6 Intangible assets

The carrying amount of intangible assets increased by EUR 49.9 billion to EUR 118.1 billion, primarily due to the following effects: Effects from changes in the composition of the Group of EUR 59.3 billion in connection with the acquisitions of Sprint and Simpel contributed to this increase, which also includes preliminary goodwill arising from the transactions; EUR 8.7 billion from the Sprint transaction and EUR 0.2 billion from the Simpel transaction. Additions of EUR 6.8 billion also increased the carrying amount. They mainly related to investments in the United States, Europe, and Germany operating segments, primarily for the development of network software. The carrying amount was furthermore increased by investments in internally generated and purchased software in the Group Headquarters & Group Services segment. This also includes, in the United States operating segment, FCC spectrum licenses of EUR 1.1 billion – primarily acquired at a spectrum auction that ended in March 2020 – and in the Group Development and Europe operating segments, spectrum licenses totaling EUR 0.6 billion – mainly in the Netherlands, Hungary, Greece and Austria. Amortization of EUR 6.5 billion, negative exchange rate effects of EUR 10.4 billion, mainly from the translation of U.S. dollars into euros, and disposals of EUR 0.2 billion, primarily from the derecognition of billing software for postpaid customers in the United States, which was still in development, reduced the carrying amount. Due to the migration of Sprint contract customers to the T‑Mobile US billing software, it was decided that this software was not suitable for the joint customer base and would not be put into operation. In connection with the intention to sell T‑Mobile Infra B.V. and Telekom Romania Communications S.A., both companies were classified as held for sale as of December 31, 2020. As a result, the carrying amount declined by EUR 0.3 billion overall. Furthermore, the carrying amount of intangible assets was increased by EUR 1.6 million as a result of the following reversal of impairment losses and was reduced by EUR 0.5 billion overall by the following impairment losses.

For further information on the business combinations, please refer to the section “Changes in the composition of the Group and other transactions.”

Reversal of impairment losses recognized in prior years on FCC licenses in the United States operating segment. The partial reversal of impairment losses on FCC licenses previously acquired by T‑Mobile US increased the carrying amount of intangible assets by EUR 1.6 billion before deferred taxes. These FCC licenses were impaired as of September 30, 2012 following ad hoc impairment testing of the United States cash-generating unit. As the impairment of the FCC licenses related entirely to the PCS licenses, only these licenses are subject to the reversal of the impairment loss. Regular assessments had to be made in subsequent periods to determine whether the reasons for impairment still existed – in full or in part. The fair value less costs of disposal of the United States cash-generating unit derived from the share price of T‑Mobile US, which has been listed since 2013, has increased significantly over the last few years and exceeded its carrying amount. However, the reversal is limited to the lower of the recoverable amount of the impaired spectrum licenses determined by the fair value less costs of disposal on the one hand and the acquisition cost of these licenses on the other. An initial reversal of the impairment loss in the amount of EUR 1.7 billion (before deferred taxes) was recognized in the third quarter of 2017, which was indicated back then by the results of the 600 MHz spectrum auction completed in 2017.

The measurement of Sprint’s FCC licenses at fair value in connection with the purchase price allocation following the business combination of T‑Mobile US and Sprint effective April 1, 2020 indicated a further increase in the PCS licenses’ value. This triggered a remeasurement of the PCS licenses held by T‑Mobile US, which was performed by using a market approach. The value was calculated on the basis of Level 2 inputs in accordance with the fair value hierarchy under IFRS 13. The market approach on which the remeasurement was based drew on market prices from comparable auctions and secondary market transactions, as well as analyst estimates. Analyst estimates were used because they included estimated market values for the individual frequency ranges of mobile companies in the United States. These analyst estimates also covered T‑Mobile US’ PCS licenses. Transactions for PCS and AWS spectrum were included to the extent that they related to similar frequency ranges and a comparable population density. Multipliers were derived from these market prices for the price in U.S. dollars per MHz per member of the population (price per MHz/pop). Based on the bandwidth of observable multipliers, a multiplier of USD 1.84 per MHz/pop, derived from current analyst estimates and past transactions, was used to derive the fair value of T‑Mobile US’ PCS licenses. A recoverable amount of USD 18.1 billion (EUR 14.7 billion) was calculated from this for the FCC licenses previously impaired. Taking the carrying amount of USD 16.1 billion (EUR 13.1 billion) into account, a partial reversal of the impairment losses of USD 2.0 billion (EUR 1.6 billion) was recorded under other operating income.

Impairment loss recognized in connection with the realignment of the B2B telecommunications business in the Germany operating segment. As part of the realignment of the B2B telecommunications business, the assets and liabilities assigned to the relevant business areas were transferred to the Germany operating segment, primarily from the Systems Solutions and Europe operating segments. The goodwill previously allocated to the Systems Solutions and Telekom Global Carrier cash-generating units was thereby allocated in full to the telecommunications business being transferred to the Germany cash-generating unit. The realignment of the B2B telecommunications business in combination with the effects of the coronavirus pandemic triggered ad hoc impairment testing of the assets assigned to the Systems Solutions cash-generating unit, which identified a deterioration in the business outlook for IT operations. The result was the recognition of an impairment loss of EUR 470 million on non-current assets of the Systems Solutions cash-generating unit. The recoverable amount – determined as fair value less costs of disposal – was calculated at EUR -976 million, which is EUR 1,428 million lower than the carrying amount of the Systems Solutions cash-generating unit. The fair values of the individual assets were set as the lower limit for the amount of the impairment loss. EUR 299 million of the impairment loss recognized in the Systems Solutions operating segment related to intangible assets, and EUR 127 million to property, plant and equipment. Another EUR 44 million related to intangible assets in the Group Headquarters & Group Services segment that are subject to use by the Systems Solutions operating segment and are allocated to the Systems Solutions cash-generating unit for the purposes of impairment testing. An external expert opinion was obtained to determine the fair values of the individual assets. The value was calculated using Level 3 input parameters. A discount rate of 4.32 % was used.

For further information on the realignment of the B2B telecommunications business, please refer to Note 36 “Segment reporting.”

Agreed sale of Telekom Romania Communications. An ad hoc impairment test was also conducted at the Romania – Fixed network (Telekom Romania Communications S.A. (TKR)) and Romania – Mobile communications (Telekom Romania Mobile Communications S.A. (TKRM)) cash-generating units, which are assigned to the Europe operating segment. TKR operates the Romanian fixed-network business and TKRM the Romanian mobile communications business. Even though these two entities are essentially independent companies, each with their own commercial focus, the agreed sale of the fixed-network business has economic and strategic implications for the mobile business in Romania, which will remain in the Deutsche Telekom Group. For example, in the future, there will be no MVNO agreement between the two entities allowing TKR to offer FMC products to its own fixed-network customers. Furthermore, terminal equipment revenues that TKRM currently generates from sales to TKR as well as synergies arising from current joint procurement and sales activities will no longer be realized; at present, the two entities share shops, for example. Consequently, an ad hoc impairment test was conducted on TKRM’s assets, which resulted in the recognition of an impairment loss of EUR 160 million on TKRM’s non-current assets. The recoverable amount – determined as fair value less costs of disposal – was calculated at EUR 171 million, which is EUR 160 million lower than the carrying amount of TKRM. EUR 126 million of the impairment loss related to intangible assets and EUR 34 million to property, plant and equipment. An expert opinion was obtained to determine the fair values of the individual assets. The value was calculated using Level 3 input parameters. A discount rate of 7.78 % was used. No goodwill remained at the cash-generating unit Romania – Mobile communications. In the Romanian fixed-network business, the sale of TKR, planned since October 2020, resulted in a reversal of impairment losses recognized in the past on property, plant and equipment of EUR 50 million.

For further information, please refer to Note 7 “Property, plant and equipment.”

In the 2020 financial year, the carrying amount of goodwill in cash-generating units in the operating segments increased by EUR 7.4 billion to EUR 19.8 billion. This was the result of the following effects:

Germany operating segment. The increase in goodwill of EUR 1.2 billion compared with December 31, 2019 was mainly due to the transfer in full of the goodwill previously allocated to the Systems Solutions and Telekom Global Carrier cash-generating units completed in connection with the realignment of the B2B telecommunications business. In addition, the carrying amount of goodwill in the Germany cash-generating unit increased as a result of the acquisition of companies that overall are immaterial for the Germany operating segment.

United States operating segment. The increase in goodwill of EUR 7.6 billion compared with December 31, 2019 was due to an increase of EUR 8.7 billion from the business combination of T‑Mobile US and Sprint, which was reduced by EUR 1.1 billion due to exchange rate effects from the translation of U.S. dollars to euros. Further acquisitions of companies were immaterial for the United States operating segment.

For further information on the business combination of T‑Mobile US and Sprint, please refer to the section “Changes in the composition of the Group and other transactions.”

Europe operating segment. Changes in goodwill in the cash-generating units Poland, Hungary, Croatia, and the Czech Republic result from exchange rate effects. In Slovakia, recognized goodwill was reduced in 2020 by corporate transactions that were immaterial overall.

Group Development operating segment. The acquisition of 100 % of the shares in Complex Bidco. B.V. including its 100 % stake in the Dutch MVNO and SIM provider Simpel.nl B.V. resulted in intangible assets totaling EUR 138 million (including customer base and spectrum licenses) as well as goodwill of EUR 196 million in the Netherlands cash-generating unit at the acquisition date. The acquisition of Tele2 Netherlands in December 2019 resulted in identifiable intangible assets totaling EUR 455 million (including customer base and spectrum licenses) in addition to goodwill of EUR 109 million. The cell towers and roof-top sites of T‑Mobile Netherlands were divested to the then newly-created cash-generating unit T‑Mobile Infra B.V., with pro rata goodwill of EUR 259 million also being transferred to this unit at the same time. The intention, as of December 31, 2020, to sell T‑Mobile Infra B.V. resulted in a reclassification of assets to non-current assets and disposal groups held for sale and an associated decline in goodwill of EUR 259 million.

For further information, please refer to the section “Changes in the composition of the Group and other transactions.”

Disclosures on annual impairment tests. As of December 31, 2020, Deutsche Telekom carried out its annual impairment tests on the goodwill and intangible assets with an indefinite useful life (in particular, FCC licenses in the United States) assigned to the cash-generating units.

A need for a partial impairment of goodwill of EUR 26 million was identified in the Europe operating segment at the Montenegro cash-generating unit as of December 31, 2020 on the basis of information available at the reporting date and expectations with respect to the future development of the market and competitive environment. The need for impairment is primarily attributable to the difficult economic situation in Montenegro, which has been intensified by the coronavirus pandemic. As a result, the market has not developed as positively as originally assumed. Accordingly, an adjustment was made to the EBITDA planning to include additional need for investment, which will be reflected in lower future cashflows. The recoverable amount (prior to the deduction of net debt) for the Montenegro cash-generating unit was EUR 133 million as of December 31, 2020 (December 31, 2019: EUR 202 million). This amount was calculated on the basis of the value in use.

The recoverable amounts to be identified for the impairment tests were largely determined on the basis of the fair values less costs of disposal. With the exception of the United States cash-generating unit, these figures were calculated using a net present value approach. The main parameters are shown in the following table. The impairment test on goodwill as of December 31, 2019 did not result in any need for impairment in the cash-generating units.

The recoverable amounts at the cash-generating units Netherlands, Croatia, Montenegro, and North Macedonia were determined using the value in use. The market price of an active and liquid market (share price) of T‑Mobile US was used to determine the fair value less costs of disposal in the case of the United States cash-generating unit. The measurements of all other cash-generating units are founded on projections for a ten-year projection period that are based on financial plans that have been approved by management and are also used for internal purposes.

For further information on the determination of the recoverable amounts of the cash-generating units, please refer to the section “Summary of accounting policies – Accounting policies.”

The following tables provide an overview of the main factors affecting the measurement, the classification of the input parameters (levels) used to determine the recoverable amounts in accordance with IFRS 13, as well as the sensitivity calculations for the need for impairment resulting from a change in the main parameters discount rate, net cash flow, and growth rate. They show the most significant cash-generating units to which goodwill has been allocated.

The sensitivity analysis of the impairment losses lists all those cash-generating units where the sensitivity analysis resulted in an impairment loss or a change in the impairment loss. The sensitivity analysis was performed separately for each parameter, i.e., a change in the impairment charge on a cash-generating unit is only determined by reducing or increasing the parameter under consideration.

Deutsche Telekom had commitments for the acquisition of intangible assets in the amount of EUR 1.1 billion (December 31, 2019: EUR 0.4 billion) as of the reporting date. The majority of this related to commitments entered into by T‑Mobile US.