consistent improvements in cost structures, as well as the efficiency enhancements implemented to date. This can also be clearly seen in the improvement in the EBITDA margin from 30.1 percent in the first half of 2002 to 33.3 percent in the first six months of 2003.

A detailed explanation of the special factors affecting EBITDA can be found under "Reconciliation to pro forma figures".


  Second quarter of 2003 First half of 2003
  Q1
2003
millions
of €		 Q2
2003
millions
of €		 Q2
2002
millions
of €		     
    
Change
%		 H1
2003
millions
of €		 H1
2002
millions
of €		     
    
Change
%		 FY
20023
millions
of €
Adjusted EBITDA1   4,476     4,598     3,975     15.7     9,074     7,757     17.0     16,314  
T-Com2   2,674     2,554     2,555     (0.04 )    5,228     5,049     3.5     10,268  
T-Mobile   1,514     1,743     1,348     29.3     3,257     2,559     27.3     5,038  
T-Systems   286     337     251     34.3     623     509     22.4     1,151  
T-Online2, 4   75     76     2     n.a.     151     (12 )    n.a.     76 5 
Group Headquarters & Shared Services   (10 )    (10 )    (143 )    93.0     (20 )    (171 )    88.3     30  
Reconciliation   (63 )    (102 )    (38 )    (168.4 )    (165 )    (177 )    6.8     (249 ) 5 
1 Deutsche Telekom defines EBITDA as the results from ordinary business activities excluding other taxes, financial income/(expense), net, amortization, and depreciation. Deutsche Telekom considers EBITDA to be a measure of the development of its operating activities before the effect of start-up costs for the development of new business areas and markets that are not matched by any relevant income. As such, EBITDA is an important indicator used by Deutsche Telekom's senior management in order to measure Deutsche Telekom's operating activities and the performance of the individual divisions and the Group as a whole. EBITDA is not a measure determined in accordance with GAAP. A detailed explanation of the special factors affecting EBITDA, adjusted EBITDA and the adjusted EBITDA margin can be found under "Reconciliation to pro forma figures".
2 Under the new structure (see "Reconciliation to new structures" for explanation).
3 For a more detailed explanation, please refer to Deutsche Telekom Annual Report 2002 "Reconciliation of pro forma figures."
4 Figures are calculated in accordance with German GAAP, as applied throughout the Deutsche Telekom Group, and differ from those published in the reports of T-Online International AG under IFRS.
5 Adjusted for the T-Motion book gain which was eliminated in the reconciliation, as it is an intragroup transaction.

11

Business developments

Free cash flow1

After dividend payments, free cash flow in the first half of 2003 amounted to EUR 3.9 billion, an increase of around EUR 2.7 billion compared with the first half of 2002. This development was primarily influenced by the decrease of EUR 1.5 billion in investments in property, plant and equipment, and intangible assets. In addition, the fact that Deutsche Telekom AG paid a dividend in 2002 for the 2001 financial year, but not in 2003 for the 2002 financial year, improved the free cash flow in the first half of 2003 in a year-on-year comparison. Small dividend payments were made in the first half of 2003 to minority shareholders of subsidiaries not fully owned by Deutsche Telekom – in particular MATÁV. Cash generated from operations fell, due among other things to lower tax refunds and, at the same time, a higher level of tax payments in the period under review.


  H1
2003
millions
of €		 H1
2002
millions
of €		 FY
2002
millions
of €
Cash generated from operations   8,021     8,401     16,667  
Interest received/(paid)   (1,761 )    (1,756 )    (4,204 ) 
Net cash provided by operating activities2   6,260     6,645     12,463  
Cash outflows from investments in intangible assets and property, plant and equipment3   (2,294 )    (3,827 )    (7,625 ) 
Free cash flow before payment of dividends2   3,966     2,818     4,838  
Dividend   (54 )    (1,558 )    (1,582 ) 
Free cash flow after payment of dividends2   3,912     1,260     3,256  
1 The reconciliation of the Group's free cash flow is based on the amounts reported in the consolidated statement of cash flows prepared in accordance with IAS 7 and DRS 2.
2 For a more detailed explanation, please refer to "Reconciliation of pro forma figures."
3 Excluding goodwill.

Net debt

Deutsche Telekom's net debt decreased by around EUR 8.1 billion compared with December 31, 2002 to EUR 53.0 billion at June 30, 2003. This represents a further reduction of EUR 3.3 billion in addition to the EUR 4.8 billion already achieved in the first quarter of this year. The reduction is mainly attributable to cash inflows from the disposal of shareholdings (in particular income from the sale of the remaining cable businesses in the first quarter of 2003 amounting to around EUR 1.7 billion and income from the sale of interests in MTS in the second quarter totaling approximately EUR 0.5 billion), as well as to proceeds from the sale of real estate (approximately EUR 0.3 billion). A second-quarter tax refund of around EUR 0.6 billion as well as net cash provided by operating activities and currency translation effects made a further contribution to lowering net debt. Since debt reduction measures were initiated in the third quarter of 2002, net debt decreased by EUR 11.3 billion by June 30, 2003.

On June 30, 2003, T-Mobile USA bought back approximately 99 percent of three outstanding notes issued by the former VoiceStream Wireless Corporation as part of a tender offer. The price of the transaction amounted to USD 1.25 billion.

12

Business developments


      
    
    
June 30,
2003
millions
of €		     
    
    
March 31,
2003
millions
of €		 Change
June 30,
2003/
March 31,
2003
millions
of €		     
    
    
Dec. 31,
2002
millions
of €		 Change
June 30,
2003
Dec. 31,
2002
millions
of €		     
    
    
Sept. 30,
2002
millions
of €1		     
    
    
June 30,
2002
millions
of €1
Bonds and debentures   56,776     57,964     (1,188 )    56,752     24     58,852     59,210  
Liabilities to banks   4,472     4,852     (380 )    6,292     (1,820 )    7,692     7,700  
Debt (in accordance with consolidated balance sheet)   61,248     62,816     (1,568 )    63,044     (1,796 )    66,544     66,910  
Liabilities to non-banks from loan notes   808     818     (10 )    842     (34 )    613     651  
Miscellaneous other   268     496     (228 )    248     20     159     296  
Gross debt2   62,324     64,130     (1,806 )    64,134     (1,810 )    67,316     67,857  
Liquid assets   8,526     6,932     1,594     1,905     6,621     1,867     1,806  
Other investments in marketable securities   115     251     (136 )    413     (298 )    460     577  
Other investments in noncurrent securities   40     115     (75 )    238     (198 )    291     570  
Other assets   356     207     149     177     179     10     20  
Discounts on loans (prepaid expenses and deferred charges)   278     332     (54 )    295     (17 )    377     355  
Net debt2   53,009     56,293     (3,284 )    61,106     (8,097 )    64,311     64,529  
1 The prior-year comparatives as of September 30, 2002, and June 30, 2002, have been adjusted in line with this redefinition of net debt.
2 For detailed information and calculations please refer to the chapter on "Reconciliation to pro forma figures".

13

Business developments

Divisions.


  June 30,
2003
millions1		 March 31,
2003
millions1		 Change
June 30,
2003/
March 31,
2003
%		 Dec. 31,
2002
millions1		 Change
June 30,
2003
Dec. 31,
2002
%		 June 30,
2002
millions1		 Change
June 30,
2003/
June 30,
2002
%
Fixed-network lines, incl. ISDN channels   55.8     56.0     (0.4 )    56.2     (0.7 )    55.9     (0.2 ) 
Germany3   49.1     49.2     (0.2 )    49.3     (0.4 )    49.1     0  
Standard analog lines   28.0     28.2     (0.7 )    28.6     (2.1 )    29.3     (4.4 ) 
ISDN channels   21.1     21.0     0.5     20.7     1.9     19.8     6.6  
T-DSL contracts (marketed)   3.7     3.4     8.8     3.1     19.4     2.5     48.0  
International   6.7     6.8     (1.5 )    6.9     (2.9 )    6.8     (1.5 ) 
MATÁV2   3.5     3.5     0     3.6     (2.8 )    3.6     (2.8 ) 
Slovenské Telekomunikácie   1.4     1.5     (6.7 )    1.5     (6.7 )    1.5     (6.7 ) 
Hrvatske telekomunikacije   1.8     1.8     0     1.8     0     1.8     0  
Mobile communications subscribers                                          
Westel   3.5     3.4     2.9     3.4     2.9     3.0     16.7  
HT Mobilne Telekomunikacije   1.3     1.3     0     1.2     8.3     1.1     18.2  
1 Rounded figures calculated on the basis of millions. The total was calculated on the basis of precise figures.
2 Subscriber-line figures are recorded including MATÁV's subsidiary Maktel for the first time. The figures for the previous year have been adjusted accordingly.
3 Telephone channels, including for internal use.

T-Com: Customer data and selected KPIs

In the second quarter of 2003, the T-Com division continued to place a strong emphasis on profitability enhancement measures. At the same time, intensive steps were initiated to improve quality with the goal of reinforcing customer retention. In the second quarter of 2003, for instance, T-Com's online sales program was optimized. Customers visiting the redesigned online shop at www.telekom.de/shop now have three main areas to choose from: "Meine Telekom (My Telekom)", "Service" and "Tarife und Produkte (Rates and Products)". In the personalized "Meine Telekom" area, customers can conveniently manage most of their access data online and sign up for new products and services. In the "Service" area, customers can take advantage of Deutsche Telekom's extensive offering of information and services relating to telephone and data lines, as well as telephones, PABXs and data communications hardware. In the third area of "Tarife und Produkte", customers can place orders for Deutsche Telekom products and services.

An important trend affecting T-Com's overall business development in the second quarter of 2003 continued to be the migration of customers to more advanced lines, and particularly broadband lines. The number of T-DSL lines sold in Germany grew by another 300,000, reaching 3.7 million in the second quarter of 2003. Compared with June 30, 2002, this corresponds to an increase of 48 percent. Another promising trend supporting the positive development in the second quarter of 2003 was the sharp increase in the data volume generated with T-DSL lines. The number of ISDN channels in Germany also continued to rise. The total number of T-Com fixed-network channels remained nearly constant in the first half of 2003 compared with the

14

Business developments

prior-year period. This positive development shows that T-Com is successfully defending its market position in the access segment of its core fixed-network business. The trend of declining analog subscriber lines, which has been evident for several quarters, was mainly responsible for the slight decrease in the total number of fixed-network lines at the end of June 2003 compared with the first quarter of this year and with December 31, 2002.

In line with expectations, the volume of call minutes in the retail business in Germany continued to decline in the second quarter. The overall volume of the market for local calls continued to decrease. As expected, the introduction of Call-by-Call in the local network in April 2003 resulted in a substantial reduction in T-Com's market share for extended local calls. Compared with its competitors, T-Com has captured a smaller portion of market volume increases in the long-distance and fixed-to-mobile calling plans; in the segment of international calls, it recorded a drop in minute volume against the market trend.

Deutsche Telekom is systematically expanding its product offering to support the trend towards greater T-DSL usage and the evident growth in the volume of online data. Since June 6, 2003, multimedia Internet applications can be accessed at high transmission quality through access technologies such as T-DSL or mobile communications from a so-called MDCS (Media Distribution and Caching Service) platform. With the launch of this innovative new content delivery platform MDCS, T-Com now offers content providers a platform for effective content management. In this process, multimedia content is distributed from interim storage locations in the existing IP network of Deutsche Telekom.

Systematic efforts to tap the market for broadband products are also underway in Eastern Europe. In Slovakia, the market introduction of ADSL began on June 1, 2003. In Hungary, MATÁV introduced a satellite-based ADSL service in the second quarter of 2003, thus rounding off its product portfolio and offering access to customers in remote areas. By the end of June 2003, MATÁV had approximately 58,000 ADSL customers. This growth represents an increase of approximately 200 percent compared with the end of June 2002. Eastern European subsidiaries as a whole registered an overall drop in the number of fixed-network telephone lines. The main reason for this is the substitution of fixed-network communications by mobile communications.

DeTeMedien, transferred to the T-Com division since the beginning of this year, acquired all shares of t-info GmbH from T-Online International AG for approximately EUR 86 million at the end of May 2003, with retroactive effect from April 1, 2003. t-info is positioned as an information, directory, and advice portal that can be reached directly via various access channels. With this acquisition, T-Com intends to further optimize the existing synergies between the print and multimedia directory businesses.

15

Business developments

T-Com: Development of operations


  Second quarter of 2003 First half of 2003
  Q1
2003
millions
of €		 Q2
2003
millions
of €		 Q2
20024
millions
of €		 Change
%		 H1
2003
millions
of €		 H1
20024
millions
of €		 Change
%		 FY
20024
millions
of €
Total revenue1   7,490     7,153     7,509     (4.7 )    14,643     15,042     (2.7 )    30,559  
Domestic   6,550     6,187     6,546     (5.5 )    12,737     13,160     (3.2 )    26,682  
Eastern Europe   940     966     963     0.3     1,906     1,882     1.3     3,877  
Results from ordinary business activities   1,418     859     971 5    (11.5 )    2,277     1,672 5    36.2     3,604 5 
Financial income/(expense), net   (132 )    (118 )    (197 )    40.1     (250 )    (643 )    61.1     (866 ) 
Depreciation and amortization   (1,318 )    (1,282 )    (1,368 )    6.3     (2,600 )    (2,696 )    3.6     (5,539 ) 
Other taxes   (10 )    1     (19 )    n.a.     (9 )    (38 )    76.3     (42 ) 
EBITDA2   2,878     2,258     2,555     (11.6 )    5,136     5,049     1.7     10,051  
Special factors affecting EBITDA2   204     (296 )    0     n.a.     (92 )    0     n.a.     (217 ) 
Adjusted EBITDA2   2,674     2,554     2,555     (0.04 )    5,228     5,049     3.5     10,268  
of which domestic   2,237     2,154     2,130     1,1     4,391     4,197     4.6     8,471  
of which international   437     400     425     (5.9 )    837     852     (1.8 )    1,797  
Adjusted EBITDA margin (%)2   35.7     35.7     34.0           35.7     33.6           33.6  
Investments in property, plant and equipment and intangible assets6   (317 )    (451 )    (867 )    48.0     (768 )    (1,720 )    55.3     (3,180 ) 
Number of employees3   145,465     141,065     153,814     (8.3 )    143,264     154,519     (7.3 )    153,065  
1 Including DeTeMedien and agency business.
2 Deutsche Telekom defines EBITDA as the results from ordinary business activities excluding other taxes, financial income/(expense), net, amortization, and depreciation. Deutsche Telekom considers EBITDA to be a measure of the development of its operating activities before the effect of start-up costs for the development of new business areas and markets that are not matched by any relevant income. As such, EBITDA is an important indicator used by Deutsche Telekom's senior management in order to measure Deutsche Telekom's operating activities and the performance of the individual divisions and the Group as a whole. EBITDA is not a measure determined in accordance with GAAP. A detailed explanation of the special factors affecting EBITDA, adjusted EBITDA and the adjusted EBITDA margin can be found under "Reconciliation to pro forma figures".
3 Average number of employees, including DeTeMedien.
4 For a more detailed explanation, please refer to Deutsche Telekom Annual Report 2002 "Reconciliation of pro forma figures."
5 Different from amount reported in the previous year due to the change to cost-of-sales accounting.
6 Excluding goodwill and certain intragroup transfers.

T-Com: Total revenue

The first six months of 2003 saw a drop of around 2.7 percent in the total revenue of the T-Com division compared with the corresponding period of 2002; this was mainly the result of the sale of the regional cable businesses as of March 01, 2003 (overall impact approximately EUR 0.2 billion). After adjusting for this effect, the total revenue generated in the first six months was 1.2 percent less than the corresponding figure for the first half of 2002. Considering the generally strict regulatory environment, as well as the effects of the weaker economy, especially in the customer segment of small and medium-sized enterprises, this development should be seen as encouraging. The decrease in total revenue generated in the second quarter of 2003

16

Business developments

compared with the first quarter of 2003 is also largely attributable to the deconsolidation of the cable businesses. Other contributing factors include seasonal business patterns, which generally favor the first quarter of every year, and the revenue-reducing effects of local Call-by-Call, which has resulted in a loss of market share of around 10 percent in the extended local call segment.

Within Germany, revenue developed differently in individual product segments of the T-Com division in the first half of 2003.

Revenue from subscriber lines continued to increase in the second quarter of 2003 compared with the prior-year quarter. This revenue growth can be ascribed to combined price and volume effects. Positive contributing factors also included the ongoing trend towards more advanced products such as T-ISDN and T-DSL, as well as some flexibility in price setting in the third quarter of 2002 and the first quarter of 2003. Call revenue for the first six months of the current financial year was lower than in the corresponding prior-year period, due mainly to the rate adjustments necessitated by the price-cap regulation and to the volume decline in extended local and international calls driven by the level of competition and regulation. The development in the Carrier Services business was mixed. Call origination to the Internet platform for other carriers benefited from the excellent development in broadband products, reporting a sharp increase in revenue compared with the first half of 2002. In the traditional business with carrier service products, by contrast, revenue declined. Revenue from the leasing of subscriber lines and interconnection links were slightly lower than in the prior-year period. This decline can be attributed to the lower volume of orders placed by other carriers due to insolvencies and cautious assessments of the market potential. Revenue from interconnection services decreased as a consequence of direct interconnection between the networks of other carriers and the expansion of coverage offered by competitors. This development resulted in a decrease in transit services (calls via the Deutsche Telekom network to other domestic fixed and mobile networks). The limited number of orders placed by small and medium-sized enterprises – a consequence of the economic situation – and the resulting temporary price adjustments led to reduced second-quarter revenue from data communications compared with the prior-year period.

The consolidated revenue generated in Eastern Europe in the first six months of the current year was slightly higher than the corresponding figure for the prior-year period. The trends of strong growth in the mobile communications business accompanied by a decline in classical fixed-network telephony that had been observed already in the preceding quarters remained in effect in the second quarter of 2003. In addition, changes in foreign currency exchange rates had a negative impact.

T-Com: Results of ordinary business activities

The sharp increase in the results from ordinary activities in the first half of 2003 compared with the corresponding prior-year period can be attributed to the lower cost of sales and selling costs, as well as the proceeds from the sale of the remaining cable businesses and the significantly reduction of net financial income. The reduction in costs is a result of the efficiency enhancement measures that have been initiated, as well as lower losses on accounts receivable and cost declines due to the lower revenue volume. The increase in the results from ordinary activities in the first half of the current year over the corresponding period of the prior year also resulted from the fact that writedowns on loans to subsidiaries and affiliates of Kabel Deutschland GmbH amounting to EUR 0.3 billion were charged against income in the first half of 2002 and by the fact that the net proceeds on the sale of the remaining cable companies amounting to EUR 0.2 billion were recognized as income in the current year. Several factors contributed to the decrease in the results from ordinary activities in the second quarter of 2003 as compared with the first quarter of 2003. Although these results were boosted considerably by the proceeds from the sale of the remaining cable businesses in the first quarter of 2003, they were affected by substantial charges in the second quarter of 2003, result-

17

Business developments

ing primarily from the adjustment of the discount rate applied to pension accruals and from the payments made to the Personal Service Agency (PSA). Moreover, the decrease in revenue resulting from intensified competition due to regulatory action and reduced spending of small and medium-sized companies could not be fully offset by cost reductions.

T-Com: EBITDA

Despite the substantially intensified competitive pressure, the considerable negative impact of the overall economy and the special factors affecting earnings, T-Com's EBITDA for the first six months of the current year was higher than the corresponding prior-year figure. This positive development was primarily due to decreases in costs of sales and selling costs in the first half of 2003 compared with the same period of 2002.

T-Com: Adjusted EBITDA

The special factors experienced by the T-Com division produced offsetting effects in the first and second quarters of 2003. Although the results of the first quarter of 2003 were positively affected by the deconsolidation gain on the sale of the remaining cable businesses, the second quarter of 2003 included a charge resulting from the adjustment of the discount rate applied to pension accruals to the amount of EUR 174 million, as well as further transfer payments to the PSA to the amount of EUR 88 million and recognition of accruals for employee severance payments in Croatia amounting to EUR 27 million.

The adjusted EBITDA for the first six months of the current financial year was significantly higher than for the first half of 2002. An especially encouraging development can be seen in the fact that the discontinued EBITDA contributions from the divested cable businesses, totaling approximately EUR 70 million in the corresponding period of 2002, were more than offset in the first half of 2003. The improved EBITDA and the considerable improvement of the EBITDA margin are attributable to the successful implementation of a large number of cost reduction measures. As of June 2003, cumulative savings resulting from restrictive budgets and cost saving programs were achieved for a large number of cost items, including, for instance, losses on accounts receivable, goods and services purchased, and marketing. In the first six months of 2003, capital expenditure was further reduced by EUR 952 million compared with the prior-year period. Although the basic roll-out of the new SDH transmission path platform and the T-DSL platform necessitated relatively high capital expenditure last year, the only investments required in the current year were composed largely of customer-driven capital investments shortly after orders were placed. Moreover, expenditure was reduced in the T-DSL and T-ISDN areas through a substantial increase in the capacity utilization rates for T-IDSN and T-DSL. The demand-oriented expansion of the subscriber-line network was a significant factor driving capital expenditure in the first half of 2003.

Compared with the first half of 2002, T-Com's average number of employees declined by 11,255. This development was mainly the result of the WIN 2003 action program to optimize the processes and structures of T-Com in Germany. This program streamlined the workforce of T-Com in Germany by approximately 6,800 employees compared with the prior year, of whom around 5,100 employees have been transferred to the PSA. Process optimization was also rigorously pursued in the Eastern European subsidiaries and affiliates. The Eastern European subsidiaries and affiliates cut their workforce levels by 4,248 employees. The deconsolidation of the cable businesses led to the elimination of 2,883 jobs at T-Com.

18

Business developments


  June 30,
2003		 March 31,
2003		 Change
June 30,
2003/
March 31,
2003		 Dec. 31,
2002