38 Lessor relationships

Finance leases. Deutsche Telekom is a lessor in connection with finance leases. Essentially, these relate to the leasing of routers and other hardware, which Deutsche Telekom provides to its customers for data and telephone network solutions. Deutsche Telekom recognizes a receivable in the amount of the net investment in the lease. The lease payments made by the lessees are split into an interest component and a principal component using the effective interest method. The lease receivable is reduced by the principal received. The interest component of the payments received is recognized as finance income in the income statement. Under business models in which Deutsche Telekom is classified as a manufacturer or dealer within the meaning of IFRS 16, revenue is disclosed similar to the accounting of revenue in accordance with IFRS 15. The gain or loss on the sale of the finance lease is realized in the amount of the difference between the revenue and the carrying amount of the underlying asset less the present value of the unguaranteed residual value. The finance income (interest income) is subsequently also recognized under the lease revenue.

The following table shows how the amount of the net investment in a finance lease is determined:

The following table presents the gross investment amounts and the present value of payable minimum lease payments:

Operating leases. If Deutsche Telekom is a lessor in connection with operating leases, it continues to recognize the leased assets in its statement of financial position. The lease payments received are recognized in profit or loss. The leases mainly relate to the rental of cell sites, building and co-location space, unbundled local loop lines, and terminal equipment.

The regulator requires Deutsche Telekom to make co-location space and unbundled local loop lines available to competitors. In contrast to unregulated products, the residual value risk for these assets is rather low because competitors are economically dependent on the use of these assets. In the unlikely event that co-location space and unbundled local loop lines are not leased, Deutsche Telekom will try to find new tenants for the vacant space or unleased lines. In the case of its own cell sites, Deutsche Telekom will also strive to continue leasing – where possible – all of the free space that it does not itself occupy. The aim here is to reduce the vacancy rate of unused space as far as possible by re-letting and to spread the cost.

Where terminal equipment is leased in the United States operating segment, customers are entitled to receive a new device once per month during the term of the lease. On receipt of the new device or at the end of the contract, the customer either returns or purchases the equipment. The purchase price at the end of the lease is set at the commencement of the lease and is equal to the estimated residual value of the equipment. This is based on the estimated market value of the device at the end of the contract. The contracts do not contain any residual value guarantees or variable lease payments, nor do they contain any restrictions or covenants. Terminal equipment returned by customers is prepared for sale in the secondary market or for use as a replacement for defective devices. This reduces the residual value risk of the returned equipment.

Operating leases exist for the following items of property, plant and equipment:

The future minimum lease payments arising from non-cancelable operating leases are as follows:

The increase in the future minimum lease payments mainly results from the higher number of cell sites and the related conclusion of new leases. Furthermore, the introduction of the IFRS 16 accounting standard also resulted in certain business models being classified as operating leases.