6 Intangible assets

The carrying amount of intangible assets increased by EUR 8.0 billion to EUR 140.6 billion, mainly due to additions of EUR 8.8 billion, EUR 2.9 billion of which related to the acquisition of mobile spectrum and resulted almost entirely from the licenses acquired at the FCC Auction 110 in the United States. Another EUR 0.3 billion related to advance payments and intangible assets under development in connection with FCC Auction 108. The licenses acquired have yet to be assigned by the FCC. Exchange rate effects, primarily from the translation of U.S. dollars into euros, also increased the carrying amount by EUR 6.8 billion. Positive effects from changes in the composition of the Group contributed EUR 0.1 billion to the increase in the carrying amount, while amortization and impairment losses of EUR 6.9 billion reduced it. This includes impairment losses of EUR 0.2 billion. The reclassification of assets worth EUR 0.6 billion to non-current assets and disposal groups held for sale also reduced the carrying amount. These relate to the agreements on the sale of the Group’s cell tower business in Germany and Austria (GD tower companies) and of the wireline business in the United States. Disposals decreased the carrying amount by EUR 0.1 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 transactions, please refer to the section “Changes in the composition of the Group and other transactions” under “Summary of accounting policies.”

Deutsche Telekom had commitments for the acquisition of intangible assets in the amount of EUR 5.4 billion (December 31, 2021: EUR 2.0 billion) as of the reporting date. The majority of this related to commitments entered into by T‑Mobile US.

For further information, please refer to Note 41 “Other financial obligations.”

Expenditure on research and development recognized as an expense by Deutsche Telekom amounted to EUR 30.3 million in the reporting year (2021: EUR 32.5 million).

Impairment losses recognized in the 2022 financial year on intangible assets, property, plant and equipment, and right-of-use assets totaled EUR 1.2 billion (2021: EUR 0.3 billion). This was the result of the following effects:

Impairment losses on non-current assets in the United States operating segment. In the second quarter of 2022, T‑Mobile US decommissioned the former Sprint’s 3G CDMA network and began switching off the former Sprint’s 4G LTE network, which was completed in the third quarter of 2022. Until now, the operation of these networks has been supported by Sprint’s own fiber-optic-based wireline network. The assets of this wireline network, which mainly comprise land and buildings, communication systems and network technology, fiber-optic cable equipment and right-of-use assets, therefore had to be grouped together with the mobile assets for the purposes of the impairment test and were thus part of the United States cash-generating unit. Due to the decommissioning of Sprint’s mobile networks, the assets of Sprint’s fiber-optic-based wireline network now generate cash inflows independently of the assets of the mobile business. As such, they are no longer assigned to the United States cash-generating unit. This resulted in an ad hoc impairment test of the fiber-optic-based wireline assets as of June 30, 2022. The fair value of the assets was determined using the combination of cost, income, and market-value-based approaches, including assumptions of the market participants. The value was calculated using Level 3 input parameters. A discount rate of 7.5 % was used. The recoverable amount of the assets, calculated as fair value less costs of disposal, was EUR 452 million below the carrying amount and stood at EUR 649 million. EUR 228 million of the impairment loss recognized in this connection related to property, plant and equipment, EUR 201 million to right-of-use assets, and EUR 23 million to intangible assets.

On September 6, 2022, T‑Mobile US reached an agreement with Cogent on the sale of the fiber-optic-based wireline business of the former Sprint. The sale price is USD 1 and is subject to customary adjustments laid down in the purchase agreement. As a result of the purchase agreement concluded, the assets of the wireline business were reclassified as of September 30, 2022 to non-current assets and disposal groups held for sale. This required a remeasurement of these assets at the lower of carrying amount and fair value based on the purchase price less costs of disposal, which resulted in an impairment loss of EUR 375 million as of the date of the reclassification. EUR 300 million of the impairment loss related to property, plant and equipment, EUR 71 million to right-of-use assets, and EUR 4 million to intangible assets.

Impairment losses on non-current assets in the Systems Solutions operating segment and in the Group Headquarters & Group Services segment. In the 2022 financial year, impairment losses on intangible assets and property, plant and equipment totaling EUR 144 million were recognized in the Systems Solutions cash-generating unit. These related to follow-up investments in connection with assets previously impaired in the 2020 and 2021 financial years. Furthermore, despite the business outlook remaining positive, the substantial increase in the cost of capital in the reporting year prompted further impairment losses to be recognized on non-current assets at the end of 2022. The recoverable amount – determined as fair value less costs of disposal – was calculated at EUR 478 million, which is EUR 351 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 8.42 % was used. EUR 86 million of the impairment loss recognized in this connection in the Systems Solutions operating segment related to intangible assets, and EUR 24 million to property, plant and equipment. Another EUR 33 million related to intangible assets recognized 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.

In the 2021 financial year, impairment losses on intangible assets and property, plant and equipment totaling EUR 200 million were recognized. 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. Despite the marginal improvement in the business outlook, the increase in the cost of capital in the financial 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 impairment loss recognized in this connection 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.

Impairment losses on non-current assets in the Europe operating segment (Romania). In the 2022 financial year, impairment losses on intangible assets and property, plant and equipment totaling EUR 117 million were recognized. These related to the Romania cash-generating unit, which operates in the structurally challenging and highly competitive Romanian market. In addition, high energy prices and sharp rises in interest rates had a negative impact on the enterprise value. The value in use was calculated at EUR 41 million, which is EUR 116 million lower than the carrying amount of the cash-generating unit. A discount rate of 9.48 % was used. EUR 85 million of the impairment loss related to property, plant and equipment and EUR 32 million to intangible assets.

In the 2022 financial year, the carrying amount of goodwill in cash-generating units in the operating segments increased by EUR 0.1 billion to EUR 20.6 billion. This was the result of the following effects:

United States operating segment. The increase in goodwill of EUR 0.7 billion compared with December 31, 2021 primarily relates to exchange rate effects from the translation of U.S. dollars into euros. A further acquisition of a company was immaterial for the United States operating segment.

Europe operating segment. Changes in goodwill in the cash-generating units Poland, Hungary, the Czech Republic, and Croatia resulted from exchange rate effects.

Group Development operating segment. Goodwill declined by EUR 0.5 billion in the Deutsche Funkturm and Magenta Telekom Infra cash-generating units on account of the agreed sale of the GD tower companies. As of December 31, 2022, this item was recognized as “held for sale” in the consolidated statement of financial position.

For further information on the agreed sale of the GD tower companies, 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.”

Disclosures on annual impairment tests. As of December 31, 2022, 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 tests on goodwill as of December 31, 2022 did not result in any need for impairment in the cash-generating units. Likewise no need for impairment had been identified in the cash-generating units at the reporting date of the prior year.

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, as for the value in use, 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. The chosen planning horizon reflects the assumptions for short- to medium-term market developments and is selected to achieve a steady state in the business outlook that is necessary for calculating the perpetual annuity. This steady state can only be established based on this planning horizon, in particular due to the sometimes long investment cycles in the telecommunications industry and the investments planned and expected in the long run to acquire and extend the rights of spectrum use. Cash flows beyond the internal mid-term planning are extrapolated using appropriate growth rates defined separately for each cash-generating unit. These growth rates are based on real growth and inflation expected in the long term for the countries in which the respective unit operates. To achieve the sustainable growth rates set for the period of the perpetual annuity, additional sustainable investments derived specifically for each cash-generating unit are taken into account. The key assumptions on which management has based its determination of the recoverable amount include the following assumptions that were primarily derived from internal sources and are based on past experience and extended to include internal expectations, and that are underscored by external market data and estimates: development of revenue, customer acquisition and retention costs, churn rates, capital expenditure, market share, and growth rates. Discount rates are determined on the basis of external figures derived from the market, taking account of the market and country risks associated with the cash-generating unit. Any significant future changes in the aforementioned assumptions would have an impact on the fair values of the cash-generating units. Changes in the assumptions may have a negative impact, as a result of future macroeconomic trends, continued intense competition, further possible legislation changes (e.g., as part of national austerity programs), and regulatory intervention.

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 different 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.