7 Property, plant and equipment

Property, plant and equipment increased by EUR 3.8 billion in the 2018 financial year to EUR 50.6 billion. Additions of EUR 11.3 billion, primarily in the United States and Germany operating segments, increased the carrying amount. They included, in particular, capital expenditure in connection with the modernization of the T-Mobile US network as well as for broadband and fiber-optic build-out, the IP transformation, and mobile infrastructure in the Germany operating segment. They also included EUR 0.9 billion for capitalized higher-priced mobile handsets in connection with the JUMP! On Demand business model at T-Mobile US, under which customers do not purchase the device but lease it. Changes in the composition of the Group – particularly the acquisition of UPC Austria in the Europe operating segment, the extension of the Biere data center (structured leasing SPEs consolidated in 2018) in the Systems Solutions operating segment, and of Layer3 TV in the United States operating segment – increased the carrying amount by EUR 1.4 billion. For further information on transactions, please refer to the section “Changes in the composition of the Group and other transactions”. Positive exchange rate effects, primarily from the translation of U.S. dollars into euros, increased the carrying amount by EUR 0.6 billion. Depreciation, amortization and impairment losses in the amount of EUR 8.8 billion and disposals of EUR 0.6 billion – EUR 0.3 billion of which was accounted for by handsets returned by customers under the JUMP! On Demand program – reduced the carrying amount. For further information on depreciation, amortization and impairment losses, please refer to Note 26 “Depreciation, amortization and impairment losses”, and Note 6 “Intangible assets”.

Under the agreement concluded on January 15, 2019 by OTE concerning the sale of its stake in Telekom Albania to the Bulgarian company Albania Telecom Invest AD for a purchase price of EUR 50 million, the carrying amounts of the assets and liabilities assigned to the Albania cash-generating unit were reclassified to non-current assets and disposal groups held for sale and liabilities directly associated with non-current assets and disposal groups held for sale, respectively. This process required a remeasurement of these assets at the lower of carrying amount and fair value less costs of disposal, which resulted in an impairment loss of EUR 35 million in the 2018 financial year as of the date of the reclassification on some of the intangible assets and property, plant and equipment assigned to the Albania cash-generating unit. For further information, please refer to Note 5 “Non-current assets and disposal groups held for sale and liabilities directly associated with non-current assets and disposal groups held for sale”.

In the prior year, a potential need to impair the assets was reviewed in an ad hoc impairment test at the Romania – Fixed-network cash-generating unit in the Europe operating segment as of December 31, 2017. This test was necessitated by the aggregation of the Fixed-network and Mobile communications cash-generating units. No goodwill was allocated to the Romania – Fixed-network cash-generating unit as of December 31, 2017.

The measurement of the Romania – Fixed network cash-generating unit as of December 31, 2017 was founded on projections for a ten-year projection period that is based on the financial plan that has been approved by management and is also used for internal purposes. The planning horizon selected reflects the assumptions for short- to medium-term market developments and is selected to achieve a steady state in the entities’ business outlook that is necessary for calculating the perpetual annuity. This steady state can only be established based on this planning horizon, in particular due to the sometimes long investment cycles in the telecommunications industry and the investments planned and expected in the long run to acquire and extend the rights of spectrum use. Cash flows beyond the internal mid-term planning are extrapolated using appropriate growth rates defined separately for each cash-generating unit. A growth rate of 2.0 percent was set for the cash-generating unit Romania – Fixed network and was based on the real growth and inflation expected in the long term. The key assumptions on which management has based its determination of the recoverable amount include the following assumptions that were primarily derived from internal sources and are based on past experience and extended to include internal expectations, and that are underscored by external market data and estimates: development of revenue, customer acquisition and retention costs, churn rates, capital expenditure, market share, and growth rates. Discount rates are determined on the basis of external figures derived from the market, taking account of the market and country risks associated with the cash-generating unit. The discount rate for the cash-generating unit Romania – Fixed network was 7.76 percent.

The recoverable amount determined internally, which was calculated in accordance with IFRS 13 using Level 3 input parameters (i.e., unobservable inputs) amounted to EUR 334 million as of December 31, 2017 (before deduction of net debt) for the Romania – Fixed network cash-generating unit. The resulting need for impairment in 2017 was EUR 121 million for Romania – Fixed network, and, as a rule, had to be allocated to non-current assets. The recoverable amount was reviewed on the basis of an external expert opinion on account of the existing lower value limits (fair value less costs of disposal of the relevant assets). Based on the recoverable amounts for the non-current assets of the Romania – Fixed network cash-generating unit derived from this expert opinion, no impairment loss was recorded in the final analysis.

In the prior year, the annual impairment test for the goodwill assigned to the cash-generating units identified a need for impairment in the Albania cash-generating unit of EUR 45 million. This need for impairment was to be allocated to existing goodwill (EUR 8 million) (please also refer to Note 6 “Intangible assets”) and, as a rule, to non-current assets. The recoverable amounts (fair value less costs of disposal) of the relevant assets were reviewed on the basis of an external expert opinion on account of the lower value limits to be observed. Based on the recoverable amounts of non-current assets derived from this expert opinion, items of property, plant and equipment were impaired by EUR 37 million. Of this figure, EUR 22 million was attributable to non-controlling interests. The impairment loss primarily related to technical infrastructure.

Deutsche Telekom had commitments for the acquisition of property, plant and equipment in the amount of EUR 3.8 billion (December 31, 2017: EUR 2.8 billion) as of the reporting date.

Restoration obligations of EUR 0.2 billion were recognized as of December 31, 2018 (December 31, 2017: EUR 0.3 billion), mainly attributable to restoration obligations of T-Mobile US.