Expectations for the operating segments

Below, we explain the market expectations and the expectations for the financial and non-financial performance indicators of our operating segments. We assume a comparable consolidated group and constant exchange rates for the development of our performance indicators.

We presented more information on the expected development of the operating segments at our Capital Markets Day in May 2021.

Following the sale of T‑Mobile Netherlands as of March 31, 2022 and 51.0 % of the shares in GD Towers as of February 1, 2023, our Group Development operating segment no longer makes a significant contribution to the expectations of the Group’s significant performance indicators. For this reason our forecast does not provide a separate presentation of the figures for this segment or a corresponding explanation.

Germany

Following the increase in revenue in the German market for telecommunications services in the reporting year, market research company Analysys Mason forecasts further revenue growth in 2024, albeit at a slower pace. Demand for mobile and fixed-network communications is expected to remain stable in an environment of moderate economic recovery. Declines in revenue due to intense price competition, negative regulatory effects from reduced mobile termination rates, and the decline in traditional fixed-network telephony will be more than offset by still growing demand for mobile data volumes and faster connectivity in the consumer and business customer area. In the German mobile market, revenues are expected to increase by 0.9 % and service revenues to fall by 0.1 % in 2024 (source: Analysys Mason). In the Germany fixed-network business including television, the number of broadband lines will continue to rise; revenues are expected to grow by 1.1 % (source: Analysys Mason).

The mobile communications market in Germany is currently dominated by three providers, each with nationwide network infrastructure, deploying 4G/LTE and 5G technology to ensure that the majority of the population has access to mobile internet. In December 2023, Drillisch Netz AG, a subsidiary of United Internet AG, began to market mobile rate plans on its mobile network. To do this, it largely makes use of wholesale national roaming services provided by Telefónica Deutschland, having fewer than 100 own cell towers in operation. As the build-out of this fourth mobile network continues, infrastructure competition is expected to increase. Furthermore, competition from mobile providers without their own network infrastructure is also likely to increase further.

In mobile communications, we lead the market for network coverage: At the end of 2023, 95.9 % of the population in Germany had access to our 5G network. With the continued build-out, we want to further improve our network quality. To this end, we will increase network density and capacity further both in rural areas and in cities.

The market for fixed-network broadband hosts a large number of players with differing infrastructures. We are assuming that competition from cable network operators will remain intense and that the number of providers who have their own fiber-optic networks will increase. In addition to the established telecommunications companies, there are more and more public utilities, municipalities, and special purpose associations, as well as investor-driven network providers active in the market with FTTH infrastructure.

In the fixed network, we want to provide fiber-optic-based products to more and more customers. Our Germany-wide IP-based network achieves high transmission bandwidths of up to 2 gigabits per second. In order to always offer our customers competitive high-speed lines, we increasingly invest in digital infrastructure. We accelerated our FTTH rollout in the reporting year and enable a total of around 8 million households to directly connect to our fiber-optic network. Our build-out will benefit both people in towns and cities and those in rural areas. We are set to maintain our rapid FTTH build-out pace over the coming years by building out on our own, but also through partnerships, with the addition of around 2.5 million households per year. Our goal is to roll out fiber-optic lines to more than 10 million households and companies by the end of 2024. We will use a wide range of partnership models to increase the utilization rate of our broadband infrastructure by our own retail business as well as through partnerships with wholesale providers in broadband marketing.

The number of TV households in the German TV market is stable. In summer 2024, the privilege for property owners to pass on cable TV and internet service fees as ancillary rental costs to tenants will be abolished. It can be expected that the willingness of these customers to switch provider will increase. With MagentaTV, we provide a wide variety of entertainment “from a single source” and want to further grow our TV customer base with an attractive offering. In order to offer our customers the best possible user experience, we are also engaging in partnerships, for example with RTL, Disney, Netflix, Prime Video, Sky/WOW, DAZN, and Apple TV+. We are constantly enhancing the functions of MagentaTV and complementing the portfolio with exclusive content. For instance, in Germany, we will broadcast every match of UEFA EURO 2024, including pre- and post-match coverage.

Our goal is to continue expanding our position as the leading integrated telecommunications provider in the German market by providing innovative and competitive products and services. We aim to further reduce the complexity of our products and processes through automation and digitalization. We want to deliver the best customer experience with perfect service and turn our customers into fans. To this end, we invest systematically in our networks and the brand experience. We improve the service and shopping experience through our digital channels by creating more opportunities to offer customized and contextualized products and services. For our business customers, we position ourselves as the preferred partner for digitalization.

In our Germany operating segment, we expect slight growth in revenue and service revenue in both 2024 and 2025, primarily due to growing mobile and broadband revenues. We expect customer numbers to grow in both business areas. In mobile communications, we expect an increase in the high-value business with our own mobile brand. In broadband, we expect a further increase in the number of customers with high-speed lines. We want to continue expanding our fiber-optic services, both by means of business models with wholesale products and through further partnerships.

Thanks to our excellent network quality and the progress we are making with fiber-optic build-out, we expect to see a further increase in both 2024 and 2025 in the number of mobile customers as well as slight growth in our broadband lines, fueled by demand for TV and high-speed products.

In each of the next two years, we expect to post year-on-year increases in earnings in our Germany operating segment. For 2024, we expect adjusted EBITDA AL of around EUR 10.5 billion, driven in particular by high-value revenue growth and a simultaneous reduction in indirect costs, mainly through digitalization and automation. Our adjusted EBITDA AL is expected to rise further in 2025.

Our course is set for innovation and growth: While we will continue to consistently promote investments in new technologies with great intensity in the future, we will wind down legacy systems, cutting costs in the process. Over the coming years, we will focus our investments on building out forward-looking fixed-network and mobile infrastructure (e.g., FTTH and 5G). Our aim here will be to close gaps in the network in rural areas and provide urban centers with the high bandwidth they require. We want to continue this rollout efficiently and, to this end, are participating in funding programs. We expect our capital expenditure (cash capex before spectrum investment) to increase slightly year-on-year in both 2024 and 2025.

United States

The overall ICT market continues to grow in the U.S. revenue increase is forecast at CAGR of 7.5 %. The U.S. ICT sector is considered to be the backbone of the country’s economy and underpins the operations of all enterprises, public safety groups, and the government. Overall the ICT market remains highly competitive. (Source: Mordor Intelligence)

According to GSMA overall mobile revenues are expected to increase annually with continued subscriber growth, data consumption increases, and growth in the device market. Monthly data usage per smartphone is forecast at 66 GB in 2029. Leading industry associations such as GSMA expect the United States to continue to lead global migration to 5G. 5G subscription uptake in North America continues – expected to be at a globally-leading 61 % (or 260 million total) by the end of 2023, with the global average at 54 %. That North American figure is expected to be around 430 million by 2029 – which would be 92 % of mobile subscriptions. (Sources: Ericsson Mobility Report, GSMA)

More mid-band spectrum has allowed for higher quality multi-band 5G. As in 2022, in 2023 Fixed Wireless Access (FWA) for home and Enterprise is the main tech behind fixed broadband growth. 5G is also growing in Enterprise, with deployments of wireless WAN to offices. (Source: Ericsson)

GSMA still expects over half of all mobile connections running on 5G networks by 2025, and Ericsson forecasts 90 % by 2027. T‑Mobile US expanded its 5G network leadership, by reaching 330 million people, utilizing the 600 MHz spectrum holdings it acquired in April 2017. Deployment of recently-released mid-band licenses by T‑Mobile US should also drive the operator’s expansion of 5G coverage.

After completing the merger of T‑Mobile US and Sprint, T‑Mobile US continued to execute its profitable growth initiatives, carrying great momentum into 2024. T‑Mobile US continues to focus on creating shareholder value and providing a combination of best network and value experience in the U.S. wireless industry. Key elements of the company’s focus include consistently and profitably outgrowing the competition, and making the necessary investments to position the company for long term success. T‑Mobile US customer growth initiatives center on attracting and retaining a loyal customer base by providing plans that are simple, affordable and without unnecessary restrictions to deliver value-added experience in wireless. T‑Mobile US further extends this winning formula by combining this best value proposition in the market with its leading network experience.

T‑Mobile US expects continued increases in postpaid and slight increases in prepaid customers in 2024 and 2025. Subscriber growth is based on further expansion in underpenetrated growth vectors, such as smaller markets and rural areas, enterprise and high-speed internet, which helped fuel industry leading growth over the last few years while allowing T-Mobile US to deliver very good financial results in industry comparison.

T‑Mobile US expects an increase in total revenues in 2024 and 2025 driven by increasing service revenue growth primarily from postpaid account and ARPA growth offset by lower revenues in the wholesale base. Total revenues are expected to increase, albeit, at a slower pace than service revenues as 5G device upgrade rates remain low tempering equipment revenues.

For 2024, T‑Mobile US expects adjusted EBITDA AL of USD 30.8 billion and a strong increase in 2025. Revenue growth is expected to outpace increases in expense as T‑Mobile US focuses on delivering profitable customer growth and driving further operating efficiencies in the business. However, success-based investments to further unlock growth vectors, such as smaller markets and rural areas and enterprise, may impact adjusted EBITDA AL. Adjusted core EBITDA AL, i.e., adjusted EBITDA AL excluding revenues from handset leasing, is expected to increase strongly in 2024 and 2025.

Excluding expenditures relating to spectrum, T‑Mobile US reached peak levels of cash capex in 2022 from its accelerated network integration and the rapid pace of its 5G network deployment. The company saw a decrease in 2023. T‑Mobile US expects a continued decrease in cash capex in 2024 and stable investment in 2025, reflecting greater capital efficiencies from its 5G network build.

Europe

Geopolitical tensions continued to have a negative impact on the economic development of the countries of our Europe operating segment in the reporting year, while financing conditions for private households and businesses deteriorated on the back of higher interest rates, putting overall economic demand under further pressure. As well as the general uncertainty on the markets, which mostly has a negative effect on the economy, economic outlooks are also coming under pressure from the current ongoing high rates of inflation in the EU. The European Commission expects consumer prices to rise significantly again in 2024. This trend is not expected to let up until the following year. This renewed economic uncertainty could have a negative impact on household and business expenditure for telecommunications services and thus reduce in particular revenues from business customers, roaming, and prepaid.

Analysys Mason expects total revenue for telecommunications services to remain stable for the countries of our operating segment in 2024 and 2025. Customer demand for a fast and reliable broadband connection will continue to be the driver of total revenue growth over the next two years – for example, broadband revenues are expected to rise by around 2 %. The trend towards increased data usage will continue, especially in households that have not previously had sufficiently fast broadband lines. On top of this, the fiber-optic build-out is being accelerated. In most Central and Eastern European countries, there is still the possibility of increasing broadband network coverage. Additional regulatory-induced measures will likely further boost investments in network infrastructure. This growth is being bolstered by the growing number of companies offering convergent products. For TV revenues, Analysys Mason sees little growth potential in traditional pay TV business and expects TV revenue to grow by just under 1 % in both 2024 and 2025. For mobile revenues, Analysys Mason forecasts a stable development in 2024, and in 2025, they are expected to decline for the first time by around 1 %.

We aspire to continue developing into the Leading Digital Telco in the coming years. All national companies in the Europe operating segment except for Romania are integrated providers of telecommunications services, have high brand recognition levels, and are very significant players in their respective home markets. We always put our customers at the heart of everything we do. In the consumer segment, for example, we want to create the best customer experience by further developing products and services in convergent product packages in our mature markets, using data and AI to better tailor them to specific target groups and increase their personalization. Since, as a key factor of our FMC business, the TV business makes our network quality tangible, we will continue to invest in the (co-)exclusive acquisition of broadcasting rights for national or international sports events, such as soccer leagues or the rights to TV movies/series, depending on the respective local competitive conditions and price levels. We also plan to continue engaging in partnerships with local and international OTT providers. In order to improve the TV experience in households while at the same time realizing synergies, we are gradually standardizing both the TV platforms and terminal equipment (set-top boxes) in our TV markets. This enables us to roll out new features as well as updates in a more dynamic way and thus to make new content, whether linear or on-demand, available to our customers faster.

Digital interaction with our customers is a key factor in meeting customer needs in a more personalized and efficient way, and positioning products and innovative services on the market more quickly. Our service app is already used by more than two thirds of our customers. It helps us monetize our product portfolio and bring down costs by reducing service cases through self-service and preventive maintenance. We offer another possibility for interaction, for example, through our digital retail platform OneShop. In customer interactions – whether digital or in person – we want to ensure that we can offer customers the best customer experience. Thus, we believe we can retain and further build on our first place in customer satisfaction rankings of telecommunications companies in the respective countries (as measured by the TRI*M index, which is based on empirical research).

We are able to do all this because we use our network infrastructure efficiently based on different technologies. With our fast fiber-optic networks and the accelerated rollout of 5G, we are making our contribution to digitalization. In all our footprint countries, we will gradually refarm the spectrum that is currently still used for 3G to increase LTE and 5G capacity. The build-out of fiber-optic technology is also progressing further. By the end of 2024 and 2025, respectively, we will add around 3 million more households, increasing fiber-optic coverage from the current level of 9.1 million households (around 35 % network coverage) to a level of 40 % and 46 % network coverage, respectively. We plan to increase the number of connected households to around 4 million and thus to achieve a utilization rate of 36 % by 2024 and 35 % by 2025.

In the B2B area, the ever more complex requirements of digitalization are putting pressure on companies and the public sector to act. Here, we want to provide our customers with digital offers for every customer segment – with innovations beyond the core offering of connectivity – and create sustainable business models. We enable this by way of a future-proof omnichannel experience and digital capabilities, such as 24/7 support, self-service portals, and customer success managers. These also include modern digital infrastructure for integrated IT and communications solutions, scalable and modular services enabled through platform-based offers, and a software-defined environment that can cope with the growing needs of companies (e.g., SD-X, cybersecurity) via next-generation cloud and data centers. We will continue to build out these functions, constantly expand our portfolio for all company sizes, and optimize our advisory approach with expert teams.

In our Europe operating segment, we expect a positive trend in customer numbers in the next two years, primarily thanks to the focus on delivering the best network experience, the best customer experience in interaction with us, and the best FMC experience for consumers and business customers alike. We expect the number of mobile customers to increase slightly in both 2024 and 2025. We expect fixed-network lines to remain stable in 2024, and forecast a slight increase for 2025. We expect the number of broadband customers to grow in both 2024 and 2025. For TV customers, we forecast a slight increase in both years.

We expect revenues for our Europe operating segment to increase slightly in both 2024 and 2025 – measured on a comparable basis, i.e., at constant exchange rates and market conditions, and given an unchanged organizational structure – despite pressure resulting from decisions by regulatory authorities, such as the supplementary telecommunications tax imposed in Hungary, and the reduction in mobile termination rates. We also expect service revenues to increase slightly in both years.

We assume that prices on the energy market will remain at a high level for the time being. The associated higher inflation in the countries of our operating segment could increase pressure in future collective negotiations with employees’ representatives. In addition, highly intense competition in the markets of our operating segment could potentially put pressure on our margins. In order to realize cost-cutting potential, we intend to increase our productivity and exploit the benefits of digitalization, for instance by automating processes. In order to be better prepared for rising energy prices, we concluded long-term power purchase agreements in the reporting year with local suppliers in the respective European countries. Accordingly, we expect adjusted EBITDA AL to grow to EUR 4.3 billion in 2024 and then to increase slightly in 2025.

To maintain our technology leadership, we continue to invest in our integrated networks and plan to maintain the high overall level of investments over the next few years. We expect cash capex (before spectrum investment) to increase slightly in 2024 and 2025.

Systems Solutions

Overall, growth in the IT market is expected to continue at roughly the same rate over the coming years, while cost pressure and intense competition are likely to persist. Nevertheless, we expect ongoing digitalization to drive further growth in demand for solutions from the areas of cloud services, big data, and automation of business processes using artificial intelligence (AI), as well as IT security (cybersecurity).

At the same time, this market is undergoing a radical transformation, e.g., due to ongoing standardization and automation, demand for smart services, and the changes being wrought by cloud services in outsourcing business. Further challenges have arisen in the shape of digitalization, the growing importance of cybersecurity, and AI. Traditional IT business will continue to decline, while cloud services and cybersecurity may achieve double-digit growth rates. With the aim of achieving a significant shift in the revenue mix towards our growth areas, we are continuing to drive forward expansion of the growth business (e.g., digitalization, public cloud, sovereign cloud, cloud migration), while at the same time stabilizing and making further cost savings in established IT business (e.g., infrastructure solutions). In line with this, our plan is to continue investing increasingly in growth markets – especially in digitalization (e.g., AI, SAP S/4HANA), multi- and hybrid cloud services, and cybersecurity.

In terms of revenue and market share, we are among the top IT service providers in the European IT market and in Germany. Our very high levels of customer satisfaction – with a TRI*M score of over 90 – are a core element in maintaining this position in the long term as well as in playing a leading role in digitalization.

Overall, we forecast slight growth in order entry for the Systems Solutions operating segment in 2024 and again in 2025. Revenue is expected to increase slightly in 2024 and then to remain stable in 2025. Revenue primarily comprises service revenue, and as such, service revenue trends are key. Adjusted EBITDA AL is expected to increase slightly in 2024, reaching around EUR 0.3 billion. We expect adjusted EBITDA AL to increase again slightly in 2025. We expect cash capex (before spectrum investment) to remain stable in both 2024 and 2025.

Group Headquarters & Group Services

At Group Headquarters & Group Services, we have raised our efficiency ambitions and introduced further steps to reduce costs in the coming years. This will primarily involve reallocating human resources, further enhancing the value of our real estate portfolio by means of innovative space and workplace concepts, and simplifying product services for the Group. In addition, we have also questioned seemingly smaller cost items in order to achieve strict cost efficiency across all areas. Our operating segments also benefit from the ability to provide our services more cost-effectively thanks to the cost-cutting measures. In facing up to our responsibility to a sustainable future, we decided to offset our entire carbon footprint by way of central procurement of carbon certificates for the entire Group. In addition, we are still focusing on converting our vehicle fleet to e-mobility and, through numerous construction measures, setting the course to ensure that our real estate portfolio satisfies the high ESG requirements.

In the coming years, too, our Board of Management department Technology and Innovation will drive not only the development of innovative technologies, products, and services, but also IT standardization and the ongoing establishment of centralized production platforms. Major areas of capital expenditure in the years 2024 and 2025 will include technology development, the implementation of our IT strategy, artificial intelligence (AI), and IT security. We expect this to reduce overheads, mainly driven by the reduction in IT operating costs, the ongoing standardization of IT infrastructure and platforms – mainly through cloudification, automation, and retiring – and by standardizing IT interfaces. Further efficiency enhancement measures will be drawn up in order to remain competitive in the future in the area of our internal IT service provider.

In the long term, these savings will help the Group finance its innovation endeavors. We are focusing on innovation topics such as (generative) artificial intelligence, telco-as-a-platform (including application programming interfaces (API), Open Radio Access Network (O-RAN), and vertical cloud production for the Group’s own network), as well as the evolution of the campus networks, which are designed to improve the integrated automation of our international industrial customers’ production processes. We are also working on improving and further developing customer experience by introducing an enhanced, uniform router operating system based on the Reference Design Kit (RDK, an open source initiative of network providers, system integrators, and equipment manufacturers), simple customer interaction via the OneApp and OneShop, and our entertainment/TV portfolio. Technology innovations will serve to safeguard the network and technology leadership of our German, Europe, and United States operating segments in the long term. Ultimately, in addition to enhancing customer experience, every one of our investment projects revolves around people.