6 Intangible assets

The carrying amount of intangible assets increased by EUR 14.6 billion to EUR 132.6 billion, primarily due to the following effects: additions of EUR 13.8 billion, EUR 8.4 billion of which resulted from the acquisition of mobile spectrum in the United States operating segment, primarily in connection with the conclusion of the FCC C-band auction in the United States. T‑Mobile US purchased 142 licenses for EUR 7.8 billion (USD 9.3 billion) in the auction and made initial “relocation payments” of EUR 0.2 billion to relocate incumbent licensees. T‑Mobile US anticipates additional “relocation payments” of USD 1.0 billion (around EUR 0.9 billion), which will be paid out by 2024. In the Europe operating segment, licenses were purchased for a total value of EUR 0.3 billion. The 5G licenses acquired at auction in November 2020 by T‑Mobile Czech Republic were purchased in 2021 for EUR 0.1 billion. In Hungary, proceedings to re-award 900 and 1,800 MHz spectrum licenses were held on January 28, 2021 and concluded the same day. Magyar Telekom acquired spectrum licenses for EUR 0.1 billion. In addition, further spectrum licenses were acquired and rights to use spectrum were extended in Croatia and Romania. Exchange rate effects of EUR 8.3 billion, primarily from the translation of U.S. dollars into euros, and effects of changes in the composition of the Group of EUR 1.6 billion, mainly from the first-time inclusion of Shentel, acquired by T‑Mobile US, also increased the carrying amount. This also includes goodwill of EUR 0.9 billion arising from the transaction. The reclassification of assets worth EUR 2.4 billion to non-current assets and disposal groups held for sale reduced the carrying amount. These reclassifications mainly resulted from the agreed sale of T‑Mobile Netherlands and the agreed sale of the 50 % stake in GlasfaserPlus GmbH. The carrying amount was further reduced by amortization totaling EUR 6.5 billion and impairment losses of EUR 0.2 billion.

For further information on amortization and impairment losses, please refer to Note 27 “Depreciation, amortization and impairment losses.”

For further information on the aforementioned business combinations and the agreed sale of T‑Mobile Netherlands, please refer to the section “Changes in the composition of the Group and other transactions” under “Summary of accounting policies.”

In the 2021 financial year, the carrying amount of goodwill in cash-generating units in the operating segments increased by EUR 0.7 billion to EUR 20.5 billion. This was the result of the following effects:

Germany operating segment. In the Germany operating segment, goodwill decreased by EUR 0.1 billion to EUR 4.8 billion. As a consequence of the agreed sale of the 50 % stake in fiber-optic build-out company GlasfaserPlus GmbH 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 were disclosed in the consolidated statement of financial position as “held for sale.”

For further information on the fiber-optic build-out through the joint venture with IFM, please refer to the section “Changes in the composition of the Group and other transactions” under “Summary of accounting policies.”

United States operating segment. The increase in goodwill of EUR 1.7 billion compared with December 31, 2020 was due to an increase of EUR 0.9 billion from the acquisition of Shentel by T‑Mobile US, consummated on July 1, 2021. Exchange rate effects from the translation of U.S. dollars to euros also have an increasing effect. A further acquisition of a company was immaterial for the United States operating segment.

For further information on the acquisition of Shentel, please refer to the section “Changes in the composition of the Group and other transactions” under “Summary of accounting policies.”

Europe operating segment. Goodwill of the Austria cash-generating unit decreased by EUR 0.3 billion. As part of the transfer of the Austrian cell tower business from the Europe operating segment to GD Towers in the Group Development operating segment, the cell towers and roof-top sites were spun off to the newly created cash-generating unit Magenta Telekom Infra. Consequently, the carrying amount of the goodwill was also transferred on a pro rata basis. Changes in goodwill in the cash-generating units Poland, Hungary, Croatia, and the Czech Republic result from exchange rate effects.

Group Development operating segment. Goodwill in the Netherlands cash-generating unit decreased by EUR 0.9 billion on account of the agreed sale of T‑Mobile Netherlands. As of December 31, 2021, this item was recognized as “held for sale” in the consolidated statement of financial position. Goodwill in the Magenta Telekom Infra cash-generating unit, which was newly created in the 2021 financial year, increased by EUR 0.3 billion due to the transfer of the Austrian cell tower business.

For further information on the agreed sale of T‑Mobile Netherlands, please refer to the section “Changes in the composition of the Group and other transactions” under “Summary of accounting policies” and to Note 5 “Non-current assets and disposal groups held for sale and liabilities directly associated with non-current assets and disposal groups held for sale.”

Impairment losses in the Systems Solutions 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 at the start of the third quarter of 2020, 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 in the prior year 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 in the 2020 financial year 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.

Impairment losses recognized in the 2021 financial year on intangible assets and property, plant and equipment totaled EUR 0.2 billion. This was a consequence of several factors, including the ad hoc impairment testing carried out in the Systems Solutions cash-generating unit in the prior year and related to follow-up investments in the reporting year. In addition, despite the marginal improvement in the business outlook, the increase in the cost of capital in the reporting year prompted further impairment losses to be recognized on non-current assets in the Systems Solutions cash-generating unit at the end of 2021. The recoverable amount – determined as fair value less costs of disposal – was calculated at EUR 186 million, which is EUR 328 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. 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 6.22 % was used.

EUR 118 million of the total impairment losses recognized in the reporting year in the Systems Solutions operating segment related to intangible assets, and EUR 61 million to property, plant and equipment. Another EUR 21 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.

Reversal in 2022 of impairment losses recognized in prior years on FCC licenses in the United States operating segment. In the prior year, the partial reversal of impairment losses on FCC licenses previously acquired by T‑Mobile US increased the carrying amount 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 were 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 was 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 in 2020 of the PCS licenses held by T‑Mobile US, which was performed using a market value 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 in 2020 under other operating income.

Agreed sale of Telekom Romania Communications in 2020. An ad hoc impairment test was conducted in 2020 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 sale of the fixed-network business agreed in November 2020 had economic and strategic implications for the mobile business in Romania, which remains in the Deutsche Telekom Group. For example, since the sale of TKR on September 30, 2021, there is no longer an MVNO agreement between the two entities allowing TKR to offer FMC products to its own fixed-network customers. Furthermore, terminal equipment revenues that TKRM previously generated from sales to TKR, as well as synergies arising from joint procurement and sales activities, are no longer realized. Consequently, an ad hoc impairment test was conducted in 2020 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 2020, resulted in a reversal of impairment losses recognized in the past on property, plant and equipment of EUR 50 million. The sale of TKR was consummated on September 30, 2021.

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

Disclosures on annual impairment tests. As of December 31, 2021, 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.

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 (Level 1 measurement), these figures were calculated using the net present value method. The main parameters are shown in the following table. The impairment test on goodwill as of December 31, 2021 did not result in any need for impairment in the cash-generating units.

The recoverable amounts at the cash-generating units 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.

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 was primarily attributable to the difficult economic situation in Montenegro, which had 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 cash flows. 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.

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

The following table provides an overview of the main factors affecting the measurement and the classification of the input parameters (levels) used to determine the recoverable amounts in accordance with IFRS 13.

The sensitivity analyses for the need for impairment resulting from a change in the main parameters affecting measurement did not result in any need for impairment for any cash-generating unit to which goodwill is allocated. Changes of plus or minus 50 basis points in the discount rate and in the sustainable growth rate, and of 5 percentage points in net cash flows, were each analyzed separately.

Deutsche Telekom had commitments for the acquisition of intangible assets in the amount of EUR 2.0 billion (December 31, 2020: EUR 1.1 billion) as of the reporting date. The majority of this related to commitments entered into by T‑Mobile US.

Expenditure on research and development recognized as an expense by Deutsche Telekom amounted to EUR 32.5 million in the reporting year (2020: EUR 33.1 million).