Letter from the Chairman of the Board of Management

Dear Shareholders,

Deutsche Telekom keeps its promises. In 2015, we communicated our four-year forecast – one that was clearly geared towards growth. The figures are now in and they speak for themselves: We have exceeded our expectations. What’s more, in 2018 alone we raised our full-year guidance three times despite investing a great deal of money at the same time – more than EUR 12 billion, in fact.

And all of this at a time that is anything but easy for our industry. A quick glance at the company ratings in our sector shows they are falling virtually across the board. Not ours! In 2018, we significantly outperformed the DAX and this year we continue to maintain our position as the leading European telco in terms of market value.

Let’s take a look at what we achieved compared with our forecast for 2018. Organically, i.e., assuming constant exchange rates and the same Group structure, net revenue in 2018 increased by 3.1 percent. Also on an organic basis, adjusted EBITDA came in at 7.2 percent or EUR 1.6 billion higher than the prior-year figure and above our expectations. The same goes for free cash flow, which grew by 18.9 percent on the same basis and thus ended the year higher than the level we forecast.

As you can see, our strategy is paying off. We continue to focus on delivering the best networks and are forging ahead with our build-out efforts like no other provider in our industry.

As you know, high data speeds rely on fiber-optic infrastructure. We are thus immensely proud to have laid our 500,000th kilometer of fiber-optic cable last year. Our fiber-optic network is and remains the largest in Germany. We also offer a rate plan with 100 megabits per second (Mbit/s) to 26 million households. What’s more, by the end of 2018 we were able to offer some 14 million households and 2 million business locations top speeds of up to 250 Mbit/s using supervectoring. In 2019, we plan to extend high-speed coverage to 28 million households using this technology.

As you can see, our focus is on high quality and maximum coverage. That also goes for mobile communications: Our network already covers 97.8 percent of the population in Germany, helped by 1,300 additional cell sites. We are not only investing in Germany, but in all of our footprint countries, where our LTE network covers 97 percent of the population, or around 109 million people.

T-Mobile US has the fastest mobile network in the United States. By 2020, our U.S. colleagues plan to be the first to offer nationwide.

Deutsche Telekom is helping to pioneer 5G in Europe, too. The first antennas to fully support the new communications standard are already up and running in Berlin, Darmstadt, Hamburg, and Warsaw. We are hosting the world’s first test of 5G for industry at the Port of Hamburg, and we have already achieved record-breaking transmission speeds in Austria, Greece, and Macedonia.

This costs money, but we believe it is money well spent: From 2018 to 2021, we plan to invest over EUR 20 billion in Germany – much of this will go towards building out the mobile and fixed networks.

Quantity without quality? Not at all. Quality is one of our top priorities. That’s why I am delighted that we regularly take first place in independent tests of networks and services – in Germany, Europe, and the United States.

As you can see, our commitment and our investments are bearing fruit. The fact that we have the resources to do all this is down to you, our shareholders. Please accept my sincere thanks for the trust you place in us. Our financial situation illustrates that your trust has not been misplaced.

Our customers also have confidence in what we do. This much is clear from the customer growth we are seeing on both sides of the Atlantic. Our approach to combining fixed and mobile communications in one convergent product is gaining momentum both in Germany, in the form of MagentaEINS (642,000 customer additions), and in Europe as MagentaOne and similar offerings (1.1 million customer additions).

In the United States, our Un- strategy continues to flourish. T-Mobile US has added more than one million new customers every quarter for almost six years. With such rapid growth, our U.S. subsidiary has once again left every other national competitor trailing in its wake. Furthermore, we expect the merger agreed with Sprint – which is still subject to approval by the regulatory authorities – to substantially strengthen our future business.

Over the past year, our colleagues in the United States have also been exploring new horizons in the area of customer service with their Un-carrier Next initiative. Under the new Team of Experts program, customers who call customer service are connected directly to a personal advisor.

In Europe, too, we are working ceaselessly to make our service even better. A key focus for us in Germany is on ensuring that our service technicians are on time, which they are for almost 95 percent of agreed appointments. We have also significantly reduced the number of customer complaints.

But regardless of whether it’s about great technology or outstanding service – none of it would be possible without the dedicated employees we have at our Group. They are the people who make Deutsche Telekom what it is – an industry leader on both sides of the Atlantic. I would like to take this opportunity to thank my colleagues sincerely for such dedication.

Dear Shareholders,

The financial report is further evidence that not only do we set ourselves ambitious goals – we also meet and even exceed them. I’m happy to say it again: We keep our promises. Our growth profile is unique in the industry. We are leaders in our sector and work tirelessly to make sure it stays that way.

Over the past year, we have laid important strategic groundwork in this regard – for example, with the completion of the acquisition of Tele2 in the Netherlands and the takeover of UPC in Austria. We can now become a one-stop shop for integrated product bundles in these countries, too, which will mean even better services for our customers.

We have already set the bar for the next few years. On average, revenue is expected to increase by one to two percent per year by 2021, adjusted EBITDA by two to four percent, and free cash flow by around ten percent.

And it goes without saying that you will benefit from our successes. Following the dividend of EUR 0.65 per share for 2017, we are proposing – subject to approval by the relevant bodies and the fulfillment of other legal requirements – a dividend for the 2018 financial year of EUR 0.70 per dividend-bearing share. That’s because Deutsche Telekom is a dependable partner in this respect, too.

Best regards,

Tim Höttges

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.
Refers to the fourth-generation mobile communications standard that supports higher transmission rates (see LTE).
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.
A telecommunications network operator.
Customers who pay for communication services after receiving them (usually on a monthly basis).