Expectations for the operating segments Germany In our Germany operating segment, we continue to work on our comprehensive transformation program and aim to secure our market position as the leading integrated telecommunications provider in Germany through innovative, competitive offers. We plan to largely complete the IP migration in Germany by the end of 2019 and to continue the infrastructure build-out of our high-performance networks. We will increasingly reduce the complexity of our products and processes through automation and digitalization initiatives and ensure greater end-to-end responsibility so as to offer the best service and best customer experience. In the fixed network, we want to offer the best customer experience with fiber-optic-based products. We are paving the way for this with our integrated network strategy. We are building an IP-based network with high transmission bandwidths so that we can consistently offer our customers competitive high-speed lines, e.g., by working intensively to further roll out our FTTH network. In addition, we are investing heavily to offer greater coverage and even higher speeds in rural areas as well. For this purpose, we will continue in the future to rely on our hybrid router, which combines the bandwidths of fixed-network and mobile communications, thus enabling much higher transmission speeds. Furthermore, we are working towards further partnerships to provide even more customers with high bit-rate internet access – thereby setting the bar for sustainable broadband infrastructure. In 2014, we were the first provider in Germany to market a comprehensive and convergent fixed-network/mobile (FMC) product: MagentaEINS. Our success story continues – we are consistently expanding our product family and enhancing its value, e.g., by launching the new mobile rate plan MagentaMobil XL in 2018, which offers customers an unlimited surfing flat rate in Germany. When designing our products, we pay particular attention to consistently high quality, a simple rate plan structure, and the innovative development of our existing service portfolio. In addition, our multiple-brand strategy in mobile communications allows us to address the entire customer spectrum – from discount shoppers through to premium customers, while the Magenta Business program successfully addresses business customers. We want to secure an ever larger share of the growing TV market with a focus on entertainment and our exclusive streaming offers (e.g., exclusive series such as “The Handmaid’s Tale” and “Cardinal” on MagentaTV and more than 100 seasons from the FOX+ series catalog). With the launch of MagentaTV in 2018, we offer our customers a unique television experience. To this end, we are investing in our IPTV platform and winning new customers with attractive content and services. We want to remain the market leader in Germany in terms of revenue over the coming years and extend our lead through rising service revenues. We are responding to our customers’ constantly growing demand for bandwidth and continuing to invest extensively in broadband networks, innovative products, and outstanding customer service. Revenues in our broadband business are constantly growing, while at the same time customer satisfaction levels are rising – we want to continue this growth trend again in 2019. We will improve customer satisfaction by driving forward the further development of mobile services (e.g., “Magenta apps”) and ensuring seamless service across all channels (e.g., web, hotline, shop). We expect revenue to grow slightly in our Germany operating segment in 2019, despite considerable adverse regulatory effects in our core business and tough competition. The value drivers are the growing broadband and TV revenues, the rising number of IP offerings, and revenue growth in our business customer area, e.g., thanks to the positive trend in IT and cloud business. We want to continue expanding our fiber-optic services, both by means of business models with wholesale products (such as the contingent model) and through further partnerships. We also expect our growth initiatives in Germany to offset the volume-driven decline in revenue from traditional fixed-network business and to continue consolidating our position as market leader in mobile and fixed-network communications. Thanks to the outstanding quality of our network and the progress being made in fiber-optic rollout, we anticipate greater demand for mobile and broadband products as well as growth in the number of broadband, TV, IP, high-speed, and hybrid lines. Our Mittelstandsinitiative 2.0 (SME initiative 2.0) will drive forward the ICT solutions business for our business customers, bolstered by the digital transformation, and increasingly generate revenues from the IT and cloud environment as well as from M2M/IoT business. Wholesale sales volumes should continue to develop very positively thanks to strong demand for our contingent model. We expect earnings to increase year-on-year for the next two years in our Germany operating segment. In 2019, we expect adjusted EBITDA AL of around EUR 8.7 billion, driven mainly by profitable revenue growth while at the same time cutting indirect costs, mainly through digitalization and automation. We forecast a slight improvement in the adjusted EBITDA AL margin which will be at around 40 percent in both 2019 and 2020. Our course is set for innovation and growth: While we will continue to consistently promote investments in new technologies with great intensity in the future, we are reducing investments in legacy systems. The focus of our capital expenditures in the coming years will thus fall on our network infrastructure and our mobile network (e.g., FTTH, super vectoring, MIMO, 5G). At the same time, we want to further build out our fiber-optic network and close gaps in the network in rural areas. One focus here is business parks and we are driving forward the FTTH build-out accordingly. We want to continue this rollout efficiently and participate in development programs. We expect cash capex to remain stable in 2019 and to decline slightly in 2020. United States In 2019, T-Mobile US will continue to execute on its Un-carrier promise to deliver the best value experience in the U.S. wireless industry. Key elements of the Un-carrier promise include delivering distinctive value for consumers in all customer segments by eliminating customer pain points and providing excellent 4G/LTE services as well as continuing to build out its 5G network. Additionally, the Un-carrier initiatives focus on attracting and retaining a loyal customer base by offering devices when and how customers want them, and plans that are simple, affordable, and without unnecessary restrictions to deliver the best value in wireless. Please note that the expectations below are on a stand-alone basis, and do not consider the impacts of completing the proposed business combination with Sprint. T-Mobile US expects continued increases in branded postpaid customers in 2019 and 2020 while expecting slight increases in branded prepay customers in 2019 with a stable base continuing into 2020. However, competitive pressures and unforeseen changes in the wireless communications industry in the United States may significantly affect the expected ability to attract and retain branded postpaid and prepay customers. T-Mobile US expects an increase in total revenues in U.S. dollars in 2019 and a further increase in 2020 as a result of continued branded postpaid customer growth momentum. For 2019 and 2020, T-Mobile US expects a sustained increase – in U.S. dollars – in adjusted EBITDA AL. As a result of the significant growth in customers over the past year, revenue growth is expected to outpace increases in expense as T-Mobile US is able to take advantage of improved scale effects. However, continued investment in the network will likely impact adjusted EBITDA AL. Competitive pressures may also significantly affect expected revenues and adjusted EBITDA AL in U.S. dollars. Exchange rate fluctuations may significantly affect revenues and adjusted EBITDA AL in euros in 2019 and 2020. Excluding expenditures relating to spectrum, T-Mobile US expects an increase to cash capex in 2019 in U.S. dollars as it continues to build out its 5G network. Europe Our aim for the next few years remains to be Europe’s leading telecommunications provider. One step on this road has been to position our Europe operating segment accordingly: Over the next two years, we want to become the leading provider of convergent product offers and services based on fixed-network and mobile communications (FMC). We also plan to play a decisive role in shaping the digital transformation by offering intelligent solutions for households, our business customers, and municipalities on the basis of an integrated IP network comprising a range of technologies. The Europe operating segment is distinguished by its strong portfolio of companies. The majority of our national companies are already integrated and, as well as having a high brand recognition value, are substantially relevant in their respective home markets. We want to systematically transform those companies that are still largely mobile-centric into integrated enterprises. On July 31, 2018, for example, we completed the acquisition of UPC Austria, which will help us grow our national company in Austria into a strong integrated telecommunications provider. We also concluded an agreement with Orange in the reporting year that will enable us to offer comprehensive convergent services in Poland in the future, thanks to the shared use of Orange’s fiber-optic network. In addition to this, T-Mobile Polska entered into another wholesale-FTTH agreement with the network operator Nexera. Our company in the Czech Republic began rolling out its own fiber-optic network in 2018, which we will now rapidly expand over the next few years – including with support from partners. On January 15, 2019, OTE concluded an agreement concerning the sale of its entire stake in Telekom Albania Sh.A. (Telekom Albania) to the Bulgarian company Albania Telecom Invest AD for a total value of EUR 50 million. The transaction is subject to the customary closing conditions, including approval from the responsible local authorities and financing, and is expected to be completed in the first half of 2019. We want to create the best customer experience for our customers. Our convergent product portfolios MagentaOne and MagentaOne Business provide strong offerings with which we can successfully help shape developments in the European markets. As a leader in convergent products, we can offer additional services and thus help to lower the churn rate and create a stable customer base. This stability has a positive influence on the value we have on the markets of our operating segment. In particular, we want to win over households with seamless access to our innovative services, e.g., with SmartHome for intelligent future living. Customers receive a complete solution that lets them control a wide range of devices and equipment – such as heating, lights, smoke detectors, and movement sensors – at home or on the move via a single app. The solution integrates various functions and vendors and can be expanded with different modules. Three of our national companies are already offering SmartHome to customers. In Austria, for instance, our national company’s SmartHome offering is based on the Qivicon SmartHome platform. A particular focus is set on the issue of security here, in that we offer a security package for SmartHome applications. We believe that, in this way, we can increase the overall percentage of households in Europe to more than 50 percent by 2021. As a result, we expect FMC revenues to increase by around 25 percent per annum until 2021. One of the main factors for the success of FMC is TV business. A key focus is the seamless experience of TV and entertainment services, in particular high-quality and exclusive content. In the future, we will negotiate to acquire exclusive rights to broadcast sports events, such as the Champions League, or the rights to TV movies/series. In addition, we are focusing on offering high-quality content at a local level. We are also working in partnership with OTT players such as Netflix and gradually expanding our offering of OTT services across all screens. We will continue to participate in the production of our own content and channels, as in Greece, for example, with the OTE History channel, or in Slovakia with Tuki TV. Overall, we expect to further increase our revenues from TV business over the next two years. We want to take a further step towards creating the best customer experience by providing perfect customer service. Digitalization plays a key role in this: In the reporting year, for example, we launched a service app for consumers (OneApp). This app enables us to largely digitalize our interaction with customers, which means we can meet customer needs in a more personalized and efficient way, and position products and innovative services on the market more quickly. It has already been successfully established on the market in five of our national companies and has already attracted 2.3 million users. Rollout to all countries of our segment is to be completed by the end of the first half of 2019. By 2021, we plan to achieve a penetration rate of more than 50 percent. We believe that our customers will reward the significantly improved service. By 2021, we want to achieve first or second place in terms of customer satisfaction, based on the empirically determined TRI*M index (customer survey). The broadband build-out will remain a key focus of activities in the coming years. Our state-of-the-art network infrastructure supports the digital transformation and enables us to leverage our technology leadership: We therefore plan to take part in further spectrum auctions. Our investments in mobile communications are currently focused on two areas: expanding LTE reach and implementing additional LTE frequency layers in order to increase network capacity. LTE Advanced technology will help make higher transmission rates of 300 Mbit/s and well beyond possible. In 2018, we already covered 97 percent of the population on average in the countries of our Europe operating segment with LTE and are thus well on track: Ultimately, we aim to achieve network coverage of 99 percent in our European footprint by 2021. The next-generation mobile communications standard, 5G, is just around the corner: We plan to begin with the first pilot projects from 2019; 5G will gradually be launched commercially depending on the outcome of spectrum auctions. We have successfully launched Narrowband IoT as 5G technology in eight national companies. One aim of our integrated network strategy is to make further advances in the fiber-optic rollout. In Hungary, Romania, Slovakia, Croatia, Macedonia, and Montenegro, we have been investing in the FTTH rollout for a number of years now, and plan to continue doing so in combination with vectoring. In 2018, we also launched the FTTH rollout in the Czech Republic and Greece; previously in Greece, we had a fiber-optic network up to the street cabinets using vectoring technology. The aim now is to supply around 0.75 million new households per year with optical fiber by 2021. Overall, by 2021, we want 30 percent of all households in the four major integrated national companies (Hungary, Greece, Croatia, and Slovakia) to have access to optical fiber. For our business customers, we will continue to work noticeably on infrastructure over the next two years to enable us to maintain our promise of the best network, and thereby remain the preferred partner for small and medium-sized enterprises (SMEs) as well as for our corporate and industry customers. Thanks to having the right cloud/ICT solutions, we create an even better all-in-one experience, tailored to any business model. By 2021, we want to generate revenue of EUR 500 million with convergent solutions for SMEs (FMCC business, +10 percent per year) and EUR 1.3 billion for corporate customers (ICT business, +7 percent per year). Digitalization and the digital experience remain key to our success in European cities and municipalities, as well as in all customer contact – from providing information and buying online, through to self-service. In our Europe operating segment, we expect to win more customers over the next two years, mainly thanks to the good performance of our convergence brand MagentaOne. Consequently, we expect the number of TV and broadband customers to increase in 2019 and 2020. The number of mobile customers is expected to increase slightly year-on-year in 2019 on a like-for-like basis, and to increase again in 2020. We expect fixed-network voice telephony to be replaced more and more by mobile communications, hence we forecast fixed-network lines to develop stably in 2019 and 2020. Changes in legislation, for example regarding taxes and duties, national austerity programs, and the decisions of regulators may have a negative impact on our revenue and earnings in the next two years. Changes in exchange rates could also affect our earnings on a euro basis. Based on these assumptions and parameters, we expect revenue in our Europe operating segment to increase slightly in 2019 on a comparable basis, i.e., based on the pro-forma figures for 2018 (for instance, the inclusion of the UPC Austria acquisition for a full twelve months); this is assuming constant exchange rates and based on specific assumptions about regulation, new market players, spectrum auctions, and unchanged organizational structure. 2020 will then see a continuation of this moderate revenue growth trend. Vigorous competition in the markets of our operating segment could potentially put pressure on our margins. To be ready for such an eventuality, we want to increase our productivity and exploit the benefits of digitalization, for instance by automating processes, with the aim of realizing cost-cutting potential. We expect adjusted EBITDA AL to increase year-on-year in 2019 to around EUR 4.0 billion, and to continue to increase slightly in 2020. In order to expand our technology leadership, we continue to invest in our integrated networks and plan to maintain our high level of investments over the next few years. However, cash capex will decrease against the prior year in 2019. It is expected to level out in 2020. Systems Solutions Part of our Group strategy is the ambition to be a leading partner for business customer productivity. Secure and reliable ICT solutions drive forward the integrated digitalization of our business customers in the Internet of Things. Our horizontal platforms and vertical solutions facilitate continuous operation of traditional systems as well as the transformation to digital business applications, which can be operated according to specific requirements. Partner products and services are an integral part of our portfolio, which offers our customers vendor-independent managed services. Under the program to transform our Systems Solutions business launched at the start of 2018, we have realigned our organization and processes, developed a new strategy for our portfolio, and created three product clusters. Overall, ten portfolio units and an emerging business unit will now be responsible for both our traditional IT and telecommunications business and our growth areas: “Telecommunications (TC)” cluster: Fixed-network and mobile services form the basis and the core of our business customer segment. We are investing in new technologies and driving forward the technology revolution so as to guarantee our customers corresponding added value and global availability. “Traditional information technology (IT)” cluster: Dedicated SI solutions, managed infrastructure services, and private cloud offerings secure our customers’ existing infrastructure and form the starting point for the transformation into new business areas. Efficiency enhancement measures help us stabilize our margins in these business areas, while price pressure remains high. “Growth business” cluster: SAP, digital solutions, public cloud, security, Internet of Things, classified ICT, health, and road charging – our investments in these growth areas offer our customers the best solutions on future-proof platforms. Focusing on scalable business models and global partnerships with specialized vendors enables attractive margins and our continued investment in these areas. Following a sharp increase in order entry in 2018, we are continuing to drive forward expansion of the growth business, while at the same time stabilizing the core telecommunications and traditional IT business, with the aim of achieving a significant shift in the revenue mix towards growth areas by 2022. We are among the top providers in the European IT market. Our consistently very high levels of customer satisfaction are a core element in maintaining this position in the long term as well as in playing a leading role in digitalization. Overall, we forecast growth in order entry for the Systems Solutions operating segment in 2019 and stable revenue. Adjusted EBITDA AL is expected to amount to around EUR 0.5 billion. Following high levels of investment in the growth areas in the reporting year, we expect a sharp decrease in cash capex. For 2020, we expect order entry to remain stable against the prior year, a moderate increase in revenue, an increase in adjusted EBITDA AL, and stable cash capex. Group Development We expect revenue to increase for our Group Development operating segment in 2019, and again in 2020. Adjusted EBITDA AL is set to increase in 2019 to around EUR 1.0 billion; for 2020 we expect a further increase. We will continue to deal with intense competition in the Netherlands through our strategy, which is expected to also take effect in 2019, following the stabilization of EBITDA in 2018. The main elements of this strategy are a repositioning of the core brand T-Mobile, expansion of the products and services on offer through T-Mobile Thuis (fixed network), and efficient management of costs. In addition, the acquisition of Tele2 Netherlands by T-Mobile Netherlands was consummated on January 2, 2019, after the European Commission approved the transaction on November 27, 2018 without conditions. This marks an important component of our long-term strategy. This business combination will create a sustainable provider of convergent fixed-mobile products and services on the Dutch market, which will be better positioned to challenge the FMC duopoly of KPN and VodafoneZiggo. The value contributions from the acquisition in the Netherlands are included in our outlook. Network investments, which remain at a high level, will help safeguard the strategy of T-Mobile Netherlands over the coming years. We expect investments at DFMG to grow sharply in 2019 and 2020, mainly due to the further build-out of cell sites in Germany. Group Headquarters & Group Services At Group Headquarters & Group Services, we will stay focused over the next two years on our ongoing efficiency enhancement measures, with which we are further optimizing our structures, especially within Group Services. We will also continue to focus on implementing our cost-cutting measures – primarily by optimizing the reallocation of human resources and enhancing the value of our real estate portfolio by means of innovative space and workplace concepts. By cutting costs, we can help improve our earnings, while also putting ourselves in a position to offer our services to the operating segments more cost effectively. Our Technology and Innovation Board department will again step up investments in technology development in Germany and in expanding centralized production platforms as part of the Pan-IP program in 2019 and 2020. On the one hand, we expect this to reduce overheads and investments, driven by IT operating costs and by the ongoing standardization of the IT infrastructure and platforms. On the other, the establishment of the centralized production platforms will incur rising costs and investments for Pan-IP. Overall, we expect the cost level to improve over the next two years. schließen IP - Internet Protocol Non-proprietary transport protocol in Layer 3 of the OSI reference model for inter-network communications. schließen FTTH - Fiber To The Home In telecommunications, FTTH means that the fiber-optic cable is terminated right in the user’s home or apartment. schließen Hybrid router Routers that are able to combine the customer’s fixed and mobile bandwidths. schließen FMC - Fixed-Mobile Convergence The merger of fixed-network and mobile rate plans for customers that have fixed-network and mobile contracts with Deutsche Telekom. schließen IPTV - Internet Protocol Television Refers to the digital transfer of television programs and films over a digital data network using the Internet Protocol (IP). schließen Service revenues Revenues generated with mobile customers from services (i.e., revenues from voice services – incoming and outgoing calls – and data services), plus roaming revenues, monthly charges, and visitor revenues. schließen Contingent model Contract concluded over a long period of time with defined advance payment and minimum purchase requirement. In return, the resellers pay a reduced monthly charge for VDSL. This allows them to put together interesting offers for their own consumers without having to invest in fiber-optic lines of their own. This improves the utilization of Telekom Deutschland GmbH’s existing VDSL network. The current “contingent model” is being developed further to reflect the network build-out in terms of availability and bandwidth. schließen IP - Internet Protocol Non-proprietary transport protocol in Layer 3 of the OSI reference model for inter-network communications. schließen Hybrid line Combines the strengths of the DSL/VDSL fixed network and the LTE mobile network. While using the internet at home the hybrid router transports the permanent data load with first priority via the DSL/VDSL line. During peak load the router automatically connects to the high-speed mobile network for down- and uploading. schließen ICT Information and Communication Technology schließen M2M - Machine to Machine Communication between machines. The information is automatically sent to the recipient. For example, in an emergency, alarm systems automatically send a signal to security or the police. schließen IOT - Internet of Things The IoT enables the intelligent networking of things like sensors, devices, machines, vehicles, etc., with the aim of automating applications and decision-making processes. Deutsche Telekom’s IoT portfolio ranges from SIM cards and flexible data rate plans to IoT platforms in the cloud and complete solutions from a single source. schließen Wholesale Refers to the business of selling services to third parties who sell them to their own retail customers either directly or after further processing. schließen Vectoring Vectoring is a noise-canceling technology that removes the electro-magnetic interference between lines, enabling higher bit rates. However, in order to cancel noise, the operator must have control over all lines. This means that other operators cannot install their own technology at the cable distribution boxes. schließen MIMO - Multiple-Input Multiple-Output MIMO is a multiple-antenna technology that is used, for example, with LTE and 5G. It makes it possible to increase both the data rate and the quality of the service. schließen 5G New communications standard, which offers data rates in the gigabit range, converges fixed-network and mobile communications, and supports the Internet of Things – rollout starting 2020. schließen Carrier A telecommunications network operator. schließen 4G Refers to the fourth-generation mobile communications standard that supports higher transmission rates (see LTE). schließen LTE - Long Term Evolution New generation of 4G mobile communications technology using, for example, wireless spectrum on the 800 MHz band freed up by the digitization of television. Powerful TV frequencies enable large areas to be covered with far fewer radio masts. LTE supports speeds of over 100 Mbit/s downstream and 50 Mbit/s upstream, and facilitates new services for cell phones, smartphones, and tablets. schließen Postpaid Customers who pay for communication services after receiving them (usually on a monthly basis). schließen Prepay/prepaid In contrast to postpay contracts, prepay communication services are services for which credit has been purchased in advance with no fixed-term contractual obligations. schließen FTTH - Fiber To The Home In telecommunications, FTTH means that the fiber-optic cable is terminated right in the user’s home or apartment. schließen FMC - Fixed-Mobile Convergence The merger of fixed-network and mobile rate plans for customers that have fixed-network and mobile contracts with Deutsche Telekom. schließen OTT Player - Over-The-Top Player Provider of IP-based, platform-independent services, such as WhatsApp. schließen LTE - Long Term Evolution New generation of 4G mobile communications technology using, for example, wireless spectrum on the 800 MHz band freed up by the digitization of television. Powerful TV frequencies enable large areas to be covered with far fewer radio masts. LTE supports speeds of over 100 Mbit/s downstream and 50 Mbit/s upstream, and facilitates new services for cell phones, smartphones, and tablets. schließen 5G New communications standard, which offers data rates in the gigabit range, converges fixed-network and mobile communications, and supports the Internet of Things – rollout starting 2020. schließen Optical fiber Channel for optical data transmission. schließen FMCC - Fixed-Mobile Cloud Convergence The merger of telecommunications and ICT solutions for small and medium-sized enterprises. Mobile communications, fixed network, mobile internet, broadband internet, and cloud/ICT products are bundled in one rate plan. schließen Mobile customers In the combined management report, one mobile communications card corresponds to one customer. The totals were calculated on the basis of precise figures and rounded to millions or thousands. Percentages were calculated on the basis of the figures shown (see also SIM card). schließen Fixed-network lines Lines in operation excluding internal use and public telecommunications, including IP-based lines. The totals reported in the combined management report were calculated on the basis of precise figures and rounded to millions or thousands. Percentages were calculated on the basis of the figures shown. schließen ICT Information and Communication Technology schließen IOT - Internet of Things The IoT enables the intelligent networking of things like sensors, devices, machines, vehicles, etc., with the aim of automating applications and decision-making processes. Deutsche Telekom’s IoT portfolio ranges from SIM cards and flexible data rate plans to IoT platforms in the cloud and complete solutions from a single source.