Business activities and segment structure

Business activities. With 184 million mobile customers, 28 million fixed-network lines, and 21 million broadband customers, we are one of the leading integrated telecommunications companies worldwide. We offer our consumers fixed-network/broadband, mobile, internet, and internet-based TV products and services, as well as ICT solutions for our business and corporate customers. We have an international focus and are represented in more than 50 countries. With 210,533 employees worldwide (as of December 31, 2019), we generated revenue of EUR 80.5 billion in the 2019 financial year, around 69.5 percent of it outside of Germany.

Fixed-network business includes all voice and data communications activities based on fixed-network and broadband technology. This includes the sale of terminal equipment and other hardware, as well as the sale of services to resellers. Our mobile communications business offers mobile voice and data services to consumers and business customers; in addition, we sell mobile devices and other hardware. We also sell mobile services to resellers and to companies that buy network services and market them to third parties (mobile virtual network operators, or MVNOs). Drawing on a global infrastructure of data centers and networks, our corporate customer arm, T‑Systems, operates information and communication technology (ICT) systems for multinational corporations and public-sector institutions.

Our responsible corporate governance and business success are based on our shared corporate values and our Guiding Principles, which are as follows:

• Customer delight and simplicity drive our action
• Respect and integrity guide our behavior
• Team together – Team apart
• Best place to perform and grow
• I am T – count on me

We want to be a sustainably growing company that delights its customers, creates value for its investors, and in which employees enjoy their work.

Segment structure. Our financial reporting conforms with our Group strategy and is organized according to the following structure:

Our Group is divided into five operating segments plus the Group Headquarters & Group Services segment, each of which we describe in detail below.

Our Germany operating segment comprises all fixed-network and mobile activities for consumers and business customers in Germany. It also focuses on the wholesale business to provide telecommunications services for carriers and our Group’s other operating segments. Separate sales entities for consumers and business customers allow the operating segment to take a customer-centric sales approach. The bundling of customer service activities places a further focus on customer satisfaction and quality assurance. Build-out of the mobile and fixed networks is managed by the Technology business unit in the Germany operating segment. As a pioneer of digitalization, the Germany operating segment offers its customers an individual service and product portfolio that is designed to be innovative while at the same time secure and simple.

Our United States operating segment combines all mobile activities in the U.S. market. T‑Mobile US is the third largest provider in the United States. The extremely positive business development has been built on the back of the various Un-carrier initiatives launched in the last few years. In December 2019, T‑Mobile US launched the first nationwide 5G network in the United States. On April 29, 2018, T‑Mobile US announced that it had entered into a Business Combination Agreement with Sprint Corp. As a result of the merger, T‑Mobile US expects to enhance its nationwide 5G network, accelerate innovation, and increase competition.

The consummation of our Business Combination Agreement to merge with Sprint is subject to approvals by the regulatory and anti-trust authorities and certain other customary closing conditions. On June 18, 2018, we filed the Public Interest Statement and applications for approval of our merger with Sprint with the Federal Communications Commission (FCC). The FCC granted formal approval on October 16, 2019. In June 2019, the attorneys general of 13 states and the District of Columbia filed a lawsuit against T‑Mobile US, Deutsche Telekom, Sprint, and Softbank Group Corp. in the U.S. District Court for the Southern District of New York. Another four U.S. states have since joined the suit, while the attorneys general of Mississippi, Colorado, Nevada and Texas withdrew from the lawsuit following settlement agreements. We believe the lawsuit is without merit. On July 26, 2019, we entered into a consent decree with the U.S. Department of Justice, which is now awaiting confirmation by the U.S. federal court in Washington. As such, the DoJ is waiving its right under U.S. law to file a suit against the transaction. In parallel, multiple agreements were signed with the U.S. TV satellite operator DISH Networks to implement the conditions for the merger. Once the legal proceedings are concluded, we expect to close the transaction in the second quarter of 2020.

Our Europe operating segment comprises all fixed-network and mobile operations of the national companies in Greece, Romania, Hungary, Poland, the Czech Republic, Croatia, Slovakia, Austria, North Macedonia, and Montenegro. We sold our national company in Albania as of May 7, 2019. This step means we are now an integrated provider of telecommunications services in all of our national companies. In addition to consumer business, most of the national companies also offer ICT solutions for business customers. As part of our international wholesale business, Telekom Global Carrier (TGC) sells wholesale telecommunications services to our operating segments as well as to third parties.

As a leading ICT service provider, our Systems Solutions operating segment offers business customers a portfolio of integrated products and solutions. With offerings for connectivity, digital solutions, cloud and infrastructure, and security, in addition to strategic partnerships, we offer our customers help and guidance to implement digital business models. We have been implementing a comprehensive transformation program since 2018, under which we realigned our organization and workflows, adjusted capacities, and developed a new strategy for our portfolio. Ten portfolio units look after not only our traditional IT and telecommunications businesses, but also our growth areas (public cloud, Internet of Things (IoT), digital solutions including health, security, SAP, classified ICT, and road charging).

Our Group Development operating segment actively manages entities, subsidiaries, and equity investments to grow their value while giving them the entrepreneurial freedom they need to promote their continued strategic development. This approach led to the creation of GD Towers – comprising Deutsche Funkturm (DFMG) and the Dutch cell tower business – within the Group Development segment, as well as the takeover of Tele2 Netherlands by T‑Mobile Netherlands effective January 2, 2019. The resulting larger T‑Mobile Netherlands is in a stronger position to offer customers integrated fixed-network and mobile products. Deutsche Telekom Capital Partners (DTCP) and the Group functions of Mergers & Acquisitions and Strategic Portfolio Management have also been assigned to Group Development. Our stake in Ströer SE & Co. KGaA was transferred to the Group’s own trust company, Deutsche Telekom Trust e.V., in August 2019 as plan assets to cover Deutsche Telekom’s existing pension obligations.

Group Headquarters & Group Services comprises all Group units that cannot be allocated directly to one of the operating segments, and reports on our Board of Management department for Technology and Innovation. As the organization that sets the direction and provides momentum, it defines strategic aims for the Group, ensures they are met, and becomes directly involved in selected Group projects. Group Services provides services to the entire Group; in addition to typical services provided by Deutsche Telekom Services Europe, such as financial accounting, human resources services, and operational procurement, Group Services also includes placement services provided by our personnel service provider, Vivento. On the one hand, it is in charge of securing external employment opportunities for employees, mainly civil servants, predominantly in the public sector. On the other, Vivento also seeks to strategically place them internally, with the aim of retaining professional expertise within the Group, so as to reduce the use of external staff. Further units are Group Supply Services (GSUS) for our real estate management and our strategic procurement, and MobilitySolutions, which is a full-service provider for fleet management and mobility services.

Our Technology and Innovation Board of Management department unites the cross-segment technology, innovation, and IT functions of our Germany, Europe, and Systems Solutions operating segments. These include Deutsche Telekom IT, which focuses on the Group’s internal national IT projects, and our central innovation unit, Product Innovation and Customer Experience (PIC), which works closely with our operating segments to drive topics such as digitalization, big data, software-defined networks, virtualization, and cloud services. Our Innovation Hub (IHUB) pools all of the expertise required for future innovation projects to ensure we stay flexible and innovative. Additional units are Network Infrastructure (NWI), Strategy & Technology Innovation (S&TI), and Pan-Net. NWI manages and operates a global network to offer voice and data communication services to wholesale customers. S&TI ensures efficient and customized research and provision of technologies, platforms, and services for mobile and fixed-network communications. Pan-Net is responsible for the shared pan-European network and for developing and providing services for our European national companies.

Changes to the organizational structure in 2020. Business-to-business telecommunications operations are to be realigned in 2020. Consistent with our efforts to implement the Group’s strategy pillar “Lead in business productivity,” the plan is to set up a new B2B unit within the Germany operating segment. The new unit will consist of the TC Services and Classified ICT units previously assigned to the Systems Solutions operating segment – with the exception of a number of activities assigned to Classified IT project business. The transition to the new structure will affect T‑Systems’ telecommunications operations both on a national and international level. In parallel, the portfolio units Security and IoT are to be turned into legally independent Group entities. Independent entities benefit from simpler decision-making processes and are able to act in a more agile way to better respond to market trends. The Telekom Global Carrier (TGC) and Network Infrastructure (NWI) sub-areas – which were previously reported primarily under the Europe operating segment and the Group Headquarters & Group Services segment respectively, and which together form the business area designated Deutsche Telekom Global Carrier (DTGC) – will be transferred to Telekom Deutschland GmbH in the Germany operating segment. The DTGC business area is currently legally assigned to Deutsche Telekom AG, and is to be transferred to Telekom Deutschland GmbH on the basis of a spin-off and transfer agreement, as yet to be concluded.