Letter from the Chairman of the Board of Management
Dear friends of the Company,
2021 was no easy year for Deutsche Telekom and its employees. The coronavirus has an impact on every part of our daily lives. Our social lives are still overwhelmingly dominated by the pandemic. Our opportunities for social interaction remain limited. The handling of the pandemic has been, and continues to be, full of ups and downs. In summer, we were all glad to be able to return to the office. But as we approached the year-end, we faced the sobering news of a renewed government order on working from home due to rising case numbers.
After so many months of restrictions, it is truly difficult, but we must continue to protect ourselves and the people around us from infection and severe illness by keeping social contact to a minimum and ensuring we are vaccinated.
We were all shaken in 2021 by the catastrophic flooding across parts of North Rhine-Westphalia and Rhineland-Palatinate in mid-July. More than 130 people lost their lives to the severe storms. We offer our deepest condolences to their families and loved ones. Countless more people were hit hard by the events. Houses and entire streets were washed away overnight by the flood waters and debris, wiping out the livelihood of thousands in a matter of minutes.
The sheer scale of the destruction is still visible today. The people affected are facing a clean-up operation of unprecedented dimensions. I saw first-hand the devastation wrought by nature on the affected regions and the extent of the damage caused to private property and to infrastructure. Those images have stayed with me.
It makes me truly proud to see what employees of Deutsche Telekom have achieved under these circumstances. We were on the ground the night of July 15, helping people in the flooded regions. With dedication, compassion, and unbureaucratic support. In the initial wake of the disaster, we donned backpacks and walked the Ahr valley on foot, handing out spare batteries and cell phones. We are still there today, helping where we can. Showing once again that Deutsche Telekom is especially strong in crisis situations. That people can count on us. My thanks go to all colleagues who contributed for their incredible support.
Deutsche Telekom will continue to support people with their rebuilding efforts in the disaster-struck regions. By doing what we do best: Building networks. Restoring infrastructure. Connecting the unconnected. Connecting people. We will stay on site for as long as it takes. We won’t stop until everyone is (re-)connected and can #takepart again.
Let’s now take a look at the current situation at our Company. First and foremost: We continue our growth course. 2021 was another record year for Deutsche Telekom!
We hit a further milestone in terms of net revenue: After passing the 100-billion-euro mark in the prior year, we gained considerable momentum again in 2021. Our net revenue increased by 7.7 % to EUR 108.8 billion. We also grew organically, i.e., assuming constant exchange rates and a comparable composition of the Group, with a revenue increase of 4.5 %. We thus exceeded our targets and ended the year with a clear message. You could also say we gained ourselves a permanent spot in the Champions League of global telecommunications providers.
In the United States, in our European subsidiaries, and in the German domestic market, we further increased our revenues and posted higher earnings. Adjusted EBITDA AL was up 6.6 %. Free cash flow AL increased by 40.1 % and was thus well into the double-digit growth range. The reasons for these encouraging trends are many and varied.
In the United States, we are making huge strides with realizing the synergies from the merger with Sprint. Today, the employees of two former rival companies work shoulder to shoulder to become the number 1 on the most important mobile communications market worldwide. That is a huge motivation. In 2021, the new T‑Mobile US reached a landmark on its journey to the top by taking over the #2 spot in the United States to position itself between the incumbents Verizon and AT&T. The decisive factor in this: More and more people are choosing a contract with T‑Mobile US – 5.5 million in the reporting year. That’s a new record.
One reason customers choose T‑Mobile US is its 5G network, the best in the country. More than 210 million people can use incredibly fast Ultra Capacity 5G in the 2.5 GHz band. Including the lower band frequencies, T‑Mobile US’ 5G network reaches 94 % of the population in the United States. This by far largest network is also the best basis for continuing to write our success story.
Our plan is to achieve the majority shareholding in T‑Mobile US, which will secure us long-term control over the company. The purchase of 45 million T‑Mobile US shares from SoftBank was a first step in this direction, and brought us closer to our target stake of over 50 %. It also made SoftBank a major shareholder of Deutsche Telekom AG which is testament to the confidence the world’s biggest tech investor has in us. SoftBank sees the vast potential of our share, which is why it has approved the takeover of 225 million shares valued at EUR 20 per share. Going forward, both companies are also set to further intensify their collaboration with a strategic partnership.
For a long time, our ambition was to become the leading European telco. We achieved this goal, reigning uncontested for several years. Today, our stock market value is almost as high as that of Vodafone, Telefónica, and Orange combined. But our industry is changing at a rapid pace. New competitors, like satellite provider Starlink or cloud-based telecommunications provider Rakuten, are challenging our established business model. In parallel, the Silicon Valley internet giants are bringing connectivity solutions to market that work independently of our networks. On top of this, we face growing competition in terms of infrastructure from independent cell tower operators and alternative fiber-optic providers.
Our response to these changes is to set ourselves a new strategic goal: Deutsche Telekom wants to become the world’s leading digital telco. We offer our customers tailored products that they can easily put into operation and configure intuitively. And we enable seamless connectivity. Whether customers are mobile consumers, businesses, or Netflix viewers – everyone will receive the best offerings customized to their individual needs.
But there is also far more to being the leading digital telco: For instance, it is about developing software solutions that enhance the flexibility of our products and make them faster to deploy. It is about recognizing and leveraging growth opportunities beyond our core business. It is about migrating information and network technology to the cloud for greater efficiency of operation. It is about better utilizing economies of scale. It is about integrating data analytics and artificial intelligence even deeper to benefit our customers. It is about optimizing our portfolio through targeted acquisitions and disposals to raise our value. And it is about living up to our responsibility to combat climate change by exploiting the potential of the digital transformation. In short: There is much to do if we are to become the world’s leading digital telco.
The foundation for this profound change is already in place: Worldwide, almost 300 million people place their trust in Deutsche Telekom. We have just under 250 million mobile customers, plus over 26 million fixed-network lines and 21 million broadband lines.
How do we attract so many people to our products and services? By offering them the best networks. With the highest connection quality accompanied by outstanding service. To this end, our capital expenditure was again at record level in 2021: we poured some EUR 18.0 billion largely into our global infrastructure, EUR 5.5 billion of this in Germany alone. We consider the build-out of our networks to be an integral part of our responsibility to society. Our investments play a vital role in the successful digital transformation. But investments also need to pay off for the companies making them.
Against this backdrop, I take a positive view of the signals sent by policymakers in late 2021 in connection with the network build-out. For one, the idea of moving away from spectrum auctions towards the distribution of frequencies. For another, the proposal to forgo the ex ante regulation of prices for fiber-optic lines on competitor infrastructure and instead to leave them to the free market. Both steps will free up billions in investment leeway for the entire industry. Both steps send the right signals for more digital participation in Germany.
In 2021, our technicians and engineers did a fantastic job of bringing us closer to this goal. We once again doubled the number of FTTH lines (Fiber To The Home) rolled out compared to the prior year, from around 600,000 lines in 2020 to around 1.2 million households passed by our fiber-optic network in 2021. For 2022, we are set to roll out 2 million new FTTH lines, climbing to 2.5 million a year on average in the years to follow. The decisive levers in this regard are our Fiber Factory, a separate entity with over 13,000 colleagues focusing exclusively on the fiber-optic build-out, our T-Cars with their state-of-the-art digital land surveying software, and our smart GGS building and planning tool.
We have forged numerous partnerships for the digitalization of Germany. But we are also willing to strike out in new directions. That is why we are establishing the joint venture GlasfaserPlus together with Australian investor IFM. With GlasfaserPlus, we plan to connect 4 million households Germany-wide to our fiber-optic network by 2028. And to be clear: these 4 million lines are on top of Deutsche Telekom’s own build-out schedule. In total, we want to make 12 million FTTH lines available outside of metropolitan areas.
GlasfaserPlus will build these lines primarily in rural areas. More specifically, in towns and municipalities with fewer than 20,000 inhabitants. The company intends to enable over 100,000 fiber-optic lines in the current year. Given the high financial burden involved, we are convinced that choosing a number of different options to realize the fiber-optic build-out is the right way forward.
We stand by our stated target in terms of nationwide fiber-optic coverage for Germany: By 2030, all households and businesses in Germany are to have an FTTH line. GlasfaserPlus will make an important contribution to reaching this goal. But building a nationwide FTTH network is a mammoth task, and one we cannot achieve singlehandedly even with the support of our joint venture. Our competitors must also do their bit.
Our colleagues from other parts of our Company also set new records in 2021. Take our brand value, for example: Today, our magenta “T” is more valuable than ever before. According to market research institute Brand Finance, it is worth USD 51.1 billion. This moves us into 17th place on the global ranking, up from 23rd in 2020. We are one of Germany’s two most valuable brands, second only to Mercedes, and more valuable than international giants such as Disney and AT&T. It makes us extremely proud to be a central fixture of the big league.
This is also reflected in our appeal to global tech pioneers as a cooperation partner. Google’s parent company Alphabet has entered into a long-term partnership with us on a new B2B messaging service, new functions for our premium product MagentaTV One, and more besides. Such a partnership of equals would not have been possible just a few years ago.
The bottom line is this: Our results are outstanding, 2021 was yet another record year for our Company. We delivered. We have laid the important strategic groundwork for our ongoing development. We are financially stronger than at any time in our history. That is all thanks to the over 200,000 Deutsche Telekom employees worldwide.
Our outlook for the coming years remains optimistic. As we announced at last year’s Capital Markets Day, we want to increase revenue in the years 2021 through 2024 by 1 to 2 % on average. Adjusted EBITDA AL is expected to grow on average by 3 to 5 % a year in the same period, and free cash flow on average by around 10 % a year to over EUR 18 billion in 2024. Adjusted earnings per share is to increase to more than EUR 1.75, from EUR 1.22 in 2021.
We also want you to benefit from the success of the financial year just ended. That’s why we are proposing a dividend of EUR 0.64 per dividend-bearing share for 2021 – subject, as always, to approval by the relevant bodies and the fulfillment of other legal requirements.
On a personal note, I would like to finish by saying how delighted I am to have the Supervisory Board’s trust: they have extended my contract ahead of schedule by a further five years. What motivates me above all else is the feedback that reached me from within the Company in this context. Together with our employees I will continue to strive daily to ensure that Deutsche Telekom reaches its goals. And that we transform ourselves into the world’s Leading Digital Telco.