Edgar Filing: DEUTSCHE TELEKOM AG

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 2004

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 if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b)(1):

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b)(7):

Indicate by check mark whether the registrant by furnishing the information contained in this form, the registrant 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.

First half of 2004 2

Deutsche Telekom at a glance.
2003 Q1 Q2 Q3 Q4 14.6 14.1 14.4 13.6 14.0 13.6 13.5 14.0 14.5 15.0 Net revenue (billions of €) 13.0 2004			Q1 Q2 Q3 Q4 0.0 1.0 2.0 3.0 4.0 2.0 2.9 2.0 1.3 3.4 0.9 2004 2003 Free cash flow (before dividend)^a (billions of €)

Q1 Q2 Q3 Q4 2004 2003 4.3 4.4 4.5 4.6 4.7 4.8 Group EBITDA (adjusted)^a(billions of €) 4.5 4.6 4.6 4.8 4.7 4.5			2003 2004 Q1 Q2 Q3 Q4 0 200 400 600 800 1000 1200 66 415 486 1,034 630 -60 Results from ordinary business activities (millions (adjusted) ^aof €) -200

2003 2004 Q1 Q2 Q3 -516 -400 -200 0 200 400 600 800 113 227 162 728 463 Net income/loss (adjusted)^a (millions of €) -600 Q4			2003 2004 Mar. 31 Jun. 30 Sept. 30 Dec. 31 0 10 20 30 40 50 60 56.3 44.6 53.0 43.3 49.2 46.6 (billions of €) Net debt^a
a For detailed information and calculations please refer to “Reconciliation of pro forma figures”, page 40 et seq.

First half of 2004 0

	Deutsche Telekom at a glance.

At a glance		Second quarter of 2004						First half of 2004
		Q2 2004 millions of €		Q2 2003 millions of €		Change %		H1 2004 millions of €	H1 2003 millions of €		Change %		2003 millions of €
	Total revenue	14,412		13,593		6.0		28,398	27,211		4.4		55,838
	Domestic	8,581		8,630		(0.6	)	17,025	17,136		(0.6	)	34,691
	International	5,831		4,963		17.5		11,373	10,075		12.9		21,147
	Results from ordinary business activities	2,406		598		n.a.		2,752	1,092		n.a.		1,398
	Financial income/(expense), net	(681	)	(853	)	20.2		(1,791)	(1,945	)	7.9		(4,031	)
	Depreciation and amortization	(3,015	)	(3,212	)	6.1		(6,031)	(6,481	)	6.9		(12,884	)
	of property, plant and equipment	(1,888	)	(2,032	)	7.1		(3,779)	(4,133	)	8.6		(8,206	)
	of intangible assets	(1,127	)	(1,180	)	4.5		(2,252)	(2,348	)	4.1		(4,678	)
	Other taxes	(53	)	(47	)	(12.8	)	(97)	(96	)	(1.0	)	(162	)
	EBITDA^a	6,155		4,710		30.7		10,671	9,614		11.0		18,475
	Special factors affecting EBITDA^a,b	1,372		112		n.a.		1,303	540		n.a.		187
	Adjusted EBITDA^a,b	4,783		4,598		4.0		9,368	9,074		3.2		18,288
	Adjusted EBITDA margin^a,b(%)	33.2		33.8				33.0	33.3				32.8
	Net income	1,655		256		n.a.		1,824	1,109		64.5		1,253
	Special factors^c	927		94		n.a.		869	834		4.2		1,031
	Adjusted net income^b	728		162		n.a.		955	275		n.a.		222
	Earnings per share^d (€) /ADS^e (German GAAP)	0.39		0.06		n.a.		0.43	0.26		65.4		0.30
	Investments in property, plant and equipment, and intangible assets (excl. goodwill)	(1,517	)	(1,196	)	(26.8	)	(2,536)	(2,105	)	(20.5	)	(6,234	)
	Net cash provided by operating activities	2,878		3,143		(8.4	)	7,128	6,260		13.9		14,316

	Equity ratio (%)	—		—				32.2	28.6				29.1
	Net debt^f	—		—				43,330	53,009		(18.3	)	46,576

		June 30, 2004		Mar. 31, 2004		Change June 30, 2004/ Mar. 31, 2004 %		Dec. 31, 2003	Change June 30, 2004/ Dec. 31, 2003 %		June 30, 2003		Change June 30, 2004/ June 30, 2003 %
Number of employees at balance sheet date Number of fixed- network and mobile customers	Deutsche Telekom Group	247,830		248,153		(0.1	)	248,519	(0.3	)	250,533		(1.1	)
	Non-civil servants	199,866		198,489		0.7		198,726	0.6		200,554		(0.3	)
	Civil servants	47,964		49,664		(3.4	)	49,793	(3.7	)	49,979		(4.0	)
	Telephone lines^g(millions)	57.7		57.9		(0.3	)	57.9	(0.3	)	58.1		(0.7	)
	Broadband lines (in operation) (millions)	4.9		4.5		8.9		4.1	19.5		3.5		40.0
	Mobile subscribers^h (millions)	71.6		69.2		3.5		66.7	7.3		61.8		15.9

First half of 2004 1

Deutsche Telekom defines EBITDA as the results from ordinary business activities excluding other taxes, net financial income/expense, amortization and depreciation.

A detailed explanation of the special factors affecting EBITDA, adjusted EBITDA, and the adjusted net income can be found under “Reconciliation of pro forma figures”, page 40 et seq.

For detailed information on special factors, please refer to “Reconciliation of pro forma figures”, page 40 et seq.

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.

One ADS (American Depositary Share) corresponds in economic terms to one share of Deutsche Telekom AG in common stock.

Bonds, liabilities to banks, liabilities to non-banks from loan notes, and other liabilities after deduction of liquid assets, including marketable securities, other investments in noncurrent securities, other assets, and loan discounts. For detailed information, see “Reconciliation of pro forma figures”, page 40 et seq.

Telephone lines of the Group (incl. ISDN channels), including for internal use.

Number of subscribers of T-Mobile’s fully consolidated mobile communications companies, plus the majority shareholdings of MATÁV and Hrvatske telekomunikacije. Mobimak subscribers included for the first time as of March 31, 2004. The figures for the previous year have been adjusted accordingly.

Agenda 2004

Deutsche Telekom has established Agenda 2004 to pursue its goal of profitable growth. This cross-divisional six-point program supports the goal of becoming an integrated group, concentrating on the strategic growth areas of broadband/fixed network, business customers and mobile communications.

Broadband
Broadband is a key factor in the future of fixed-network and mobile communications. T-Com and T-Online are working together to promote market development in the broadband fixed network. T-Com launched its “1-2-3” pricing strategy, a simple and transparent rate model, on April 1, 2004. T-Online reduced its flat-rate prices on June 1, 2004, making them even more attractive. The number of T-DSL lines in Germany increased by around 344,000 in the second quarter of this year to 4.7 million. The conclusion of the first DSL resale agreements with competitors will also contribute to the development of this market. T-Mobile Multimedia – TM³ – integrates UMTS, GPRS and W-LAN in an end-to-end mobile communications package.

Business customers
Pooling the strengths of T-Com and T-Systems increases Deutsche Telekom’s selling power in the segment of small and medium-sized enterprises. The service portfolio is geared to the customers’ specific requirements and sales activities are more closely coordinated with each other. The successes achieved with the business customer campaign are being incorporated in the realignment of the business customer growth sector.

Quality
Deutsche Telekom’s efforts are focused on the quality of products and services from the customer’s point of view. Numerous projects to further increase customer satisfaction have been set up in order to underline this new focus on quality. The divisions are currently formulating clear promises to their customers which are unified at Group level in order to reinforce Deutsche Telekom’s position in the market as a quality-oriented company.

Innovation
The systematic and cross-divisional development of innovative products and services will safeguard the sustained growth of the Group. On the one hand, product areas are being identified which are important for the future of Deutsche Telekom in the medium and long term. On the other hand, key performance indicators are being defined which give a comprehensive portrayal of the Group’s innovation activities. The agreement on cooperation in research and development concluded with France Telecom in July 2004 will increase our innovative strength further.

First half of 2004 2

Efficiency
The goal is to increase the productivity of the capital employed and to constantly boost process efficiency. Seven areas of action have been defined that will contribute to profitable growth: cost and investment control, process optimization, shared use of technical platforms, reduction of the commitment of capital, pooling of purchasing power and optimization of the employment of capital (disposal of assets).

Human resources
The core issues are the employment alliance, Vivento and the motivation and qualification campaign. The organizational foundations for implementing the employment alliance agreed with the employees’ representatives were laid in the second quarter. Weekly working hours in Deutsche Telekom’s business units were reduced retroactively to 34 at March 1, 2004 for employees subject to collective agreements and at April 1, 2004 for civil servants. Deutsche Telekom expects this collective agreement to result in savings of up to EUR 0.3 billion for 2004. Agreement on the proportion of vocational trainees in 2004 was also reached with the services union ver.di in May. Vivento is developing very positively: The establishment of Vivento Technical Services, for example, further boosted the development of new business areas that create jobs.

First half of 2004 3

Contents.

•	Development in the Group		4

•	Highlights		5

•	Business developments		8
	•	Overview	8
	•	Divisions	15
		T-Com	15
		T-Mobile	21
		T-Systems	25
		T-Online	29
		Group Headquarters & Shared Services	33
	•	Outlook	36
		Highlights after the balance sheet date (June 30, 2004)	36
		Development of revenue and income	37
	•	Risk situation	39

•	Reconciliation of pro forma figures		40
		EBITDA and EBITDA adjusted for special factors	40
		Special factors	41
		Free cash flow	44
		Gross and net debt	45

•	Consolidated financial statements		46
	•	Notes to the consolidated statement of income	50
	•	Other disclosures	53
	•	Notes to the consolidated balance sheet	55
	•	Notes to the consolidated statement of cash flows	60
	•	Segment reporting	61
	•	Accounting	63

•	Summary of differences between German GAAP and U.S. GAAP		64

•	Investor Relations calendar		66

First half of 2004 4

Development in the Group.

•

Net revenue increased 4.4 percent year-on-year from around EUR 27.2 billion to approximately EUR 28.4 billion; organic¹ net revenue growth even higher at 7.4 percent.

•

Group EBITDA² increased by 11.0 percent year-on-year from EUR 9.6 billion to EUR 10.7 billion; adjusted EBITDA up by 3.2 percent to EUR 9.4 billion. Organic growth in adjusted EBITDA of 5.2 percent.

•

Results from ordinary business activities increased by EUR 1.7 billion year-on-year to EUR 2.8 billion.

•

Net income boosted by 64.5 percent from EUR 1.1 billion to EUR 1.8 billion; adjusted for special factors, it more than tripled from EUR 0.3 billion to EUR 1.0 billion.

•

Free cash flow³ before dividend payments increased from EUR 4.0 billion in the first half of the previous year to EUR 4.2 billion.

•

Net debt⁴ reduced by a further EUR 3.3 billion from EUR 46.6 billion at December 31, 2003 to EUR 43.3 billion.

Strong subscriber growth in the first half of 2004.

•

4.8 million new additions, of which almost half at T-Mobile USA.

•

Another 0.8 million new broadband lines in Germany and abroad; almost 5 million DSL customers.

Organic growth is adjusted for the effects of exchange rate fluctuations and changes to the composition of the Deutsche Telekom Group.

Deutsche Telekom defines EBITDA as the results from ordinary business activities excluding other taxes, net financial income/expense, amortization and depreciation. A detailed explanation of the special factors affecting EBITDA, adjusted EBITDA, and the adjusted EBITDA margin can be found under “Reconciliation of pro forma figures”, page 40 et seq.

Deutsche Telekom defines free cash flow as cash generated from operations minus interest payments and cash outflows for investments in property, plant and equipment, and intangible assets (excluding goodwill). For the calculation of free cash flow

First half of 2004 5

	please refer to “Reconciliation of pro forma figures”, page 40 et seq. 4 For detailed information and calculations please refer to “Reconciliation of pro forma figures”, page 40 et seq.
	Highlights.
Group	Starting in 2005, Deutsche Telekom will focus on three strategic business areas.
	•	Deutsche Telekom plans to reform its four-pillar structure in an evolutionary approach, focusing its strategy on three business sectors: broadband/fixed network, mobile communications and business customers. The goal is to become Europe’s fastest-growing integrated telecommunications group.The new concept was devised on the basis of extensive analysis of evolving customer needs in the segments of residential customers, small and medium-sized enterprises, and multinational corporations, as well as the technological development and other trends in the market and competitive environment. The new strategic focus of the Deutsche Telekom Group is designed to accommodate these various trends.
	Return and reintegration process completed.
	•	The employment alliance agreed between Deutsche Telekom AG and the services union ver.di in March made it possible to implement the 34-hour week within only three months. This move created about 9,800 new jobs in Germany, nearly all of which have since been filled. The collectively agreed return and reintegration process has thus been completed. The voluntary redundancy program for employees transferred to Vivento was extended until September 30, 2004.

	Agreement on vocational training figures in 2004.
	•	Deutsche Telekom will again employ 4,000 vocational trainees in 2004. The Company and ver.di reached an agreement to this effect following on from the employment alliance that had already been concluded. In order to secure the high proportion of vocational trainees, concessions were made in areas such as the training periods for trainees who have come of age, year-end bonuses, trainees’ compensation and the conditions under which trainees will be offered permanent positions after completing the training program. Effective January 1, 2005, the compensation for vocational trainees will increase by 2.7 percent. In return, Deutsche Telekom agreed not to establish a spin-off company for vocational training. Moreover, the parties also agreed that, as of January 1, 2005, the top ten percent of vocational trainees will be offered permanent positions with the Company each year, after having passed their exams.
	Agreement with the Federal Employment Agency.
	•	The Federal Employment Agency (BA) asked Deutsche Telekom to assist with the introduction of the new scheme for settling benefits for the long-term unemployed. Up to 3,000 civil servants from Vivento will be provided on the basis of an administrative agreement between the BA and Deutsche Telekom AG. This assignment is scheduled to run until June 30, 2005, and most of these civil servants began their term of service with the employment agency on July 1, 2004.

First half of 2004 6

T-Com	Regulator approves new “enjoy” rate option
	•	On June 25, 2004, the Regulatory Authority approved T-Com’s application for the “enjoy” calling plan. With this new optional calling plan that has been available since July, T-Com customers can call within the German fixed network for 12 cents5 for each hour or part thereof. The Regulatory Authority also approved the possibility of combining “enjoy” with existing calling plans, i.e., the AktivPlus rate options. The approval of this rate option is valid until March 31, 2005. Competitors have filed lawsuits and applied for temporary injunctions against both rate applications. Court rulings are still pending.
T-Mobile	T-Mobile USA to acquire GSM network in California and Nevada for USD 2.5 billion.
	•	In May 2004, T-Mobile USA signed an agreement with Cingular Wireless on the dissolution of the joint venture, established in 2001, for mobile communications in California, Nevada and New York and the acquisition of the GSM network in California/Nevada. T-Mobile USA will become the sole owner of the GSM network in California and Nevada for a purchase price of USD 2.5 billion and will regain sole ownership of the New York network. In exchange, Cingular will purchase network capacity worth at least USD 1.2 billion from T-Mobile over a period of four years. The transaction is subject to the approval of the acquisition of AT&T Wireless by Cingular. At the same time, T-Mobile USA increased its long-term projection for its subscriber base from 25 million customers to a figure between 30 and 35 million over a period of 10 years. The review of net carrying amounts of T-Mobile’s U.S. mobile communications licenses (FCC licenses) in connection with this transaction resulted in a EUR 1.8 billion write-up. On the other hand, an accrual for contingent losses in the amount of EUR 0.6 billion was recognized in connection with the dissolution of the joint venture. Both these figures impacted the Group’s EBITDA as special factors.
	T-Mobile receives proceeds of EUR 75 million from the sale of Virgin Mobile.
	•	T-Mobile received a payment of GBP 50 million, which is recognized in the income statement, in exchange for waiving its right to participate in an initial public offering of Virgin Mobile stock. T-Mobile had been granted this right as part of a deal for selling 50 percent of the Virgin Mobile joint venture to the Virgin Group at the beginning of the year.
	5 Applicable for “City” and nationwide calls provided by T-Com (excluding mobile calls and online connections). “Enjoy” costs EUR 4.68 per month in addition to T-Net or T-ISDN charges (from EUR 15.66 and EUR 23.60 per month, respectively; one-time activation charge of EUR 59.95)

First half of 2004 7

T-Systems	New contracts signed for the T-Systems solutions business.
	•	In April of this year, the Ministry of Justice of the German regional state of Baden-Württemberg began operating its “Electronic Land Register” (EGB) information system. T-Systems as the general contractor developed the Folia/EGB software for this project and assisted the ministry in building the necessary infrastructure. In the future, land registry offices, public administrative agencies and commercial enterprises will be able to access and use the centrally stored land registry data. With the proper authorization, this data will also be accessible via the Internet. The paperless system is easier and faster to use and therefore reduces costs.
	•	T-Systems acquired Raiffeisen Zentralbank Österreich AG’s banking software firm Software Daten Service (SDS), including its approximately 250 employees. The centerpiece of this transaction is GEOS, an industry-specific solution for the automated management of securities and derivatives. GEOS software is currently being used by banks in Austria, Germany and Switzerland and is one of the best-selling applications in this sector in Austria. The acquisition of SDS reinforces the position of T-Systems as a European provider of banking solutions.
	Testing of automatic toll collection devices completed.
	•	Toll Collect GmbH, a company in which Deutsche Telekom AG holds a 45-percent stake, has successfully completed a comprehensive test program of on-board units for automatic toll collection. An independent firm issued an expert opinion in May confirming that the devices have a successful scanning rate of over 99 percent. The first ready-to-install units were delivered to Toll Collect’s service partners in June 2004.
T-Online	T-Online acquired exclusive online and mobile moving-picture rights for the German National Soccer League until 2006.
	•	T-Online acquired the Internet and mobile communications rights for covering soccer games from the German National Soccer League (DFL) through the end of the 2005/06 season. The licenses also give T-Online the exclusive right to remarket the video streams and content to third parties, such as mobile communications providers. By reaching this agreement with DFL, T-Online has not only positioned itself once again as a first-class address for premium content on the Internet, but also as a provider and reseller of high-quality products for the entire new media industry, ranging from Internet portals to mobile communications operators. Thus, the company has not only bolstered its core business of paid content, but added the new area of content syndication as well.

First half of 2004 8

Business developments.
Overview.

Net revenue

After recording year-on-year revenue growth of EUR 0.4 billion in the first quarter of 2004 (up 2.7 percent), Deutsche Telekom achieved another increase in the second quarter. Revenue rose by EUR 0.8 billion or 6.0 percent compared with the second quarter of 2003. In the first half of 2004, the Group generated total revenue of around EUR 28.4 billion. This represents a year-on-year increase of around EUR 1.2 billion or 4.4 percent. Revenue was reduced by negative exchange rate effects amounting to EUR 0.5 billion – in particular from the translation of U.S. dollars (USD) – and by consolidation effects totaling EUR 0.3 billion that relate, for example, to the deconsolidation of T-Com’s cable companies, as well as to deconsolidation measures at T-Systems. Adjusted for these effects, organic revenue growth amounts to 7.4 percent.

Deutsche Telekom’s substantial revenue growth was again driven by positive business development at the T-Mobile and T-Online divisions. Year-on-year, the two divisions generated a double-digit percentage increase in revenue in both the second quarter and the first half of 2004.

T-Mobile achieved this growth mainly due to the continued rise in subscriber numbers. Revenue was slowed by exchange rate effects from the translation of U.S. dollars amounting to EUR 0.5 billion in the first half of 2004, as well as by the effect of the deconsolidation of the Austrian retail group Niedermeyer.

The continuation of T-Online’s broadband strategy in particular resulted in a further increase in customer numbers. This enabled the division to make a significant contribution to the Group’s revenue growth.

T-Com’s revenue decreased in the second quarter of 2004, but to a lesser extent than in the previous quarter. Year-on-year revenue development at T-Com was marked by offsetting effects in the first half of the year: While revenues from the access business increased due to the substantial growth in the number of T-DSL lines and price adjustment measures for analog lines, call revenues declined. This was mainly attributable to regulatory decisions which resulted in losses of market share following the introduction of call-by-call and carrier preselection in local networks as well as price cuts for interconnection services. The deconsolidation of the cable companies and increasing network interconnection between other carriers also had a negative effect on the division’s total revenue.

In the first half of 2004, T-Systems kept its revenue at a virtually constant level year-on-year – despite the decrease in revenue due to deconsolidation measures. In the second quarter of 2004, the division’s revenue increased compared with the same period last year and the first quarter of 2004. In comparison with the first half of 2003, the decline in revenue at the Telecommunications unit was offset by increases at the IT unit.

First half of 2004 9

		Second quarter of 2004												First half of 2004
		Q1 2004 millions of €			Q2 2004 millions of €			Q2 2003 millions of €			Change %			H1 2004 millions of €		H1 2003 millions of €				Change %				2003 millions of €
	Net revenue	13,986			14,412			13,593			6.0			28,398		27,211				4.4				55,838
	T-Com^a	6,975			6,882			7,153			(3.8		)	13,857		14,643				(5.4		)		29,206
	T-Mobile^a	5,944			6,237			5,557			12.2			12,181		10,867				12.1				22,778
	T-Systems^a	2,475			2,625			2,567			2.3			5,100		5,127				(0.5		)		10,614
	T-Online^a,b	493			500			449			11.4			993		894				11.1				1,851
	Group Headquarters & Shared Services^a	1,090			1,154			1,071			7.7			2,244		2,164				3.7				4,268
	Intersegment revenue^c	(2,991		)	(2,986		)	(3,204		)	6.8			(5,977	)	(6,484		)		7.8				(12,879		)

	a Total revenue (including revenue between divisions). b Figures are calculated in accordance with the provisions of German GAAP specified in the German Commercial Code (HGB), as applied throughout the Deutsche Telekom Group, and differ from those published in the reports of T-Online International AG under the International Accounting Standards (IFRSs). c Elimination of revenue between divisions.
Contribution of the divisions to net revenue (after consolidation of revenue between the divisions)			H1 2004 millions of €			Proportion of net revenue of the Group %			H1 2003 millions of €			Proportion of net revenue of the Group %					Change millions of €				Change %				2003 millions of €
	Net revenue		28,398			100.0			27,211			100.0					1,187				4.4				55,838
	T-Com		12,107			42.6			12,564			46.2					(457		)		(3.6		)		25,116
	T-Mobile		11,683			41.1			10,239			37.6					1,444				14.1				21,572
	T-Systems		3,535			12.5			3,469			12.8					66				1.9				7,184
	T-Online^a		909			3.2			796			2.9					113				14.2				1,662
	Group Headquarters & Shared Services		164			0.6			143			0.5					21				14.7				304

	a Figures are calculated in accordance with the provisions of German GAAP specified in the German Commercial Code (HGB), as applied throughout the Deutsche Telekom Group, and differ from those published in the reports of T-Online International AG under the IFRSs.
	The T-Com and T-Mobile divisions continued to make the largest contribution to the Group’s net revenue. T-Mobile continued its growth trend, increasing the division’s share of revenue to 41.1 percent and thus further closing the gap on T-Com. T-Com contributed 42.6 percent of net revenue in the period under review.

First half of 2004 10

Revenue generated outside Germany	Year-on-year, the proportion of international revenue increased in both the second quarter and the first half of 2004. While this figure was 36.5 percent in the second quarter of 2003, it rose to 40.5 percent in the second quarter of 2004. The key factor behind this is the sustained positive development of revenue at T-Mobile USA. Negative exchange rate effects prevented a further increase in the proportion of revenue generated outside Germany. Revenue in Germany was on a par with the prior-year’s level, both in the second quarter and at the end of the half year, despite the effects of the deconsolidations.

		Second quarter of 2004					First half of 2004
		Q1 2004 millions of €	Q2 2004 millions of €	Q2 2003 millions of €	Change %		H1 2004 millions of €	H1 2003 millions of €	Change %		2003 millions of €
	Net revenue	13,986	14,412	13,593	6.0		28,398	27,211	4.4		55,838
	Domestic	8,444	8,581	8,630	(0.6	)	17,025	17,136	(0.6	)	34,691
	International	5,542	5,831	4,963	17.5		11,373	10,075	12.9		21,147
	Proportion international (%)	39.6	40.5	36.5			40.0	37.0			37.9
	of which: Europe (excl. Germany)	3,320	3,381	3,039	11.3		6,701	6,344	5.6		13,080
	of which: North America	2,117	2,337	1,815	28.8		4,454	3,530	26.2		7,610
	of which: Other	105	113	109	3.7		218	201	8.5		457



Net income	The Group generated net income of EUR 1.8 billion in the first half of 2004. This represents a year-on-year increase of EUR 0.7 billion or 64.5 percent – mainly due to a substantial improvement in results from ordinary business activities. Net income was impacted by income tax expenses amounting to EUR 0.7 billion, compared with tax income of EUR 0.2 billion in the same period last year. Adjusted for special factors (in particular net income relating to the winding up of the mobile communications joint venture in the United States), net income more than tripled year-on-year to around EUR 1.0 billion in the first half of 2004.

First half of 2004 11

Results from ordinary business activities		Second quarter of 2004								First half of 2004
Results from ordinary business activities		Q1 2004 millions of €		Q2 2004 millions of €		Q2 2003 millions of €		Change %		H1 2004 millions of €		H1 2003 millions of €		Change %		2003 millions of €
	Results from ordinary business activities^a(Group)	346		2,406		598		n.a.		2,752		1,092		n.a.		1,398
	T-Com^b	1,399		1,405		888		58.2		2,804		2,314		21.2		4,690
	T-Mobile^b	156		1,846		475		n.a.		2,002		398		n.a.		831
	T-Systems^b	(190	)	(38	)	(100	)	62.0		(228	)	(126	)	(81.0	)	(581	)
	T-Online^b,c	37		45		21		n.a.		82		23		n.a.		104
	Group Headquarters & Shared Services^b	(1,156	)	(839	)	(626	)	(34.0	)	(1,995	)	(1,452	)	(37.4	)	(4,071	)
	Reconciliation	100		(13	)	(60	)	78.3		87		(65	)	n.a.		425

	a From April 1, 2004, responsibility for the investment in Toll Collect has been transferred from T-Com to T-Systems. Prior-period comparatives were adjusted accordingly. b Results from ordinary business activities at division level. c Figures are calculated in accordance with the provisions of German GAAP specified in the German Commercial Code (HGB), as applied throughout the Deutsche Telekom Group, and differ from those published in the reports of T-Online International AG under the International Financial Reporting Standards (IFRSs).
	Results from ordinary business activities increased substantially year-on-year in both the second quarter and the first half of 2004. A comparison of the first and second quarter of 2004 is equally encouraging. In addition to higher revenues, this reflects the write-up of U.S. mobile communications licenses in the second quarter of 2004 that led to an increase in other operating income. The net financial expense also developed positively, improving by a total of EUR 0.2 billion compared with the first half of 2003, primarily due to lower interest expenses. However, other operating expenses rose due to an increase in additions to accruals relating to the winding up of the U.S. mobile communications joint venture.
EBITDA	Deutsche Telekom’s EBITDA amounted to EUR 6.2 billion in the second quarter of 2004 – up EUR 1.4 billion or 30.7 percent year-on-year. EBITDA for the first half of 2004 totaled EUR 10.7 billion, representing an increase of EUR 1.1 billion or 11.0 percent on the first six months of 2003. The T-Com, T-Mobile, and T-Online divisions in particular contributed to this increase. T-Systems’ EBITDA was on a par with the previous year, and the figure for Group Headquarters & Shared Services declined.

First half of 2004 12

Special factors	Special factors with a net total of EUR 1.3 billion had a positive effect on EBITDA in the first half of 2004. In the first quarter of 2004, Deutsche Telekom recorded negative special factors from expenses for severance payments amounting to EUR 0.1 billion, which contrasted with positive special factors in the previous year – in particular from the sale of financial assets. The second quarter of 2004 saw positive special factors amounting to EUR 2.0 billion from income relating to the write-up of U.S. mobile communications licenses (EUR 1.8 billion), and the sale of SES and Virgin Mobile shares (each around EUR 0.1 billion). However, EBITDA was impacted by special factors from the recognition of accruals relating to the winding up of the U.S. mobile communications joint venture totaling EUR 0.6 billion. In the same period last year, positive special factors amounted to EUR 0.1 billion. At the time, gains on the sale of financial assets (primarily from the sale of shares in MTS) contrasted with expenses from the addition to pension accruals caused by changes in discount rates.
Adjusted EBITDA	Adjusted for the above-mentioned special factors, EBITDA amounted to EUR 4.8 billion in the second quarter of 2004. Year-on-year, this represents an increase of EUR 0.2 billion or 4.0 percent. The T-Mobile division made the largest contribution to the increase, in particular due to sustained subscriber growth. T-Com also achieved a slight increase in its adjusted EBITDA despite a decrease in revenue. This was mainly due to measures to improve efficiency and quality as well as to optimize operating costs. T-Systems contributed to the increase in EBITDA with specific cost savings and improvements in efficiency in particular. An increase in revenue combined with a disproportionately low rise in expenses at T-Online led to an improvement in its adjusted EBITDA. The Group’s adjusted EBITDA margin fell slightly from 33.8 percent to 33.2 percent. In the first half of 2004, EBITDA amounted to EUR 9.4 billion – up EUR 0.3 billion or 3.2 percent year-on-year. All the divisions of the Group contributed to this increase. The adjusted EBITDA margin fell slightly in the first six months of 2004, from 33.3 percent to 33.0 percent year-on-year. In organic terms, adjusted Group EBITDA increased by 5.2 percent.
		Second quarter of 2004							First half of 2004
		Q1 2004 millions of €		Q2 2004 millions of €		Q2 2003 millions of €		Change %	H1 2004 millions of €		H1 2003 millions of €		Change %	2003^a millions of €
	Adjusted EBITDA^b	4,585		4,783		4,598		4.0	9,368		9,074		3.2	18,288
	T-Com	2,641		2,592		2,554		1.5	5,233		5,228		0.1	10,356
	T-Mobile	1,677		1,930		1,743		10.7	3,607		3,257		10.7	6,671
	T-Systems	301		361		337		7.1	662		623		6.3	1,415
	T-Online^c	119		128		76		68.4	247		151		63.6	310
	Group Headquarters & Shared Services	(130	)	(216	)	(10	)	n.a.	(346	)	(20	)	n.a.	(316	)
	Reconciliation	(23	)	(12	)	(102	)	88.2	(35	)	(165	)	78.8	(148	)

	a For detailed information, please refer to Deutsche Telekom’s 2003 Annual Report, page 96 et seq. b Deutsche Telekom defines EBITDA as the results from ordinary business activities excluding other taxes, net financial income/expense, amortization and depreciation. A detailed explanation of the special factors affecting EBITDA, adjusted EBITDA, and the adjusted EBITDA margin can be found under “Reconciliation of pro forma figures”,page 40 et seq. c Figures are calculated in accordance with the provisions of German GAAP specified in the German Commercial Code (HGB), as applied throughout the Deutsche Telekom Group, and differ from those published in the reports of T-Online International AG under the IFRSs.

First half of 2004 13

Free cash flow	Free cash flow in the second quarter of 2004 amounted to EUR 1.3 billion, a year-on-year decrease of EUR 0.7 billion. This was primarily the result of a marked increase in investments, combined with a decrease in netted tax received/paid, which led to a reduction in net cash provided by operating activities.
	Free cash flow increased by EUR 0.2 billion year-on-year to EUR 4.2 billion at the end of the first half of this year. This is the result of offsetting effects: an improvement in net cash provided by operating activities – driven in particular by the improvement in operational business and an increased positive balance from income tax refunds and payments – contrasted with a higher level of spending on property, plant and equipment.
			Second quarter of 2004								First half of 2004
			Q1 2004 millions of €		Q2 2004 millions of €		Q2 2003 millions of €		Change %		H1 2004 millions of €		H1 2003 millions of €		Change %		2003 millions of €
	Cash generated from operations		4,683		4,304		4,628		(7.0	)	8,987		8,021		12.0		18,132
	Interest received/(paid)		(433	)	(1,426	)	(1,485	)	4.0		(1,859	)	(1,761	)	(5.6	)	(3,816	)
	Net cash provided by operating activities		4,250		2,878		3,143		(8.4	)	7,128		6,260		13.9		14,316
	Cash outflows from investments in intangible assets (excluding goodwill), and property, plant and equipment		(1,350	)	(1,584	)	(1,181	)	(34.1	)	(2,934	)	(2,294	)	(27.9	)	(6,031	)
	Free cash flow before dividend payments^a		2,900		1,294		1,962		(34.1	)	4,194		3,966		5.8		8,285

		a For detailed information and calculations please refer to “Reconciliation of pro forma figures”, page 40 et seq.

First half of 2004 14

Net debt	Net debt amounted to around EUR 43.3 billion at June 30, 2004 – down around EUR 3.3 billion compared with December 31, 2003. The Group reduced net debt by around EUR 1.3 billion in the second quarter of 2004 after reducing it by around EUR 2.0 billion in the first quarter. The sustained positive free cash flow and income from the sale of shares in SES made a particular contribution to this achievement. Year-on-year, net debt fell by around EUR 9.7 billion.

		June 30, 2004 millions of €	Mar. 31, 2004 millions of €	Change June 30, 2004/ Mar. 31, 2004 %		Dec. 31, 2003 millions of €	Change June 30, 2004/ Dec. 31, 2003 %		June 30, 2003 millions of €	Change June 30, 2004/ June 30, 2003 %

	Bonds and debentures	46,805	50,090	(6.6	)	51,613	(9.3	)	56,776	(17.6	)
	Liabilities to banks	3,174	3,272	(3.0	)	3,798	(16.4	)	4,472	(29.0	)
	Debt (in accordance with consolidated balance sheet)	49,979	53,362	(6.3	)	55,411	(9.8	)	61,248	(18.4	)
	Liabilities to non-banks from loan notes	799	799	—		799	—		808	(1.1	)
	Miscellaneous other liabilities	333	413	(19.4	)	287	16.0		268	24.3
	Gross debt^a	51,111	54,574	(6.3	)	56,497	(9.5	)	62,324	(18.0	)
	Liquid assets	6,594	9,190	(28.2	)	9,127	(27.8	)	8,526	(22.7	)
	Other investments in marketable securities	200	184	8.7		173	15.6		115	73.9
	Other investments in noncurrent securities	76	78	(2.6	)	86	(11.6	)	40	90.0
	Other assets	679	287	n.a.		271	n.a.		356	90.7
	Discounts on loans (prepaid expenses and deferred charges)	232	250	(7.2	)	264	(12.1	)	278	(16.5	)
	Net debt^a	43,330	44,585	(2.8	)	46,576	(7.0	)	53,009	(18.3	)

	a For detailed information and calculations please refer to “Reconciliation of pro forma figures”, page 40 et seq.

First half of 2004 15

	Divisions. The T Com division.

		June 30, 2004 millions	Mar. 31, 2004 millions	Change June 30, 2004/ Mar. 31, 2004 %		Dec. 31, 2003 millions	Change June 30, 2004/ Dec. 31, 2003 %		June 30, 2003 millions	Change June 30, 2004/ June 30, 2003 %
	Broadband lines^a,b	4.9	4.5	8.9		4.1	19.5		3.5	40.0
	T-DSL (Germany)	4.7	4.4	6.8		4.0	17.5		3.4	38.2
	DSL (Central and Eastern Europe)	0.16	0.14	14.3		0.11	45.5		0.06	n.a.
	Narrowband lines, incl. ISDN channels	55.2	55.5	(0.5	)	55.5	(0.5	)	55.8	(1.1	)
	Germany^c	48.4	48.7	(0.6	)	48.7	(0.6	)	49.1	(1.4	)
	Standard analog lines	26.6	26.9	(1.1	)	27.2	(2.2	)	28.0	(5.0	)
	ISDN channels	21.9	21.8	0.5		21.5	1.9		21.1	3.8
	Central and Eastern Europe	6.8	6.8	0.0		6.8	0.0		6.8	0.0
	MATÁV^d	3.5	3.5	0.0		3.5	0.0		3.5	0.0
	Slovak Telecom	1.4	1.4	0.0		1.4	0.0		1.4	0.0
	Hrvatske telekomunikacije	1.9	1.9	0.0		1.9	0.0		1.8	5.6
	Mobile subscribers	7.7	7.4	4.1		7.2	6.9		6.6	16.7
	T-Mobile Hungary^e	3.9	3.8	2.6		3.8	2.6		3.5	11.4
	HTmobile	1.4	1.4	0.0		1.3	7.7		1.3	7.7
	EuroTel^f	1.7	1.7	0.0		1.6	6.3		1.4	21.4
	Mobimak^g	0.6	0.6	0.0		0.5	20.0		0.4	50.0

	a The total was calculated on the basis of precise figures and rounded to millions. Percentages calculated on the basis of figures shown. b Lines in operation. c Telephone channels, including for internal use. d Subscriber-line figures are recorded including MATÁV’s subsidiary Maktel. e Formerly Westel, rebranded as T-Mobile Hungary on May 3, 2004. f Eurotel is consolidated at equity via Slovak Telecom. g Mobile subscribers are posted as of the first quarter of 2004. Mobimak is fully consolidated via Maktel.
T-Com: Customer development and selected KPIs	T-Com plays a key role as the engine of broadband communications and innovations in the fixed-line network. In the second quarter of 2004, T-Com continued to actively market T-DSL lines offering fast Internet access in Germany. Compared with the end of the first quarter, the number of T-DSL lines in operation increased by over 344,000. At the end of June 2004, there were about 4.7 million T-DSL lines in operation in Germany, a year-on-year gain of 38.2 percent. The total number of broadband lines provided by T-Com amounted to 4.9 million at the end of the first six months of 2004. Of particular interest is the fact that last year’s growth rate was maintained.
	T-Com is actively promoting the growth of its business with innovative offers. After adjusting prices and optimizing transmission bandwidths with effect from April 1, 2004 as part of its 1-2-3 strategy, T-Com followed up by adjusting the prices for its T-DSL Business⁶ product at the beginning of June. Besides adjusting the monthly charges for the asymmetrical T-DSL Business calling plans, T-Com reduced its flat rates for the T-DSL Business variants 2000 (downstream up to 2,048 kbit/s) and 3000 (downstream up to 3,072 kbit/s) by nearly 50 percent. T-DSL customers who upgrade their line to a higher bandwidth receive a credit of EUR 10.
	6 T-DSL Business is available in many subscriber-line networks.

First half of 2004 16

		Since April 2004, T-Com has been marketing a bitstream access service for other telecommunications companies. This product enables competitors to use T-Com’s infrastructure for their own offerings to end users. T-Com transports the broadband traffic between the end user and the IP networks of its competitors. The conclusion of the first DSL resale agreements between T-Com and other telecommunications providers started a new phase for the broadband market in Germany. T-Com’s goal is to benefit from better infrastructure utilization.
		An important element of T-Com’s broadband initiative is to establish public sites for wireless Internet access on the basis of W-LAN (Wireless Local Area Networks) technology. By the end of the first six months of 2004, T-Com had signed more than 3,600 contracts for HotSpots in Germany. T-Com and T-Mobile currently have approximately 2,000 HotSpots in operation where customers with W-LAN-enabled notebooks, for example, can log onto the Internet. And T-Com is offering attractive calling plans to stimulate HotSpot usage. For example, customers with a T-DSL line can use the “HotSpot 180” calling plan, allowing them to surf the World Wide Web and retrieve information for three hours a month at a price of EUR 9.99⁷.
		T-Com also signed a HotSpot agreement with the operator of McDonald’s restaurants in the Saarland region. Since mid-May 2004, customers have been able to use a HotSpot operated by the T-Com division in every McDonald’s restaurant in this part of Germany.
		The number of T-ISDN lines held steady in the second quarter of 2004 and therefore, unlike in preceding quarters, did not compensate for the decrease in analog lines. The declining number of T-Com lines can be attributed to substitution by mobile phones and customer churn.
		The loss of market shares at T-Com, which is due not least to the regulatory situation, slowed in the second quarter of 2004. By the end of the first six months of 2004, competitors continued to control over 20 percent of the local network market. T-Com continues to counter the competition with attractive calling plans. Under the “enjoy” calling plan, which was introduced at the beginning of July, T-Com customers can place calls to destinations within the German fixed network for only 12 cents⁸ an hour, any time of the day or night, seven days a week. Furthermore, new rates were introduced for calls from T-Com’s public phones, effective June 1, 2004. The rates for calls to the new member states of the European Union have been reduced to the level of the current EU international rates.

		7 The charge is EUR 0.08 per minute from the 181^st minute. 8 Applicable for “City” and nationwide calls provided by T-Com (excluding mobile calls and online connections). “Enjoy” costs EUR 4.68 per month in addition to T-Net or T-ISDN charges (from EUR 15.66 and EUR 23.60 per month, respectively; plus a one-time activation charge of EUR 59.95)

First half of 2004 17

		As part of the business customer initiative launched jointly with T-Systems, T-Com aims to boost its revenue from the business of offering information technology solutions to small and medium-sized enterprises and promote the acquisition of new customers. The goal of the cooperation between T-Com and T-Systems is to better accommodate the needs of business customers. The joint sales activities of T-Com and T-Systems have begun to yield positive results in the form of new orders. The results have exceeded the plan targets in several important market segments, including, for example, the business with local computer networks.
		In T-Com’s subsidiaries in Central and Eastern Europe, the number of narrowband telecommunications channels held steady at the prior-year level. By contrast, the number of DSL lines jumped 166.7 percent over the prior-year period. The broadband growth was particularly significant at the Hungarian subsidiary MATÁV, where the number of DSL lines in operation increased by a factor of 2.5 to reach 143,000. Following the introduction of DSL in June 2003, Slovak Telecom had 17,000 DSL lines in operation by the end of the first six months of 2004. This number represents a gain of approximately 90 percent over the first quarter of the year. Besides broadband communications, the mobile communications companies of the T-Com subsidiaries also proved to be growth engines, enlarging their subscriber bases despite tough competition.

First half of 2004 18

T-Com: Development of operations		Second quarter of 2004								First half of 2004
		Q1 2004 millions of €		Q2 2004 millions of €		Q2 2003 millions of €		Change %		H1 2004 millions of €		H1 2003 millions of €		Change %		2003 millions of €
	Total revenue	6,975		6,882		7,153		(3.8	)	13,857		14,643		(5.4	)	29,206
	Germany	6,059		5,906		6,187		(4.5	)	11,965		12,737		(6.1	)	25,351
	Central and Eastern Europe	916		976		966		1.0		1,892		1,906		(0.7	)	3,855
	Results from ordinary business activities^a	1,399		1,405		888		58.2		2,804		2,314		21.2		4,690
	Financial income/(expense), net^a	(15	)	28		(89	)	n.a.		13		(213	)	n.a.		(284	)
	Depreciation and amortization	(1,184	)	(1,204	)	(1,282	)	6.1		(2,388	)	(2,600	)	8.2		(5,169	)
	Other taxes	(7	)	(11	)	1		n.a.		(18	)	(9	)	(100.0	)	(21	)
	EBITDA^b	2,605		2,592		2,258		14.8		5,197		5,136		1.2		10,164
	Special factors affecting EBITDA^b	(36	)	0		(296	)	n.a.		(36	)	(92	)	60.9		(192	)
	Adjusted EBITDA^b	2,641		2,592		2,554		1.5		5,233		5,228		0.1		10,356
	Germany	2,217		2,156		2,154		0.1		4,373		4,391		(0.4	)	8,667
	Central and Eastern Europe	424		436		400		9.0		860		837		2.7		1,689
	Adjusted EBITDA^bmargin (%)	37.9		37.7		35.7				37.8		35.7				35.5
	Investments in property, plant and equipment, and intangible assets^c	(384	)	(521	)	(451	)	(15.5	)	(905	)	(768	)	(17.8	)	(2,129	)
	Number of employees^d	125,700		125,782		141,065		(10.8	)	125,741		143,264		(12.2	)	139,548

	a From April 1, 2004, responsibility for the investment in Toll Collect has been transferred from T-Com to T-Systems. Prior-period comparatives were adjusted accordingly. b Deutsche Telekom defines EBITDA as the results from ordinary business activities excluding other taxes, net financial income/expense, amortization and depreciation. A detailed explanation of the special factors affecting EBITDA, adjusted EBITDA, and the adjusted EBITDA margin can be found under “Reconciliation of pro forma figures”, page 40 et seq. For detailed information and calculations of the figures for 2003, please refer to the 2003 Annual Report, “Reconciliation of pro forma figures”, page 96 et seq. c Excluding goodwill und specific intragroup transfers. d Average number of employees.
T-Com: Total revenue	Having generated revenue of EUR 13,857 million in the first six months of 2004, T-Com is again the largest contributor to revenue in the Deutsche Telekom Group. After deducting the pro-rata revenue of the remaining cable companies that were sold as of March 1, 2003, revenue for the first six months of 2004 was 4.4 percent lower than in the comparable prior-year period. The call-by-call and preselection plans offered by the Group’s competitors for local network calls continued to weigh on the Group’s revenue performance in the German market.

First half of 2004 19

		T-Com’s revenue from the access business increased compared with the first half of 2003. The key factors fueling this development included the rate adjustment for analog lines as part of the price cap measures taken as of September 1, 2003 and the continued strong growth of T-DSL line numbers. In contrast to the growth in revenue from the access business, call revenue for the second quarter of 2004 was lower due to regulatory factors and market share losses. One reason for the revenue drop was the growing tendency of customers to postpone their calls to those times when more favorable optional calling plans are in effect. The effect of the introduction of call-by-call in April 2003 is included for the full year for the first time.
		Revenue generated from the terminal equipment business also decreased. This decrease resulted from the reduced demand for leasing conventional cord telephones and communications systems for business customers. T-Com’s data communications business experienced a positive development in the first six months of 2004. The growth was fueled in particular by the billing of major customer projects such as the T-Com solution for the Hanover Trade Exhibition.
		The continued trend of direct network interconnection between other carriers and the average 9.5 percent reduction of interconnection charges that took effect in December 2003 caused the revenue from Carrier Services to decline. This decrease was not offset by the growth in the number of subscriber lines.
		The total revenue of T-Com’s subsidiaries in Central and Eastern Europe was 1.0 percent higher in the second quarter of 2004 than in the comparable period. Excluding the effect of exchange rate fluctuations, the revenue generated in the Central and Eastern European subsidiaries in the first six months of the year remained unchanged year-on-year. Due to progressive deregulation and tougher competition, the revenue generated by the Central and Eastern European subsidiaries in the conventional fixed network decreased, but this decline was offset by the growth in the mobile communications and broadband business.
T-Com: Results from ordinary business activities		T-Com generates the highest earnings of the Group’s divisions. Despite the revenue drop, the division increased its results from ordinary business activities by 21.2 percent over the first six months of last year. This performance can be attributed to the success of efficiency enhancement measures. This figure contains special factors in the amount of EUR 36 million from the first quarter of 2004, consisting of expenses for severance payments and bridging allowances as part of staff reductions. The results for the first half of the preceding year were impacted considerably by the proceeds from the sale of the remaining cable companies and by other charges, including primarily the adjustment of the discount rate applied to pension accruals and the transfer payments to the Vivento. In total, these special factors amounted to EUR 92 million in the first half of 2003. The improvement in T-Com’s earnings performance in the first two quarters of 2004 can be attributed primarily to lower cost of sales, administrative costs and selling costs, as well as a decrease in the net interest expense. In the first six months of 2004, T-Com contributed EUR 4.0 billion to net cash provided by operating activities in the Deutsche Telekom Group, the biggest contribution of any division.

First half of 2004 20

T-Com: EBITDA, adjusted EBITDA		Thanks to rigorous, comprehensive cost management, T-Com achieved significant increases in its operational profitability in the first half of 2004, despite the drop in revenue. Adjusted EBITDA for the first half of 2004 was EUR 5,233 million, slightly higher than the corresponding prior-year figure. The adjusted EBITDA margin rose 2.1 percentage points over the prior-year level to reach 37.8 percent. On a like-for-like basis, i.e., after deduction of the pro-rata EBITDA for the cable companies that were sold as of March 1, 2003, adjusted EBITDA for the first half of 2004 increased by EUR 78 million (1.5 percent) year-on-year. This improvement was helped by various programs to boost employee productivity and streamline work processes, as well as other measures to enhance quality and optimize operating costs. Compared to the first half of 2003, adjusted EBITDA of the subsidiaries in Central and Eastern Europe rose 6.2 percent to reach EUR 860 million. The adjusted EBITDA margin at the Eastern European subsidiaries also improved to 45.5 percent, reflecting a gain of 1.6 percentage points over the comparable prior-year period, due to cost reductions, especially from staff cuts. As a result of the workforce reduction program, T-Com’s personnel costs decreased by 11.3 percent after adjustment for special factors resulting from severance payments in the first quarter of 2004 and from additions to pension accruals in the first half of 2003.
T-Com: Personnel		Compared with the corresponding prior-year period, the average number of employees at T-Com declined 12.2 percent to 125,741, of whom 31,016 work at the Eastern European subsidiaries. The staff reductions were achieved primarily through voluntary redundancy packages, part-time work for older employees, transfers to Vivento, natural attrition and departures. Approximately 1,000 T-Com employees were transferred to Vivento in the first half of 2004. As a result of the employment alliance, the voluntary redundancy program that had been successfully offered last year has been extended to August 31, 2004. The shortening of weekly working hours from 38 hours to 34 hours from July 2004, with partial salary reductions, which took effect retroactively on March 1, 2004 for employees covered by collective agreements and on April 1, 2004 for civil servants, initially entailed a capacity reduction, but this was offset by the transfer of employees from Vivento.
T-Com: Capital expenditure		T-Com’s capital expenditures in the first half of 2004 increased 17.8 percent year-on-year to EUR 905 million. In Germany, T-Com intensified its capital spending on transmission platforms, access networks and especially T-DSL technology. Since capital spending was rather low in the first half of 2003 as a result of weather conditions, the increase in the first half of the current year does not represent a significant increase in T-Com’s capital spending for the full year. Furthermore, the increase in the capacity utilization rates for T-ISDN and T-DSL last year also had a lowering effect on capital expenditures. Investments in intangible assets and property, plant and equipment in the Central and Eastern European subsidiaries grew by a total of 15.9 percent over the first half of 2003, primarily due to the accelerated roll-out of the next-generation network at Slovak Telecom. Capital spending at MATÁV also increased year-on-year, due to the substantial expansion of the DSL network.

First half of 2004 21

	The T Mobile division.
		June 30, 2004 millions	Mar. 31, 2004 millions	Change June 30, 2004/ Mar. 31, 2004 %	Dec. 31, 2003 millions	Change June 30, 2004/ Dec. 31, 2003 %	June 30, 2003 millions	Change June 30, 2004/ June 30, 2003 %

	Mobile subscribers
	Total^a	65.7	63.4	3.6	61.1	7.5	56.5	16.3
	of which: T-Mobile Deutschland	27.1	26.7	1.5	26.3	3.0	25.3	7.1
	of which: T-Mobile USA	15.4	14.3	7.7	13.1	17.6	11.4	35.1
	of which: T-Mobile UK^b	14.9	14.3	4.2	13.6	9.6	12.5	19.2
	of which: T-Mobile Austria	2.0	2.0	0.0	2.0	0.0	2.0	0.0
	of which: T-Mobile CZ	4.1	4.0	2.5	3.9	5.1	3.6	13.9
	of which: T-Mobile Netherlands	2.2	2.1	4.8	2.0	10.0	1.7	29.4

	a The total was calculated on the basis of precise figures and rounded to millions. Percentages calculated on the basis of figures shown. b Including Virgin Mobile.
T-Mobile: Customer development and selected KPIs	Continuing the strong trend of earlier periods, T-Mobile acquired significantly more than 2.2 million new subscribers in the second quarter of 2004, about 1.4 million of whom signed fixed-term subscription contracts. In the United States, T-Mobile acquired nearly 1.1 million new customers, with a year-on-year increase of 9 million or 16 percent. Subscribers with fixed-term contracts now represent about 50 percent of all customers, reflecting an increase of 2 percentage points over the same period twelve months ago. With nearly 1.1 million new customers in the second quarter of 2004, T-Mobile USA is again the leader among the T-Mobile companies. In absolute terms, this performance was the second-best among the nationwide mobile communications providers in the United States. In total, T-Mobile USA now has 15.4 million subscribers. T-Mobile considers a figure of more than 15 million subscribers to be an important milestone for exploiting economies of scale. Within a period of 18 months, T-Mobile USA managed to grow its subscriber base from 10 million to 15 million. The churn rate declined from 3 percent in the first quarter of 2004 to 2.8 percent in the second quarter of the year. Both in euro and U.S. dollar terms, the monthly average revenue per user⁹ (ARPU) increased quarter-on-quarter, from EUR 40 to EUR 43 or from USD 50 to USD 52.


	9 Average revenue per user (ARPU) is used to measure the monthly revenue from services per customer. ARPU is calculated as follows: revenue generated by customers for services (i.e., voice services, including incoming and outgoing calls, and data services) plus roaming revenue and monthly charges, divided by the average number of customers in the month. Revenue from services excludes the following: revenue from terminal equipment, customer activation, and visitor roaming, revenue from virtual network operators, and other revenue not generated directly by T-Mobile customers.

First half of 2004 22

		T-Mobile Deutschland recorded 378,000 new additions in the second quarter, of whom more than 60 percent have signed fixed-term subscription contracts. In particular, the new “Relax” rate options, which already include different volumes of call minutes, contributed to this growth. The percentage of fixed-term contract subscribers rose again to more than 48 percent. At an average of 1.4 percent per month, the churn rate was virtually unchanged from the preceding quarter. ARPUwas basically unchanged from the level in the preceding quarter, at EUR 23.
		Approximately 556,000 new customers opted for the products and services offered by T-Mobile UK in the second quarter of 2004. Having signed more than 100,000 new fixed-term subscription contracts in the second quarter, the British subsidiary now has nearly 2.9 million subscribers under such contracts. The churn rate rose to 1.9 percent quarter-on-quarter but was still lower than the prior-year quarter (2.2 percent). At EUR 31 or GBP 21, ARPU was virtually unchanged from the first quarter of the year.
		T-Mobile Austria, which saw its subscriber base remain constant and its churn rate decrease slightly, increased ARPU from EUR 29 to EUR 30 quarter-on-quarter. T-Mobile CZ expanded its subscriber base by 84,000 users in the second quarter of 2004, clearly exceeding the four million mark. Also in the second quarter, the number of subscribers with fixed-term subscription contracts passed the one million mark. T-Mobile CZ lowered its churn rate to less than one percent quarter-on-quarter and year-on-year. Monthly ARPU increased by EUR 1 quarter-on-quarter to EUR 15. In the second quarter, T-Mobile Netherlands increased its subscriber base by 114,000 new additions. Of a total of 2.2 million, more than one million are fixed-term contract subscribers. The churn rate declined slightly to 2.1 percent. At EUR 36, ARPU was slightly higher than in the preceding quarter.

First half of 2004 23

T-Mobile: Development of operations		Second quarter of 2004								First half of 2004
T-Mobile: Development of operations		Q1 2004 millions of €		Q2 2004 millions of €		Q2 2003 millions of €		Change %		H1 2004 millions of €		H1 2003 millions of €		Change %		2003 millions of €

	Total revenue^a	5,944		6,237		5,557		12.2		12,181		10,867		12.1		22,778
	of which: T-Mobile Deutschland	2,121		2,161		2,094		3.2		4,282		4,089		4.7		8,479
	of which: T-Mobile USA	2,070		2,320		1,767		31.3		4,390		3,449		27.3		7,416
	of which: T-Mobile UK	1,133		1,108		1,060		4.5		2,241		2,096		6.9		4,303
	of which: T-Mobile Austria	236		210		259		(18.9	)	446		532		(16.2	)	1,098
	of which: T-Mobile CZ	186		204		189		7.9		390		369		5.7		768
	of which: T-Mobile Netherlands	250		267		219		21.9		517		401		28.9		861
	Results from ordinary business activities	156		1,846		475		n.a.		2,002		398		n.a.		831
	Financial income/(expense), net	(265	)	(65	)	(290	)	77.6		(330	)	(592	)	44.3		(895	)
	Depreciation and amortization	(1,234	)	(1,270	)	(1,295	)	1.9		(2,504	)	(2,559	)	2.1		(5,196	)
	Other taxes	(22	)	(29	)	(28	)	(3.6	)	(51	)	(53	)	3.8		(94	)
	EBITDA^b	1,677		3,210		2,088		53.7		4,887		3,602		35.7		7,016
	Special factors affecting EBITDA^b	0		1,280^d		345^e		n.a.		1,280^d		345^e		n.a.		345^e
	Adjusted EBITDA^b	1,677		1,930		1,743		10.7		3,607		3,257		10.7		6,671
	Adjusted EBITDA^bmargin (%)	28.2		30.9		31.4				29.6		30.0				29.3

	Investments in property, plant and equipment and intangible assets (excl. goodwill)	(452	)	(644	)	(556	)	(15.8	)	(1,096	)	(990	)	(10.7	)	(3,012	)

	Number of employees^c	43,152		44,215		40,986		7.9		43,684		41,306		5.8		41,767

	The T-Mobile division combines all the activities of T-Mobile International Holding GmbH: primarily T-Mobile Deutschland GmbH, T-Mobile (UK) Ltd., T-Mobile USA Inc., T-Mobile Czech Republic a.s., T-Mobile Austria GmbH, and T-Mobile Netherlands B.V., as well as minority shareholdings in Russia (MTS) and Poland (PTC). a These amounts relate to the companies’ respective single-entity financial statements (adjusted for uniform group accounting policies and reporting currency) without taking into consideration consolidation effects at division level. b Deutsche Telekom defines EBITDA as the results from ordinary business activities excluding other taxes, net financial income/expense, amortization and depreciation. A detailed explanation of the special factors affecting EBITDA, adjusted EBITDA and the adjusted EBITDA margin can be found under “Reconciliation of pro forma figures”, page 40 et seq. For detailed information and calculations of the figures for 2003, please refer to the 2003 Annual Report, “Reconciliation of pro forma figures”, page 96 et seq. c Average number of employees. d Write-up of FCC licenses (EUR 1,807 million), accruals for contingent losses attributable to the dissolution of the U.S. mobile communications joint venture (EUR 602 million), subsequent gains from the sale of Virgin Mobile (EUR 75 million). e Sale of MTS shares (EUR 352 million), and adjustment of the discount rate applied to pension accruals (EUR -7 million); for detailed information and calculation of the discount rate, please refer to the 2003 Annual Report, “Reconciliation of pro forma figures”, page 96 et seq.

First half of 2004 24

T-Mobile: Total revenue		In the first half of 2004, almost all T-Mobile companies recorded year-on-year revenue growth. Total revenue increased by around 12 percent. The main growth driver was again T-Mobile USA, which reported a revenue increase of roughly 27 percent over the first six months of the preceding year - in USD terms, the growth rate was around 41 percent year-on-year. As a result, T-Mobile USA became the largest revenue contributor to the T-Mobile group for the first time.
T-Mobile: Results from ordinary business activities		The result from ordinary business activities in the first half of 2004 amounted to EUR 2.0 billion. The figure was substantially affected by special factors, which boosted EBITDA by EUR 1.3 billion. But even adjusted for these special factors, T-Mobile would have reported a significant earnings increase. This growth was driven by a below-average increase in cost of sales, as well as economies of scale and efficiency gains.
T-Mobile: EBITDA, adjusted EBITDA		EBITDA of the T-Mobile division for the first six months of 2004 was EUR 4.9 billion. Adjusted for special factors, EBITDA amounted to EUR 3.6 billion for the first six months and EUR 1.9 billion for the second quarter. The special factors in the second quarter of 2004 included a EUR 1.8 billion write-up in the carrying amount of U.S. mobile communications licenses (FCC licenses), a EUR 0.6 billion accrual for contingent losses relating to the dissolution of the joint venture with Cingular, and subsequent proceeds of EUR 75 million from the sale of Virgin Mobile. As a result, the adjusted EBITDA margin increased slightly to 29.6 percent in the first six months and 30.9 percent in the second quarter compared with the margin in respective prior-year periods. The current costs for the construction and operation of the UMTS network in Europe, which has not yet generated any significant revenues, exerted a negative influence on the EBITDA margin. As in prior periods, T-Mobile Deutschland made the biggest EBITDA contribution of EUR 832 million in the second quarter. This figure was positively affected, in the amount of EUR 68 million, by a one-time wholesale agreement. On the other hand, EBITDA was adversely affected by the increased expenditures for the Relax calling plans. The EBITDA margin (including the wholesale agreement) was 38.5 percent. T-Mobile USA generated an adjusted EBITDA margin of more than 25 percent in the second quarter of 2004, contributing EUR 589 million to EBITDA. As in the first quarter of 2004, EBITDA of T-Mobile UK was positively affected by the modified contractual terms in effect between T-Mobile UK and Virgin Mobile. In the second quarter, T-Mobile UK generated an adjusted EBITDA of EUR 365 million and an EBITDA margin of around 33 percent. The subsidiaries in the Czech Republic, Austria and the Netherlands contributed EUR 89 million, EUR 50 million and EUR 31 million, respectively, to the division’s EBITDA.
T-Mobile: Personnel		The number of employees increased again, primarily in the United States, as a result of continued business growth. However, personnel costs in the T-Mobile group increased at a much slower rate than revenue.

First half of 2004 25

	The T Systems Division.
			June 30, 2004	Mar. 31, 2004	Change June 30, 2004/ Mar. 31, 2004^a %	Dec. 31, 2003	June 30, 2003	Change June 30, 2004/ June 30, 2003^a %
		Systems Integration
		Hours billed (millions)	5.7	2.9		11.2	5.7	1.2
		Utilization rate (%)	76.1	73.5		74.0	73.3
		Computing Services
		Overall processor performance (MIPS)^b	121,831	116,956	4.2	113,723	98,095	24.2
		Number of servers managed and serviced	34,160	31,365	8.9	28,399	28,279	20.8
		Mainframe utilization (%)	95.0	95.0		95.0	95.0
		Desktop Services
		Number of workstations managed and serviced (millions)	1.2	1.2	0.6	1.2	1.2^c	(1.9	)
		Proportion of support activities, Germany (%)	60.1	59.8		60.6	61.5
		Proportion of retail, Germany (%)	39.9	40.2		39.4	38.5

	a Calculated and rounded on the basis of precise figures. b Million instructions per second. c Adjusted.
T-Systems: Selected KPIs	In the second quarter, T-Systems also systematically continued to drive its strategic Focus & Execution program that was developed to increase efficiency and sharpen the focus of its business activities. After gearing its organization and service portfolio even more towards the IT and telecommunications requirements of large business customers, the division returned to its growth course. The strong growth in net revenue¹⁰ provides clear evidence of this. Intersegment revenue as a percentage of total revenue fell by 2.6 percentage points year-on-year to 30.7 percent. The introduction of efficiency-increasing measures and the resulting optimization of the cost structures made a major contribution to achieving substantial profitability gains once more in a market environment that remained muted. The consolidation of the T-Systems computing centers, for example, was continued and almost completed; this package of measures involves both the consolidation of functions and the optimization of sites. Efficiency improvements were also made by streamlining centralized functions, cutting excess staff, and improving procurement processes.
	T-Systems’ operations gained ground in the second quarter through the positive development of business in the IT unit in particular. This enabled the company to secure its strong position for the long term. Newly won customer projects allowed the Computing Services service line to substantially increase the number of servers managed and serviced by almost 21 percent and boost -the available computing capacity by 24 percent compared with the first half of 2003. Utilization of the mainframe computers remained stable at a high level. The establishment of the capacity required to cope with the increase in customer demand led to greater capital expenditure in the second quarter. The Systems Integration service line remains exposed to a market characterized by strong competitive and cost pressure. Nevertheless, utilization rose considerably compared with both the first quarter of this year and the second quarter of 2003. The average hourly rate experienced moderate growth in the first six months of 2004 compared with the same period last year. Further capacity adjustments and the year-on-year increase in hours billed were major factors

First half of 2004 26

	contributing to the utilization gains achieved in the first half year. 10For the presentation of net revenue, please refer to the chapter on “Segment reporting”, page 61 et seq.
	In the Desktop Services service line, the number of IT workstations managed and serviced on customer premises stabilized and even increased slightly compared with the previous quarter. The hardware transactions required for this led to a year-on-year decrease in the proportion of support activities in the first half of 2004, although the proportion actually rose slightly in the second quarter. Business in the Telecommunications unit also declined in the second quarter of 2004, partly as a result of the price and competitive pressure in parts of the market. In addition, deconsolidation effects from the sale of TeleCash, T-Systems SIRIS, T-Systems MultiLink, and T-Systems Card Services in 2003 also reduced revenue.
T-Systems: Development of operations			Second quarter of 2004								First half of 2004
T-Systems: Development of operations			Q1 2004 millions of €		Q2 2004 millions of €		Q2 2003 millions of €		Change %		H1 2004 millions of €		H1 2003 millions of €		Change %		2003 millions of €
		Total revenue	2,475		2,625		2,567		2.3		5,100		5,127		(0.5	)	10,614
		Results from ordinary business activities^a	(190	)	(38	)	(100	)	62.0		(228	)	(126	)	(81.0	)	(581	)
		Financial income/(expense), net^a	(150	)	(5	)	(35	)	85.7		(155	)	(61	)	n.a.		(486	)
		Depreciation and amortization	(340	)	(350	)	(380	)	7.9		(690	)	(747	)	7.6		(1,499	)
		Other taxes	(1	)	(1	)	(4	)	75.0		(2	)	(5	)	60.0		(8	)
		EBITDA^b	301		318		319		(0.3	)	619		687		(9.9	)	1,412
		Special factors affecting EBITDA^b	0		(43	)	(18	)	n.a.		(43	)	64		n.a.		(3	)
		Adjusted EBITDA^b	301		361		337		7.1		662		623		6.3		1,415
		Adjusted EBITDA^bmargin (%)	12.2		13.8		13.1				13.0		12.2				13.3

		Investments in property, plant and equipment and intangible assets (excl. goodwill)	(127	)	(194	)	(136	)	(42.6	)	(321	)	(260	)	(23.5	)	(660	)

		Number of employees^c	40,352		39,867		42,305		(5.8	)	40,110		42,816		(6.3	)	42,108

	a From April 1, 2004. responsibility for the investment in Toll Collect has been transferred from T-Com to T-Systems. Prior-period comparatives were adjusted accordingly. b Deutsche Telekom defines EBITDA as the results from ordinary business activities excluding other taxes, net financial income/expense, amortization and depreciation. A detailed explanation of the special factors affecting EBITDA, adjusted EBITDA, and the adjusted EBITDA margin can be found under “Reconciliation of pro forma figures”, page 40 et seq. For detailed information and calculations of the figures for 2003, please refer to the 2003 Annual Report, “Reconciliation of pro forma figures”, page 96 et seq. c Average number of employees.

		First half of 2004 27
T-Systems: Total revenue		T-Systems’ total revenue in the second quarter of 2004 rose by 6.1 percent compared with the first three months of the year. This increase is due to the positive development of revenue in the service lines for Computing Services and Desktop Services as well as to the further improvement in net revenue. Total revenue was also up by as much as 2.3 percent on the second quarter of 2003. Adjusted for deconsolidation effects from the sale of investments, T-Systems posted 4.5 percent revenue growth in the second quarter of 2004 compared with the same quarter of the previous year. Adjusted for deconsolidation effects, T-Systems posted year-on-year revenue growth of 2.5 percent in the first six months of 2004. T-Systems’ revenue development in the first six months of 2004 was driven by a year-on-year revenue growth of 4.3 percent in the IT unit. In the second quarter of 2004, revenue rose 8.1 percent year-on-year. This increase is primarily attributable to the large projects in the service lines for Computing Services and Desktop Services that are now moving into the operational stage. Quarter-on-quarter, the Systems Integration business saw a 6.1-percent drop in revenue, while Computing Services grew 13.3 percent in the corresponding period and the Desktop Services business improved by 19.6 percent. Following a decline in revenue of 7.4 percent in the first quarter, the Telecommunications unit posted a revenue decrease of just 4.0 percent in the second quarter of this year compared with the same period in 2003.
T-Systems: Net revenue		Net revenue grew in the second quarter of 2004, continuing the trend reported for the first three months of the current financial year: Compared with the prior-year period, net revenue rose nominally by 3.4 percent, or by 6.8 percent after adjustment for deconsolidation effects. In the first six months, net revenue increased by 1.9 percent, or 6.5 percent adjusted for deconsolidation effects.
T-Systems: Results from ordinary business activities		T-Systems’ results from ordinary business activities for the first half of 2004 decreased compared with the same period last year. Earnings reported were negatively impacted by the transfer of the investment in Toll Collect from T-Com as of April 1, 2004. This negative effect extends retroactively to the 2003 financial year and the first quarter of 2004. Adjusted to exclude special factors, results from ordinary business activities increased by 106 percent in the second quarter 2004 and also improved in a half-year comparison. This reflects T-Systems’ success in its consistent implementation of the measures taken to cut costs and improve efficiency as part of the strategic Focus & Execution program.

		First half of 2004 28
T-Systems: EBITDA, adjusted EBITDA		Adjusted EBITDA increased substantially year-on-year, both in the second quarter of 2004 and in the first six months of the year. The increase of 7.1 percent to a total of EUR 361 million in the second quarter, and of 6.3 percent to a total of EUR 662 million in the first half of 2004, underlines the improvement in T-Systems’ operating performance. This is mainly due to the continuous improvement of cost structures, as well as to efficiency gains in the division. Personnel costs and the cost of goods and services purchased were reduced once more in the second quarter of 2004. At 13.8 percent, the EBITDA margin in the second quarter of 2004, calculated on the basis of adjusted EBITDA, improved substantially year-on-year once again. While in the second quarter of 2003, EBITDA was depressed on the whole by income from the sale of T-Systems SIRIS and T-Systems MultiLink as well as by pension accruals, EBITDA in the second quarter of 2004 was negatively affected by special factors from staff transfer payments for Vivento in the amount of EUR 43 million.

First half of 2004 29

The T Online division.

	June 30, 2004 millions	Mar. 31, 2004 millions	Change June 30, 2004/ Mar. 31, 2004 %		Dec. 31, 2003 millions	Change June 30, 2004/ Dec. 31, 2003 %		June 30, 2003 millions	Change June 30, 2004/ June 30, 2003 %

Customers with a billing relationship^a	13.34	13.43	(0.7	)	13.13	1.6		12.67	5.3
T-Online (Germany)	11.26	11.07	1.7		10.79	4.4		10.35	8.8
DSL rates	2.62	2.44	7.4		2.16	21.3		2.00	31.0
Narrowband rates	5.26	5.38	(2.2	)	5.56	(5.4	)	5.66	(7.1	)
PAYG^b (usage < 30 days)	0.80	0.82	(2.4	)	0.81	(1.2	)	0.79	1.3
PAYG^b (usage > 30 days)	2.58	2.42	6.6		2.25	14.7		1.90	35.8

Rest of Europe	2.08	2.36	(11.9	)	2.35	(11.5	)	2.32	(10.3	)
Broadband rates	0.31	0.29	6.9		0.26	19.2		0.21	47.6
Narrowband rates	0.25	0.28	(10.7	)	0.29	(13.8	)	0.32	(21.9	)
PAYG^b (usage < 30 days)	0.14	0.16	(12.5	)	0.17	(17.6	)	0.18	(22.2	)
PAYG^b (usage > 30 days)	1.38	1.62	(14.8	)	1.62	(14.8	)	1.61	(14.3	)


a The total was calculated on the basis of precise figures and rounded to millions. Percentages calculated on the basis of figures shown.
b PAYG: Pay as you go.

T-Online:
Customer development and selected KPIs

In the second quarter of 2004, T-Online International AG also successfully maintained its good market position thanks to attractive access rates and high-quality content. The company further increased its subscriber base and revenue by further expanding its combined business model comprising access (Internet access) and non-access components (content, services and e-commerce offerings), and above all by increasingly tapping the DSL broadband market together with T-Com.

Customer growth was essentially driven by the implementation of T-Online’s broadband strategy which combines powerful Internet access with innovative content. The number of subscribers to DSL, for example, rose 32.6 percent – from 2.2 million as of June 30, 2003 to 2.9 million at the end of the second quarter of 2004. In the “Germany” business segment, the number of T-Online DSL subscribers rose 31 percent in the same period to a total of 2.62 million. The increasing intensity of competition in the DSL market is reflected by the growth in customer numbers between the first and second quarters of 2004. Of the around 462,000 new subscribers to DSL rate plans that T-Online attracted in the first half of 2004, approximately 181,000 were acquired in the second quarter.

T-Online consistently continued its broadband strategy in its international subsidiaries as well. The “Rest of Europe” business segment recorded a 47.6 percent increase in the number of DSL customers as compared with the first half of 2003. Around 310,000 customers used the DSL calling plans as of June 30, 2004, compared with around 210,000 at the same date in 2003. Under the previous reporting structure, which was converted to the separate reporting of customers with narrowband and DSL rates with effect from the first quarter of 2004, T-Online had a total of around four million broadband customers at the end of the first half of 2004, approximately 3.7 million of whom were in Germany.

First half of 2004 30

As the variety of broadband content and the offering of usage-oriented rates grow, more and more customers are opting for broadband Internet access. The company lowered the basic monthly rate for T-Online dsl flat 2000 by around one-third as of June 1, 2004, making broadband Internet access even more attractive. This new stimulus for the broadband market has in turn led to a reduction in subscribers to narrowband rates. The slight drop in the number of registered customers in the second quarter of 2004 can be ascribed to the switch of access customers from the Austrian subsidiary t-online.at to UTA Telekom AG.

The successful development of the broadband market by T-Online International AG is also reflected in the increasing use of paid content and services. In addition to pay-per-view and pay-per-use models, the company offers a large number of subscription services, including premium e-mail services, security packages and special-interest topics on the portal www.t-online.de such as games (onSpiele) or computers (onComputer). As of June 30, 2004, T-Online customers used more than 1.3 million subscription models from the non-access areas. The area of internet security in particular shows a sustained upward trend. T-Online offers its customers the successful ‘Professional’ security package which provides convenient protection against the loss of data as a result of viruses or excessive bills resulting from dubious dialer programs. The company further expanded its range of paid and broadband content in the second quarter of 2004: By entering into an agreement with the German National Soccer League (DFL), T-Online was able to buy the rights to cover the DFL matches for the Internet and for mobile terminals up to the end of the 2005/06 season. The licenses also give T-Online the exclusive right to remarket the video streams and content to third parties, such as mobile communications providers. Thus, T-Online is not only repositioning itself once again as a first-class address for premium content on the Internet, but also as a provider and reseller of high-quality offerings for the entire new-media industry, ranging from Internet portals to mobile communications operators. Apart from expanding its own content portfolio, providing online content across different media is an extremely important means of attracting new customer groups. For this purpose, T-Online is also driving forward the distribution of the T-Online Vision broadband services via TV. In addition to its existing partnerships with Fujitsu Siemens and Samsung, T-Online has attracted other partners for the development and marketing of set-top boxes: the Korea-based manufacturers Handan BroadInfoCom and Humax Co., Ltd. These boxes enable customers of T-Online Vision to use services such as video on demand, WebMail, and the special-topic portal with the sections News, Sport and Entertainment via their television sets. The goal is to offer T-Online Vision’s broadband services on high-quality equipment in all price categories.

First half of 2004 31

T-Online: Development of operations		Second quarter of 2004								First half of 2004
T-Online: Development of operations		Q1 2004 millions of €		Q2 2004 millions of €		Q2 2003 millions of €		Change %		H1 2004 millions of €		H1 2003 millions of €		Change %		2003 millions of €
	Total revenue	493		500		449		11.4		993		894		11.1		1,851
	Germany	440		442		408		8.3		882		813		8.5		1,682
	Rest of Europe	53		58		41		41.5		111		81		37.0		169
	Results from ordinary business activities	37		45		21		n.a.		82		23		n.a.		104
	Financial income/(expense), net	27		28		25		12.0		55		54		1.9		200
	Depreciation and amortization	(109	)	(111	)	(105	)	(5.7	)	(220	)	(207	)	(6.3	)	(430	)
	Other taxes	0		0		0		n.a.		0		0		n.a.		(1	)
	EBITDA^a	119		128		101		26.7		247		176		40.3		335
	Special factors affecting EBITDA^a	0		0		25	^c	n.a.		0		25	^c	n.a.		25	^c
	Adjusted EBITDA^a	119		128		76		68.4		247		151		63.6		310
	Adjusted EBITDA margin^a(%)	24.1		25.6		16.9				24.9		16.9				16.7

	Investments in property, plant and equipment and intangible assets (excl. goodwill)	(12	)	(18	)	(10	)	(80.0	)	(30	)	(18	)	(66.7	)	(81	)

	Number of employees^b	2,918		2,945		2,655		10.9		2,931		2,644		10.9		2,637

	Figures are calculated in accordance with the provisions of German GAAP specified in the German Commercial Code (HGB), as applied throughout the Deutsche Telekom Group, and differ from those published in the reports of T-Online International AG under the IFRSs. a Deutsche Telekom defines EBITDA as the results from ordinary business activities excluding other taxes, net financial income/expense, amortization and depreciation. A detailed explanation of the special factors affecting EBITDA, adjusted EBITDA, and the adjusted EBITDA margin can be found under “Reconciliation of pro forma figures”, page 40 et seq. For detailed information and calculations of the figures for 2003, please refer to the 2003 Annual Report, “Reconciliation of pro forma figures”, page 96 et seq. b Average number of employees. c t-info book gain minus recognition of additional minimum liability.
T-Online: Total revenue	Due to the growth in T-Online’s subscriber base, net revenue rose to EUR 0.5 billion in the second quarter of 2004 - up 11.4 percent on the same quarter last year. In the first half of 2004, net revenue improved by 11.1 percent year-on-year. T-Online thus posted further revenue growth in the reporting period, even though the continued broadband campaign again resulted in an actual drop in revenue in the second quarter as new subscribers to various DSL rates were released from paying the monthly rental charge during the first two months.

First half of 2004 32

T-Online: Results from ordinary business activities		Results from ordinary business activities more than doubled from EUR 21 million in the second quarter of 2003 to EUR 45 million in the second quarter of 2004. In addition to its stable revenue growth, T-Online’s positive business development can be attributed to its continued exploitation of efficiency potential. For example, the improved utilization of purchased network capacity and the leveraging of economies of scale further improved the company’s gross margin. Another reason for the company’s sustained positive business development was the systematic optimization of operating processes which again enabled T-Online to enhance the efficiency of its resources in the reporting period.
T-Online: EBITDA, adjusted EBITDA		EBITDA in the second quarter of 2004 increased by 26.7 percent year-on-year to EUR 128 million. EBITDA adjusted to exclude special factors rose by 68.4 percent. Comparing the first half of 2003 with the first six months of 2004, EBITDA grew by 63.6 percent from EUR 151 million to EUR 247 million. Measured against net revenue, T-Online recorded an EBITDA margin of 25.6 percent for the second quarter of 2004, an increase of 8.7 percentage points year-on-year.
T-Online: Financial income/expense, net		The improvement in net financial income is mainly due to the positive development of the investments in comdirect and ImmobilienScout, which compensated for the downturn in capital market rates.
T-Online: Depreciation and amortization		Depreciation and amortization rose in the first six months of 2004, up EUR 13 million year-on-year. This is attributable to goodwill amortization on the Scout24 group, which was consolidated as of January 1, 2004.

First half of 2004 33

	Group Headquarters & Shared Services.
	Group Headquarters & Shared Services is in charge of strategic and cross-divisional management functions, as well as those operating activities that are not directly related to the core businesses of the divisions. Shared Services includes in particular Vivento, Real Estate, DeTeFleetServices GmbH – a full-service provider for fleet management and mobility services for the companies of the Deutsche Telekom Group – as well as Billing & Collection. The Billing & Collection unit was formed in May 2004 through the amalgamation of Billing Services and Customer Accounting. It provides billing and receivables management solutions for the group companies that offer commercial services to the market. The product and process chain is rounded off by credit assessment and collection services offered together with SAF Forderungsmanagement GmbH and SolvenTec GmbH.
	One of the most pressing tasks this year is the creation of new employment opportunities for the employees of Vivento. For this purpose, Vivento drove forward the establishment and running of new business lines of its own in the period under review, as well as projects with cooperation partners. Founded in the first quarter of 2004, Vivento Customer Services GmbH & Co. KG (VCS), which is part of the call center business line, is represented throughout Germany with 14 sites and had approximately 1,000 employees at the end of June 2004. VCS also had some 600 contract and temporary staff. A second business line was set up when Vivento Technical Services GmbH & Co. KG was formed as of June 1, 2004. This company will offer network infrastructure services nationwide inside and outside the Group. Additional employment opportunities were secured when an administrative agreement between the Bundesagentur für Arbeit (Federal Employment Agency) and Deutsche Telekom AG was signed: Up to 3,000 civil servants from Vivento will support the Federal Employment Agency from July 1, 2004 until June 30, 2005 with the introduction of the restructured benefits for the long-term unemployed.
	The employment alliance, that included the reduction of the working week from 38 to 34 hours, is making a substantial contribution to safeguarding and creating employment. This measure resulted in around 9,800 jobs being created and saved throughout Germany and had a major influence on the workforce at Vivento. Firstly, further staff transfers to Vivento were avoided as newly created jobs were filled by existing staff. Secondly, additional job openings created are to be filled by Vivento employees to the largest possible extent from July 2004. In addition, the voluntary redundancy program on which Deutsche Telekom and the trade unions agreed in March 2004 and which is open to employees at T-Com and Group Headquarters & Shared Services until August 31, 2004 was extended until September 30, 2004 for the employees transferred to Vivento.
	Approximately 1,500 staff were transferred to Vivento in the second quarter of 2004. At June 30, 2004, a total of about 26,400 employees had been transferred to Vivento since it was first founded. Some 3,500 employees have left Vivento since January 1, 2004, about 1,900 of them in the second quarter. About 7,300 employees have left Vivento since its foundation. Vivento had around 19,900 employees at the end of the second quarter of 2004, including approximately 700 permanent staff, roughly 16,100 transferred employees and 3,200 employees of the call center business line. In June 2004, around 5,200 Vivento staff were in temporary positions within the Group, and a further 1,200 outside the Group.
	Real Estate continued its monetization strategy in the second quarter of 2004. Cash inflows of around EUR 0.1 billion were generated from real estate sales in this period. This puts the cash inflows for the first half of 2004 at some EUR 0.2 billion, although the cash inflows partly relate to sales contracts that had already been concluded in earlier years.

First half of 2004 34

Group Headquarters & Shared Services: Development of operations		Second quarter of 2004								First half of 2004
		Q1 2004 millions of €		Q2 2004 millions of €		Q2 2003 million s of €		Change %		H1 2004 millions of €		H1 2003 millions of €		Change %		2003 millions of €
	Total revenue	1,090		1,154		1,071		7.7		2,244		2,164		3.7		4,268
	Results from ordinary business activities	(1,156	)	(839	)	(626	)	(34.0	)	(1,995	)	(1,452	)	(37.4	)	(4,071	)
	Financial income/(expense), net	(768	)	(574	)	(469	)	(22.4	)	(1,342	)	(1,148	)	(16.9	)	(2,877	)
	Depreciation and amortization	(212	)	(173	)	(213	)	18.8		(385	)	(499	)	22.8		(881	)
	Other taxes	(13	)	(11	)	(16	)	31.3		(24	)	(29	)	17.2		(37	)
	EBITDA^a	(163	)	(81	)	72		n.a.		(244	)	224		n.a.		(276	)
	Special factors affecting EBITDA^a	(33	)	135		82		64.6		102		244		(58.2	)	40
	Adjusted EBITDA^a	(130	)	(216	)	(10	)	n.a.