Letter from the Chairman of the Board of Management

Dear Shareholders,

Dear Friends of the Company,

2019 was a successful year for Deutsche Telekom. Net revenue grew once again. In the United States. In Europe. Our results in Germany were up too. We surpassed our annual targets for adjusted EBITDA AL and free cash flow AL in 2019. The three most important financial performance indicators are ahead of our medium-term guidance for 2017 through 2021. The figures now presented demonstrate very clearly that Deutsche Telekom is on a profitable growth course.

We have achieved this despite pouring a record EUR 13.1 billion primarily into building out and upgrading our digital networks worldwide. This is on top of the EUR 2.17 billion we spent in connection with the spectrum auction in Germany. The auction went on for too long and cost us a great deal of money that we would have preferred to invest in the network build-out to benefit our customers. Other countries seem to have a much better handle on the process.

The market environment in the European telecommunications sector is far from straightforward. Yet, despite the heavy regulation and inconsistent competitive situation, we emerged from the year just ended even stronger. Not only that, but we are once again the leading European telco, based on both revenue and market value. That was and remains our overarching goal.

Let’s take a look at what we achieved in 2019. Overall, net revenue came in at EUR 80.5 billion. That is an increase of 6.4 percent. In organic terms – in other words, assuming constant exchange rates and the same Group structure – revenue grew by 2.8 percent. Adjusted EBITDA AL increased by 7.2 percent to EUR 24.7 billion compared with the prior year. This puts us well ahead of our guidance, which we had already raised in the course of the year to EUR 24.1 billion. Here, too, in organic terms, we surpassed our medium-term forecast. Free cash flow AL tells the same story, up 15.9 percent from EUR 6.1 billion to EUR 7.0 billion and also exceeding our expectations.

It’s clear that our strategy is paying off. Yet we need to keep pace with the times, which is why we decided to incorporate a further key factor into the strategy. After all, we want to be more than a company that just grows. Our goal is to be an enabler of development in our society. We want to open the door to participation in the digital transformation and help connect people. To forge the future, not frustrate it. For this to become a reality, we must put ecological sustainability at the forefront of our actions, and uphold our responsibility to future generations even more now than ever. That’s why, in 2019, we introduced a number of necessary steps to set us on the right course.

Specifically, this means we adopted new climate goals for Deutsche Telekom, which the entire Group is already working hard to achieve. We plan to transition to 100 percent renewable electricity from 2021. And by 2030, we are set to reduce our CO₂ emissions by 90 percent. These are ambitious and challenging targets, but we see no alternative if we are to play our part in meeting the goals of the Paris Climate Agreement.

Our success is due in no small part to our customers. They expect us to do business in line with ecologically sound and sustainable principles. Living up to these expectations is crucial, because failing to do so will only be detrimental to our long-term success. That’s why customers trust in us.

The confidence you place in us was evident once again in 2019. In mobile communications, we won more than 540,000 customers in Germany alone under our Telekom and congstar brands. In the United States, our subsidiary T‑Mobile US continued to make history on the back of its hugely successful Un-carrier strategy, setting a record of 27 consecutive quarters of more than 1 million net customer additions. Growth of this size is unprecedented in the mobile communications sector and sends a clear signal to our national competitors.

We set two clear priorities: First, it’s important to us that we treat our customers well, take them and their concerns seriously, and always put them first. Second, we want to offer customers the best-quality networks. We did this in eleven of our twelve footprint countries in 2019, and continue to work intensively on further building out our networks. In Germany alone, we added some 1,800 cell sites compared with this time last year. This puts us well on schedule, and our 5G network is already transmitting data at speeds of up to 1 Gbit/s in eight German cities: Berlin, Bonn, Darmstadt, Munich, Cologne, Frankfurt/Main, Hamburg, and Leipzig. By the end of 2020, we intend to cover the 20 largest cities across Germany with 5G. While this is all well and good, we need to pick up the pace of the build-out if Germany is to get in shape for the digital future. That is what we promised our customers we would do, and that’s what we’ll need to measure ourselves against. But 5G isn’t our sole focus. At present, our LTE network reaches 98.1 percent of households in Germany – and improving coverage further is the aim of our initiative “Wir jagen Funklöcher” (hunting down dead zones). It’s been extremely well received: to date, over 530 municipalities have responded and submitted an application for a new cell site.

We are also making good progress with the network build-out in other countries. In December, T‑Mobile US launched the country’s first nationwide 5G network using 600 MHz spectrum, reaching more than 200 million people in the United States. T‑Mobile Austria put the first 5G cell sites into operation back in March. The number of 5G base stations connected to Austria’s 5G mobile network has since risen to 31.

Our customers also have high expectations of Deutsche Telekom’s customer service. And we live up to them, winning seven of the eight most coveted customer service accolades in Germany. For 2020, our stated goal is to win the Service Grand Slam – all eight.

Before I finish, I’d like to emphasize once again that Deutsche Telekom is a global, diverse, and successful company. The keys to this success are our customers, our shareholders, and, not least, our employees. More than 200,000 people are committed to serving our customers every day. To achieving our ambitious goals, and to making our Company better in every way. To them, I would like to say a huge thank you. More than anything, our success is the success of our employees. As my U.S. colleagues always say, it’s: “Because they get things done!”

Dear Shareholders,

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 through 2021, adjusted EBITDA by two to four percent, and free cash flow by around ten percent. 2019 shows that we are well on track to meeting these targets.

We want you to benefit from our successes. That’s why we are proposing a dividend of EUR 0.60 per dividend-bearing share for the 2019 financial year – subject, as always, to approval by the relevant bodies and the fulfillment of other legal requirements. That’s because Deutsche Telekom is a dependable partner in this respect too.

Best regards,

Tim Höttges