Our financial reporting aligns with our Group strategy and 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 business activities for consumers and business customers, including separate sales entities in Germany to allow a customer-centric sales approach. As a pioneer of digitalization, the segment offers its customers a tailored service and product portfolio that is designed to be innovative while at the same time secure and simple. The Germany operating segment also focuses on the wholesale business to provide telecommunications services for carriers. 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 this segment.
Our United States operating segment combines all mobile activities in the U.S. market. T‑Mobile US provides service, devices, and accessories across its flagship brands. In addition, we sell devices to dealers and other third-party distributors for resale. T‑Mobile US is the second largest provider (customer related) in the United States. The positive business development has been built on the back of the various Un-carrier initiatives launched in the last few years. T‑Mobile US also supercharged upon completion of the business combination with Sprint on April 1, 2020. As the supercharged Un-carrier, T‑Mobile US is on a mission to build America’s best 5G network, offering customers unrivaled coverage and capacity. We also offer a wide selection of wireless devices, including smartphones, wearables, tablets, and other mobile communication devices, which are manufactured by various suppliers. T‑Mobile US also provides products that are complementary to its wireless communications services, including device protection, high-speed internet, and wireline communication services.
Our Europe operating segment comprises all fixed-network and mobile operations of the national companies in Greece, Hungary, Poland, the Czech Republic, Croatia, Slovakia, Austria, North Macedonia, and Montenegro. We are an integrated provider of telecommunications services in these countries. With the approval of the responsible authorities, on September 30, 2021 OTE consummated the sale of its 54 % stake in Telekom Romania Communications to Orange Romania. Consequently, our focus in Romania is on mobile operations. Besides traditional B2C fixed-network and mobile business, most of our national companies also offer ICT solutions for business customers.
As a leading provider of IT services to businesses in German-speaking countries, our Systems Solutions operating segment offers a focused B2B product and solution portfolio under the T‑Systems brand. With its horizontal offerings for advisory services, cloud computing, and digitalization solutions, T‑Systems addresses the most attractive growth areas in the information technology market. Data sovereignty and security solutions are at the core of the product options, supplemented with strategic partnerships. Focused vertical offerings penetrate deep into the value chains of selected industries (automotive, healthcare, public sector, and transportation). We have been implementing a comprehensive transformation program since 2018, part of which has been to realign both our organization and our workflows, and make adjustments to our capacities. We now have four portfolio units: Cloud Services (Public Cloud, SAP AO, Managed Infrastructure Services & Private Cloud), Digital Solutions (including SAP SI), Security, and Advisory (with Detecon as an integrated consulting provider). The Road Charging portfolio unit was hived off as Road User Services GmbH to ease the path to local partnerships.
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 within the Group Development segment. Following the sale of the Dutch cell tower business in the reporting year, GD Towers has exclusively looked after the German and Austrian cell tower businesses since the second quarter of 2021. On September 6, 2021, we signed an agreement to sell T‑Mobile Netherlands. The transaction is expected to be completed in the first quarter of 2022. The investment management group DTCP; Comfort Charge, which is a provider of e-mobility charging infrastructure; and the Group functions of Mergers & Acquisitions and Strategic Portfolio Management are also assigned to Group Development.
Group Headquarters & Group Services comprises all Group units that cannot be allocated directly to one of the operating segments, and also reports on our Board of Management department for Technology and Innovation. As the organization that sets the direction and provides impetus, 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. It is in charge of securing external employment opportunities for employees, predominantly in the public sector. Further units are Group Supply Services (GSUS) for our real estate management and our strategic procurement, and Telekom 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, IT, and security functions of our Germany, Europe, and Systems Solutions operating segments. These include Deutsche Telekom IT, which focuses on the Group’s internal 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, voicification, virtualization, and cloud services. Our Innovation Hub (IHUB) pools all of the expertise required for future innovation projects in an agile working environment to ensure we stay flexible and innovative. In the newly created Technology Delivery International (TDI) unit, we pool expertise to position ourselves as a strong partner to the technology units in our national companies and develop, produce, operate, and scale platforms and services across borders from a single source. In the reporting year this still included International Technology and Service Delivery (ITS), which harmonizes the planning, development, and operation of products, services, and platforms across our national companies in Europe taking account of technological and commercial aspects. Strategy & Technology Innovation (S&TI) ensures efficient and customer-centric research and innovation with a focus on mobile and fixed-network communications. Group Security (GSC) is responsible for developing and transforming the Group-wide security strategy.
Changes to the segment and organizational structure in 2021
In the reporting year, the following changes and/or additions to the segment structure were recorded from the Group’s point of view:
Strategic measures to secure control of T‑Mobile US in the long term. On September 6, 2021, Deutsche Telekom took strategic action to increase its stake in T‑Mobile US in a move that secures the existing control over the U.S. subsidiary and full consolidation in the long term:
Under the deal signed between Deutsche Telekom and SoftBank Group (SoftBank) on September 6, 2021, the objective of which is to increase Deutsche Telekom’s stake in T‑Mobile US, Deutsche Telekom acquired a total of around 45.4 million T‑Mobile US shares from SoftBank. To this end Deutsche Telekom exercised, on September 23, 2021, a portion of the stock options it had received from SoftBank in June 2020 to purchase shares in T‑Mobile US. SoftBank received in return 225 million new shares in Deutsche Telekom AG from the 2017 Authorized Capital, excluding subscription rights for existing shareholders. The capital increase against contribution in kind amounted to EUR 576 million. The capital increase of Deutsche Telekom AG was carried out with effect upon entry into the commercial register on September 28, 2021. As a result of this transaction, SoftBank has become a shareholder in Deutsche Telekom AG with around 4.5 % of the outstanding shares. In connection with the exercise of the existing stock options, the weighted average price for the total around 45.4 million T‑Mobile US shares acquired as part of this share swap calculates to around USD 118 per T‑Mobile US share. For the 225 million Deutsche Telekom shares that were received by SoftBank and which are subject to a lock-up until 2024, the two companies agreed a value of EUR 20 per share. This capital increase against contribution in kind brings the number of outstanding shares of Deutsche Telekom AG up from 4,761 million shares to 4,986 million shares. Upon its completion, the transaction raised Deutsche Telekom’s stake in T‑Mobile US by 3.6 percentage points to 46.8 %. The percentage of T‑Mobile US shares for which Deutsche Telekom can exercise voting rights, including an agreement concluded with SoftBank in connection with the acquisition of Sprint, amounted to 52.0 % as of December 31, 2021. The aim is to support SoftBank in their efforts to take a seat on Deutsche Telekom AG’s Supervisory Board. Deutsche Telekom and SoftBank have also agreed a new strategic partnership that will position Deutsche Telekom as a major European partner in the SoftBank ecosystem.
Deutsche Telekom is also weighing plans to invest up to USD 2.4 billion (around EUR 2.1 billion) of the proceeds from the planned sale of T‑Mobile Netherlands, which was agreed on September 6, 2021, to exercise further fixed-price and variable stock options to purchase T‑Mobile US shares. These depend, in half, on the average share price of T‑Mobile US, and a fixed price has been set for the other half. This would further increase Deutsche Telekom’s stake in T‑Mobile US by approximately 1.6 percentage points, depending on the number of shares to be acquired. Deutsche Telekom expects its total stake to be around 48.4 % upon completion of these two transactions.
For further information on the agreed sale of T‑Mobile Netherlands, please refer to the section “(Expected) changes to the segment and organizational structure in 2022.”
Acquisition of Shentel. On May 28, 2021, a purchase agreement was signed between T‑Mobile US and Shenandoah Personal Communications Company (Shentel) – a local provider of mobile network products in certain regions of some U.S. states – for the acquisition of assets and liabilities directly associated with the wireless telecommunications operation of Shentel. The transaction was consummated on July 1, 2021 after obtaining the necessary approvals from the regulatory authorities and satisfying the other closing conditions. The purchase price was USD 1.9 billion (EUR 1.6 billion).
Sale of Telekom Romania Communications. On November 6, 2020, OTE concluded an agreement with Orange Romania concerning the sale of its 54 % stake in Telekom Romania Communications (TKR) – at the time assigned to the Europe operating segment – which operates the Romanian fixed-network business, to Orange Romania. The transaction was approved by the authorities and then consummated on September 30, 2021. The purchase price is EUR 296 million. The net gain on deconsolidation resulting from the sale is immaterial from a Group perspective. TKR’s 30 % stake in Telekom Romania Mobile Communications was acquired by OTE on September 9, 2021 as previously agreed for a purchase price of EUR 59 million.
Combination of the cell tower business in the Netherlands and creation of an infrastructure fund. On January 21, 2021, Deutsche Telekom, Cellnex Telecom (Cellnex), the newly established independently managed investment company Digital Infrastructure Vehicle II (DIV), and others signed an agreement to merge Deutsche Telekom’s and Cellnex’s respective Dutch subsidiaries for passive mobile infrastructure into Cellnex Netherlands (Cellnex NL). Following approval of the deal by the national competition authority, the Dutch cell tower company T‑Mobile Infra – at the time assigned to the Group Development operating segment – was sold to DIV effective June 1, 2021 and subsequently contributed into Cellnex NL. Deutsche Telekom received cash proceeds of EUR 0.4 billion. The gain on disposal of EUR 0.3 billion breaks down as follows: EUR 0.2 billion was included in other operating income in the reporting year and EUR 0.1 billion will be recognized pro rata in subsequent periods through the sale-and-leaseback transactions described below. Immediately prior to the sale, T‑Mobile Infra also paid Deutsche Telekom AG a dividend of EUR 0.3 billion. Deutsche Telekom obtained a 37.65 % stake in the new Cellnex NL, which is indirectly included in the consolidated financial statements through the investment in DIV and accounted for using the equity method. T‑Mobile Netherlands will continue to have full access to the contributed passive mobile infrastructure by means of a long-term agreement at arm’s length conditions. The lease component included in the agreement fulfills the conditions of a sale-and-leaseback transaction. Right-of-use assets in the amount of EUR 0.3 billion and lease liabilities in the amount of EUR 0.4 billion were recognized in this context as of June 1, 2021.
Reassignment of the Internet of Things (IoT) growth area. Effective January 1, 2021, Deutsche Telekom reassigned the responsibility for business and profit and loss for Deutsche Telekom IoT GmbH from the Systems Solutions operating segment to the B2B unit in the Germany operating segment. The Group subsidiary is responsible for the IoT business of Deutsche Telekom. This reassignment puts us in a position to serve the IoT market more quickly and thus to strengthen Deutsche Telekom’s position on this growth market. Prior-year comparatives in both of the segments affected (development of operations, customer development, headcount development, and order entry) were adjusted retrospectively.
Transfer of the Austrian cell tower business. As of January 1, 2021, Deutsche Telekom transferred its Austrian cell tower business from the Europe operating segment to GD Towers in the Group Development operating segment to enhance efficiency in the management of the cell tower business. In addition, GD Towers will increase its efforts to expand third-party business, increase profitability, and develop growth areas. Prior-year comparatives in both of the segments affected have not been adjusted.
Reorganization of DT IT. As of January 1, 2021, Deutsche Telekom IT (DT IT) Russia, DT IT Slovakia, and DT IT Hungary were reassigned from the Germany operating segment to the Group Headquarters & Group Services segment. Prior-year comparatives in both of the segments affected have not been adjusted.
(Expected) changes to the segment and organizational structure in 2022
Agreed sale of T‑Mobile Netherlands. On September 6, 2021, Deutsche Telekom and Tele2 agreed to sell our subsidiary T‑Mobile Netherlands, which is assigned to the Group Development operating segment – to WP/AP Telecom Holdings IV, a private equity consortium advised by Apax Partners and Warburg Pincus. The transaction brings to a close the review of strategic options regarding T‑Mobile Netherlands announced at the Capital Markets Day 2021. The preliminary sale price is based on an enterprise value of EUR 5.1 billion. The cash proceeds – based on our shareholding of 75 % – are expected to be around EUR 3.8 billion. Deutsche Telekom is weighing plans to invest a portion of the cash proceeds from the sale to further increase its stake in T‑Mobile US. The transaction is subject to approval by the authorities as well as other closing conditions. The assets and liabilities of T‑Mobile Netherlands as of December 31, 2021 are reported in our consolidated statement of financial position as “held for sale.” The transaction is expected to be completed in the first quarter of 2022.
Fiber-optic build-out through joint venture with IFM. On November 5, 2021, Deutsche Telekom announced that IFM Global Infrastructure Fund – advised by IFM Investors – will acquire a stake of 50 % in GlasfaserPlus GmbH, a fiber-optic build-out entity. The agreed purchase price for the 50 % stake in the subsidiary, which is assigned to the Germany operating segment, amounts to EUR 0.9 billion, half of which is to be settled upon conclusion of the transaction, and the remainder once progress has been made in the build-out. The newly established joint venture is to build out an additional 4 million gigabit-capable FTTH lines in rural and development areas between 2022 and 2028. This transaction underpins Deutsche Telekom’s aim of being the leading company for the fiber-optic build-out in Germany. As a consequence of the agreed sale of the 50 % stake in the company and the concomitant future loss of control of the company on completion of the transaction, the assets and liabilities of GlasfaserPlus as of December 31, 2021 are recognized in the consolidated statement of financial position as “held for sale.” On completion of the transaction, the stake in the joint venture will be included in the consolidated financial statements using the equity method. Following its approval by the European Commission on January 25, 2022, the transaction is expected to be completed before the end of the first quarter of 2022.