Europe Customer development (XLS:) Download thousands Dec. 31, 2018 Dec. 31, 2017 Change Change % Dec. 31, 2016 a Starting Q2 2018, we no longer report the number of retail broadband lines from a technical perspective. Instead we report the number of broadband customers. Prior-year comparatives have been adjusted. b Following the acquisition of UPC Austria, we report fixed-network lines and broadband customers in Austria for the first time from Q3 2018. c “Other”: national companies of Albania, Macedonia, and Montenegro, as well as the lines of the GTS Central Europe group in Romania. EUROPE, TOTAL Mobile customers 50,542 48,842 1,700 3.5 47,952 Contract customers 26,665 25,483 1,182 4.6 24,315 Prepay customers 23,877 23,359 518 2.2 23,637 Fixed-network lines 9,068 8,439 629 7.5 8,531 Of which: IP-based 7,420 5,734 1,686 29.4 5,016 Broadband customersa 6,405 5,530 875 15.8 5,291 Television (IPTV, satellite, cable) 4,835 4,244 591 13.9 4,049 Unbundled local loop lines (ULLs)/wholesale PSTN 2,275 2,265 10 0.4 2,259 Wholesale broadband lines 411 389 22 5.7 370 GREECE Mobile customers 7,893 7,981 (88) (1.1) 7,725 Fixed-network lines 2,566 2,547 19 0.7 2,564 Broadband customersa 1,893 1,757 136 7.7 1,631 ROMANIA Mobile customers 5,360 5,258 102 1.9 5,722 Fixed-network lines 1,741 1,865 (124) (6.6) 1,969 Broadband customersa 1,101 1,134 (33) (2.9) 1,148 HUNGARY Mobile customers 5,330 5,293 37 0.7 5,332 Fixed-network lines 1,663 1,632 31 1.9 1,629 Broadband customersa 1,148 1,073 75 7.0 1,012 POLAND Mobile customers 10,787 10,454 333 3.2 10,634 Fixed-network lines 18 32 (14) (43.8) 20 Broadband customersa 18 25 (7) (28.0) 40 CZECH REPUBLIC Mobile customers 6,188 6,176 12 0.2 6,049 Fixed-network lines 318 197 121 61.4 140 Broadband customersa 251 176 75 42.6 141 CROATIA Mobile customers 2,273 2,244 29 1.3 2,234 Fixed-network lines 931 967 (36) (3.7) 1,001 Broadband customersa 618 624 (6) (1.0) 618 SLOVAKIA Mobile customers 2,369 2,243 126 5.6 2,225 Fixed-network lines 853 858 (5) (0.6) 850 Broadband customersa 543 516 27 5.2 479 AUSTRIAb Mobile customers 7,194 5,702 1,492 26.2 4,594 Fixed-network lines 644 0 644 n. a. 0 Broadband customersa 594 0 594 n. a. 0 Otherc Mobile customers 3,149 3,490 (341) (9.8) 3,438 Fixed-network lines 333 340 (7) (2.1) 358 Broadband customersa 238 225 13 5.8 222 For information on changes in the organizational structure, please refer to the section “Group organization” and Note 35 “Segment reporting” in the notes to the consolidated financial statements. Total The markets in our segment remained intensely competitive throughout the reporting year. We rose to the challenge in several ways, for instance by achieving substantial growth in 2018 of 49.9 percent in the number of FMC customers (fixed-mobile convergence), thanks in part to our convergent product portfolio, MagentaOne. The acquisition of UPC Austria as of July 31, 2018 in particular contributes to our aim of becoming an integrated provider of mobile and fixed-network products across our entire segment. We also concluded an agreement with Orange in July of this 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 the agreement with Orange, T-Mobile Polska signed another wholesale FTTH agreement with network operator Nexera, covering more than 450 thousand further households to be connected by the end of 2020. Our broadband and TV operations are becoming consistent revenue drivers, not least thanks to the large-scale build-out of our network with state-of-the-art fiber-optic-based lines (FTTH, FTTB, and FTTC). As a result, the number of IP lines increased by 29.4 percent to 7.4 million as of December 31, 2018, primarily thanks to the migration from traditional PSTN lines to IP technology. Our mobile operations recorded growth overall, with increases in both the number of high-value contract customers and the number of prepay customers compared with the end of the prior year. Mobile communications The number of mobile customers totaled 50.5 million at the end of the reporting year, up by 3.5 percent or 1.7 million customers compared with the end of 2017. The number of contract customers continued to grow throughout the fourth quarter of 2018, bringing the total number of customers won in the reporting year to 1.2 million, an increase of 4.6 percent. These additions include the customer base of UPC Austria starting from the third quarter of 2018. Overall, our national companies reported positive trends in their customer base, especially in Poland, Romania, Hungary, Austria, and the Czech Republic. Contract customers accounted for 52.8 percent of the total customer base. Our customers benefited not only from our innovative services/rate plans, but also from greater coverage with fast mobile broadband – a result of our integrated network strategy. As of December 31, 2018, we already covered 97 percent of the population in the countries of our operating segment with LTE, reaching around 109 million people in total. Customer demand for high data volumes has risen sharply due to the explosion in data traffic driven by video streaming services, for example. The number of prepay customers grew by 2.2 percent or 518 thousand. Fixed network Our TV and entertainment services saw substantial growth of 13.9 percent as of December 31, 2018, driven primarily by the acquisition of UPC Austria. But even without this effect, customer growth would have stood at 3.2 percent, with our national companies in Hungary, the Czech Republic, and Slovakia accounting for the majority of these net customer additions. With both telecommunication providers and OTT players offering TV services in the countries of our segment, the TV market there is highly contested. The number of broadband customers increased by 15.8 percent as of the end of the reporting year to 6.4 million, with the acquisition of UPC Austria accounting for the majority of these net customer additions. Without this effect, there would have been growth of 5.7 percent. In particular, the customer bases of our national companies in Greece, the Czech Republic, Hungary, and Slovakia saw growth, partly on the back of increased investment in innovative fiber-optic-based technologies. We continued to extend our fiber-optic coverage and, as of December 31, 2018, had reached 7.6 million households. Consistent growth in IP-based lines as a percentage of all fixed-network lines confirms that we are making good progress: At the end of December 2018, this share amounted to 81.8 percent. The acquisition of UPC Austria increased the number of fixed-network lines in our Europe operating segment to 9.1 million overall, an increase of 7.5 percent. Without this effect, development would have remained stable. FMC – fixed-mobile convergence Our portfolio of convergent products, MagentaOne, remained highly popular with consumers across all of our integrated national companies. As of December 31, 2018, we had 3.3 million FMC customers; this corresponds to significant growth of 49.9 percent or 1.1 million net additions year-on-year. Our national companies in Greece and Hungary were the main drivers of this trend. We have also been increasingly successful in marketing our MagentaOne Business product to business customers. Development of Operations (XLS:) Download millions of € 2018 2017 Change Change % 2016 The contributions of the national companies correspond to their respective unconsolidated financial statements and do not take consolidation effects at operating segment level into account. a The business of T-Systems Polska Sp. z o.o., which, in organizational terms, was previously assigned to the Systems Solutions operating segment, is now disclosed under the Europe operating segment as of September 1, 2017. Prior-year comparatives were not adjusted. b “Other”: national companies of Albania, Macedonia, and Montenegro, as well as IWS (International Wholesale), consisting of Deutsche Telekom Global Carrier (TGC, formerly International Carrier Sales & Solutions (ICSS)) and units assigned to TGC in the national companies, as well as the GTS Central Europe group in Romania, and the Europe Headquarters. TOTAL REVENUEa 11,885 11,589 296 2.6 11,454 Greece 2,888 2,846 42 1.5 2,883 Romania 933 972 (39) (4.0) 985 Hungary 1,889 1,808 81 4.5 1,673 Polanda 1,526 1,509 17 1.1 1,488 Czech Republic 1,047 1,011 36 3.6 959 Croatia 966 955 11 1.2 925 Slovakia 761 748 13 1.7 766 Austria 1,055 900 155 17.2 855 Otherb 1,031 1,069 (38) (3.6) 1,132 Profit from operations (EBIT) 744 462 282 61.0 1,184 EBIT margin % 6.3 4.0 10.3 Depreciation, amortization and impairment losses (3,013) (3,157) 144 4.6 (2,589) EBITDA 3,757 3,619 138 3.8 3,773 Special factors affecting EBITDA (122) (130) 8 6.2 (93) EBITDA (ADJUSTED FOR SPECIAL FACTORS)a 3,880 3,749 131 3.5 3,866 Greece 1,180 1,135 45 4.0 1,120 Romania 138 166 (28) (16.9) 175 Hungary 547 545 2 0.4 539 Polanda 390 419 (29) (6.9) 482 Czech Republic 444 406 38 9.4 400 Croatia 398 386 12 3.1 374 Slovakia 322 315 7 2.2 302 Austria 345 266 79 29.7 258 Otherb 116 110 6 5.5 215 EBITDA margin (adjusted for special factors) % 32.6 32.3 33.8 CASH CAPEX (1,887) (1,874) (13) (0.7) (2,600) Total revenue Our Europe operating segment generated total revenue of EUR 11.9 billion in the reporting year, a year-on-year increase of 2.6 percent. In organic terms, i.e., assuming constant exchange rates and adjusted for the inclusion of UPC Austria as of July 31, 2018, revenue increased slightly by 1.5 percent. The mandatory first-time application of the IFRS 15 accounting standard as of January 1, 2018 did not have a material effect on the development of revenues at segment level. Our business customer operations made the biggest contribution to organic growth, driven mainly by the good development of ICT business in Hungary. Mobile revenue also increased year-on-year, with most of the countries in our operating segment contributing to this trend. Fixed-network revenue at segment level also increased slightly year-on-year in the core business, mainly due to the positive revenue effect from broadband and TV business, especially in Greece, Hungary, and Slovakia. These increases were offset by a decline in wholesale business. Intense competition on the telecommunications markets had a negative impact on our revenue in some countries of our operating segment. Revenue from Consumers increased by 3.4 percent compared with the prior year, driven mainly by mobile business. Revenue from fixed-network business rose, too, on the back of the trend in TV and broadband operations driven by our innovative TV and program management activities as well as the continuous rollout of fiber-optic technology in most of our national companies. In addition to higher terminal equipment revenues, strong growth in the number of FMC customers had a positive impact on revenue. This offset declining voice telephony revenues. Revenue from Business Customers, especially in ICT, grew again in 2018, increasing 3.7 percent year-on-year. Core business with fixed-network and mobile communications remained stable as a result of our convergent SME solutions (MagentaOne Business), which we sell on the markets. We generated double-digit percentage figures compared with the prior year with our corporate customers in key ICT/cloud computing business as well as in the innovative smart city/IoT fields. In terms of digitalization, in 2018 we showed our customers in countries including Hungary and Croatia new, simpler, and faster ways to manage their contracts with Deutsche Telekom, using self-service apps and portals. Wholesale revenue declined year-on-year, driven largely by falling levels of minute volumes resulting from the substitution of voice telephony with messenger services as well as negative price effects. Looking at the development by country, our national companies in Hungary, Greece, Slovakia, and Poland made the largest contributions to the organic development of revenue in the reporting year. This more than offset the decline in revenue in Romania in particular, which was attributable to lower fixed-network revenue from voice telephony in particular. A smaller customer base combined with lower prices also had a negative impact on broadband and TV business. B2B/ICT business customer operations made a positive revenue contribution. Mobile business remained stable compared with the prior-year level – the positive effect of the increase in customer numbers was offset by lower prices. EBITDA, adjusted EBITDA Our Europe operating segment generated adjusted EBITDA of EUR 3.9 billion in the reporting year, a year-on-year increase of 3.5 percent. In organic terms, i.e., assuming constant exchange rates and adjusted for the inclusion of UPC Austria, adjusted EBITDA increased by 1.8 percent. We thus ended 2018 posting year-on-year growth for four quarters in succession. The positive trend in adjusted organic EBITDA was driven both by the growth in revenue and by savings made in indirect costs, especially in Romania, Croatia, the Czech Republic, and Greece – in the latter primarily as a result of lower personnel costs. By contrast, in terms of direct costs, market investments and costs relating to the B2B/ICT operations increased. In addition, regulatory effects, including the reduction in EU roaming charges, reduced adjusted EBITDA. Looking at the development by country, the increase in adjusted organic EBITDA was largely attributable to the positive trends at our national companies in Greece, the Czech Republic, Hungary, and Austria. Contrasting developments were reported primarily at the national companies in Poland and Romania. In Romania, adjusted EBITDA was down 16.9 percent year-on-year, attributable on the one hand to the lower revenue contribution and on the other to higher direct costs resulting in part from higher market investments and regulation-induced higher roaming costs. The decline in adjusted EBITDA was partially offset by improved cost efficiency with regard to staff-related expenses. Our EBITDA increased by 3.8 percent year-on-year to EUR 3.8 billion, due primarily to higher adjusted EBITDA. At EUR -122 million, special factors were EUR 8 million lower than in the prior year. In organic terms, EBITDA grew by 2.1 percent. Development of operations in selected countries Greece. In Greece, revenue stood at EUR 2.9 billion in the reporting year, up year-on-year by 1.5 percent. This was driven primarily by higher mobile revenue and consistently high fixed-network revenue. Broadband business posted particularly strong growth as a result of the marketing of fiber-optic and vectoring lines. The growth trend continued in our B2B/ICT business customer operations and wholesale business. Intense competitive pressure caused TV revenues to decline year-on-year. The FMC offering developed positively, with rising customer numbers and corresponding revenues. In the reporting year, adjusted EBITDA in Greece increased substantially year-on-year by 4.0 percent to EUR 1.2 billion, driven largely by improved cost efficiency, especially with regard to personnel costs. Hungary. In Hungary, revenue in the reporting year grew substantially by 4.5 percent compared with the prior year to EUR 1.9 billion. In organic terms, it increased by 7.8 percent. This growth was driven by rising mobile service revenues and by fixed-network business with sustained clear revenue growth in B2B/ICT business customer operations. Broadband and TV business also made a positive contribution to revenue. Our MagentaOne portfolio of FMC products is enjoying success among consumers and business customers alike, a trend that is underpinned by growing customer numbers and a corresponding rise in revenue. Both service revenues and terminal equipment business performed well, which was attributable to our high-speed, high-reach mobile network. At EUR 547 million, adjusted EBITDA remained virtually at the prior-year level. Organically, adjusted EBITDA increased by 3.7 percent. Austria. In Austria, we generated revenue of EUR 1,055 million in the reporting year, up 17.2 percent compared with the prior year. This increase is attributable to the effects of the acquisition of UPC Austria, which now allows us to offer fixed-network technology in addition to the mobile broadband internet services already being successfully marketed to our customers. In organic terms, i.e., adjusted for the inclusion of UPC Austria, revenue would remain on a par with the prior-year level. The increase in revenue also impacted adjusted EBITDA, which increased by 29.7 percent year-on-year to EUR 345 million. Adjusted for the acquisition of UPC Austria, adjusted EBITDA would have been 3.3 percent higher year-on-year. Poland. Revenue at our national company in Poland increased by 1.1 percent year-on-year to EUR 1.5 billion; in organic terms, it increased by 1.2 percent. This was mainly a result of higher revenue in B2B/ICT business following the integration of our Systems Solutions operations in the prior year. Mobile business remained on a par with the prior-year level; the positive effect of the increase in customer numbers was offset by a negative price effect. Fixed-network business posted a decline in wholesale revenue. Adjusted EBITDA stood at EUR 390 million, down 6.9 percent year-on-year. In organic terms, adjusted EBITDA decreased by 6.7 percent. The positive revenue contribution was offset by higher direct costs – in particular higher interconnection costs and regulation-induced higher roaming costs. Indirect costs also reduced adjusted EBITDA marginally year-on-year as a result of higher personnel costs in connection with setting up new shops. Overall, the revenue trend, especially in the sale of terminal equipment and in fixed-network business, as well as a need for increased investment due to technological development and requirements, resulted in a lowering of revenue and earnings expectations in Poland. EBIT EBIT in our Europe operating segment increased significantly by 61.0 percent in the reporting year to EUR 744 million, driven by the positive development in EBITDA and a 4.6 percent reduction in depreciation, amortization and impairment losses. The cyclical impairment tests carried out at the year-end resulted in impairment losses recognized on goodwill totaling EUR 0.6 billion in Poland and Romania. In the prior year, impairment losses on goodwill and on property, plant and equipment had reduced EBIT by EUR 0.9 billion. Impairment losses amounting to EUR 35 million were recognized on property, plant and equipment and intangible assets in the reporting year in connection with the sale of the shares in Telekom Albania agreed in January 2019. Cash capex In 2018, our Europe operating segment reported cash capex of EUR 1.9 billion, putting it on a par with the prior-year level. Alongside subdued investments at individual national companies, our capital expenditures were focused primarily on building out our broadband and fiber-optic technology in the Czech Republic and Austria as part of our integrated network strategy. We acquired a small number of spectrum licenses in the reporting year, predominantly in Hungary. 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 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 FTTB - Fiber To The Building or Fiber To The Basement In telecommunications, FTTB means that the fiber-optic cable is terminated in the user’s house (basement). schließen FTTC - Fiber To The Curb In the FTTC architecture the fiber-optic cable is not terminated inside users’ homes (see FTTH) but in a cable distribution box (gray street cabinet). Existing copper technology is used for the last section of the connection to the user. 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 OTT Player - Over-The-Top Player Provider of IP-based, platform-independent services, such as WhatsApp. schließen IP - Internet Protocol Non-proprietary transport protocol in Layer 3 of the OSI reference model for inter-network communications. schließen ICT Information and Communication Technology 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 Cloud computing Refers to the dynamic provision of infrastructure, software, or platform services online. Apart from a high level of automation and virtualization, the services provided have to be multi-client-capable and include standardized hardware and software. Customers source these services on demand and pay based on actual usage. The communication infrastructure may be the internet (public cloud), a corporate network (private cloud), or a mix of the two (hybrid cloud). Dynamic Services is a T-Systems product for the flexible procurement of ICT resources and services. 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 ICT Information and Communication Technology schließen Roaming Refers to the use of a communication device or just a subscriber identity in a visited network rather than one’s home network. This requires the operators of both networks to have reached a roaming agreement and switched the necessary signaling and data connections between their networks. Roaming comes into play when cell phones and smartphones are used across national boundaries. 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 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.