36 Segment reporting

Deutsche Telekom reports on five operating segments, as well as on the Group Headquarters & Group Services segment. Three operating segments are distinguished by region (Germany, United States, Europe), one by customers and products (Systems Solutions), and another by tasks (Group Development). For three operating segments, business activities are assigned by customer and product (Germany, Systems Solutions, United States), while one operating segment allocates its activities on a regional basis (Europe) and another allocates them by equity investment (Group Development).

The Germany operating segment comprises all fixed-network and mobile business activities for consumers and business customers, including separate sales entities in Germany to allow a customer-centric sales approach. Consistent with our efforts to implement our Group strategy pillar “Lead in business productivity,” the business-to-business (B2B) telecommunications services were realigned in the course of the year. To this end, TC Services and Classified ICT (with the exception of a few activities in the area of Classified IT project business), portfolio units previously assigned to the Systems Solutions operating segment, as well as Telekom Global Carrier (TGC) and Network Infrastructure, (NWI) – which were previously reported under the Europe operating segment and the Group Headquarters & Group Services segment and which together form the business area designated as Deutsche Telekom Global Carrier (DTGC) – have been combined under the Germany operating segment. Effective the start of the third quarter of 2020, the management of the Deutsche Telekom Group and hence also the reporting structure were both based on this new segment allocation. As part of these transactions, the assets and liabilities assigned to the business areas were transferred to the Germany operating segment. Prior-year comparatives in the segments affected have been adjusted retrospectively in segment reporting. The transactions were consummated under company law on July 1, 2020 (TC Services and Classified ICT) and on October 1, 2020 (DTGC). Another focus is on the wholesale business providing telecommunications services for carriers and the Group’s other operating segments. The United States operating segment comprises all mobile activities in the U.S. market. The business combination of T‑Mobile US and Sprint was completed on April 1, 2020, forming the all-new, larger T‑Mobile US. The 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. On November 6, 2020, OTE concluded an agreement with Orange Romania concerning the sale of the 54 % stake in Telekom Romania Communications, which operates the Romanian fixed-network business. The national company in Albania was sold as of May 7, 2019. In addition to consumer business, most of the national companies also offer ICT solutions for business customers. The Systems Solutions operating segment offers business customers an integrated product and solution portfolio. With offerings for connectivity, digital solutions, cloud and infrastructure, and security, in addition to strategic partnerships, the segment offers its customers help and guidance to implement digital business models. The goal of the Group Development operating segment is to actively manage entities and equity investments to grow their value. This approach led to the creation of GD Towers – comprising Deutsche Funkturm (DFMG) and the Dutch cell tower business – within the Group Development segment. Following the integration of Tele2 Netherlands as of the start of 2019, the Dutch MVNO and SIM provider, Simpel, was taken over effective December 1, 2020. Deutsche Telekom Capital Partners (DTCP) and the Group functions of Mergers & Acquisitions and Strategic Portfolio Management have also been assigned to Group Development. The stake in Ströer SE & Co. KGaA was transferred to Deutsche Telekom Trust e.V. in August 2019 as plan assets to cover Deutsche Telekom’s existing pension obligations. The Group Development operating segment also included the 12 % financial stake in BT until March 23, 2018, when it was transferred to Deutsche Telekom Trust e.V. as plan assets. The Group Headquarters & Group Services segment comprises all Group units that cannot be allocated directly to one of the operating segments and also reports on the Board of Management department Technology and Innovation. It unites the cross-segment functions of technology, innovation, IT, and Security of the Germany, Europe, and Systems Solutions operating segments. 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 the placement services of personnel services provider Vivento. Further units are Group Supply Services (GSUS) for real estate management and strategic procurement, and MobilitySolutions, which is a full-service provider for fleet management and mobility services.

The business segments shown are reviewed at regular intervals by the Deutsche Telekom Board of Management in terms of the allocation of resources and their earnings performance.

The measurement principles for Deutsche Telekom’s segment reporting structure are based primarily on the IFRSs adopted in the consolidated financial statements. Deutsche Telekom evaluates the segments’ performance based on revenue and profit or loss from operations (EBIT), among other factors. Revenue generated and goods and services exchanged between segments are calculated on the basis of market prices. Services provided by Deutsche Telekom IT are generally charged at cost. Development services are not charged, but capitalized at segment level in accordance with the internal control logic. In accordance with the segments’ control logic, intragroup leases are not capitalized by the lessee, but instead recognized as periodic expenses. Segment assets and liabilities include all assets and liabilities that are carried in the financial statements prepared by the segments and included in the consolidated financial statements. Segment investments include additions to intangible assets, property, plant and equipment, and right-of-use assets. Where entities accounted for using the equity method are directly allocable to a segment, their shares of profit or loss after income taxes and their carrying amounts are reported in that segment’s accounts. All of the performance indicators shown in the following tables are presented exclusively from the segments’ perspective: The effects of intersegment transactions are eliminated and presented in aggregate form in the reconciliation line. The following table shows the performance indicators used by Deutsche Telekom to evaluate the operating segments’ performance as well as additional segment-related indicators:

Information on geographic areas. The Group’s non-current assets and net revenue are shown by region: Germany, Europe (excluding Germany), North America, and other countries. The North America region comprises the United States and Canada. The Europe (excluding Germany) region covers the entire European Union (excluding Germany) and the other countries in Europe. Other countries include all countries that are not Germany or in Europe (excluding Germany) or North America. Non-current assets are allocated to the regions according to the location of the assets in question. Non-current assets encompass intangible assets; property, plant and equipment; right-of-use assets, capitalized contract costs; investments accounted for using the equity method; as well as other non-current assets. Net revenue is allocated according to the location of the respective customers’ operations.

Information on products and services. Revenue generated with external customers for groups of comparable products and services developed as follows: