6 Intangible assets

The carrying amount of intangible assets decreased by EUR 4.6 billion to EUR 136.0 billion, mainly due to amortization and impairment losses of EUR 6.6 billion. This includes impairment losses of EUR 0.1 billion. Exchange rate effects, primarily from the translation of U.S. dollars into euros, also decreased the carrying amount by EUR 3.9 billion. Disposals reduced the carrying amount by EUR 0.1 billion. By contrast, capital expenditure had an increasing effect of EUR 5.9 billion on the carrying amount. EUR 1.0 billion of this related to the acquisition of mobile spectrum in the United States and Europe operating segments.

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

Expenditure on research and development recognized as an expense by Deutsche Telekom amounted to EUR 25.1 million in the reporting year (2022: EUR 30.3 million).

Impairment losses recognized in the 2023 financial year on intangible assets, property, plant and equipment, and right-of-use assets totaled EUR 0.2 billion (2022: EUR 1.2 billion). This was the result of the following effects:

Impairment losses on non-current assets in the Systems Solutions operating segment and in the Group Headquarters & Group Services segment. In the 2023 financial year, impairment losses on intangible assets and property, plant and equipment totaling EUR 150 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 to 2022 financial years. Furthermore, despite the business outlook remaining positive, the further increase in the cost of capital in the reporting year prompted yet another impairment loss to be recognized on non-current assets at the end of 2023. The recoverable amount – determined as fair value less costs of disposal – was calculated at EUR 935 million, which is EUR 104 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 8.63 % was used. EUR 70 million of the impairment loss recognized in this connection in the Systems Solutions operating segment related to intangible assets, and EUR 54 million to property, plant and equipment. Another EUR 26 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.

The following impairment losses on non-current assets were recognized in the prior year:

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 generated cash inflows independently of the assets of the mobile business. As such, they were 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 had reached an agreement with Cogent on the sale of the fiber-optic-based Wireline Business of the former Sprint. The sale price was USD 1 and was 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. The remeasurement of these assets at the lower of carrying amount and fair value based on the purchase price less costs of disposal 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. This was a consequence of several factors, including the ad hoc impairment testing carried out in the Systems Solutions cash-generating unit in 2021, and related to follow-up investments. Despite the positive 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 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.

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 2023 financial year, the carrying amount of goodwill in cash-generating units in the operating segments decreased by EUR 0.4 billion to EUR 20.3 billion. This was the result of the following effects:

United States operating segment. The decrease in goodwill of EUR 0.4 billion compared with December 31, 2022 primarily relates to exchange rate effects from the translation of U.S. dollars into euros.

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

Disclosures on annual impairment tests. As of December 31, 2023, 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, 2023 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.

Deutsche Telekom had commitments for the acquisition of intangible assets in the amount of EUR 8.2 billion (December 31, 2022: EUR 5.4 billion) as of the reporting date. The majority of this related to commitments entered into by T‑Mobile US.

On August 8, 2022, T‑Mobile US entered into agreements with Channel 51 License Co LLC and LB License Co, LLC (Sellers) for the acquisition of spectrum licenses in the 600 MHz band for an aggregate purchase price of USD 3.5 billion (EUR 3.2 billion). The licenses are to be acquired without any associated network assets. T‑Mobile US currently utilizes these licenses under an existing arrangement with the Sellers covering fixed-term spectrum leases. On March 30, 2023, the contractual parties further agreed that the transaction be divided into two separate tranches. The transfer of the licenses in accordance with the agreements is subject to regulatory approvals and certain other customary closing conditions. The Federal Communications Commission (FCC) approved the first tranche of the license transfer on December 29, 2023. T‑Mobile US expects the first tranche to be concluded in the second quarter of 2024, and the second tranche in late 2024/early 2025.

On September 12, 2023, T‑Mobile US agreed with U.S. cable network operator Comcast to acquire spectrum in the 600 MHz band in exchange for total cash consideration of between USD 1.2 billion and USD 3.3 billion (EUR 1.1 billion and EUR 3.0 billion). The final purchase price will be determined at the time the parties make the required transfer filings with the FCC once it is decided which spectrum Comcast intends to sell. The transaction is expected to close in the first half of 2028, pending approval from the FCC. At the same time, T‑Mobile US and Comcast have agreed exclusive leasing arrangements. The leasing rights for T‑Mobile US will apply for at least two years, even if Comcast elects to remove some of its licenses from the purchase agreement.

For further information, please refer to Note 42 “Other financial obligations.”

The following transaction will have an impact on the presentation of Deutsche Telekom’s results of operations and financial position in the future:

On July 1, 2020, T‑Mobile US and DISH Network Corporation (DISH) reached an agreement on the sale of spectrum licenses, under which DISH agreed to purchase certain 800 MHz spectrum licenses from T‑Mobile US for USD 3.6 billion (EUR 3.3 billion) The transaction is subject to approval by the Federal Communications Commission (FCC). On October 15, 2023, T‑Mobile US and DISH modified the agreement to include, among other changes, a non-refundable extension fee of USD 0.1 billion (EUR 0.1 billion) which DISH paid to T‑Mobile US on October 25, 2023, as well as the requirement that the purchase of the spectrum licenses must be finalized by April 1, 2024. The extension fee is fully creditable against the purchase price provided DISH exercises its option to purchase the spectrum by this date. If DISH does not purchase the spectrum licenses, T‑Mobile US is obligated to put the licenses up for sale at auction. Should bidding not reach the defined minimum purchase price of USD 3.6 billion, T‑Mobile US would be released from its obligation to sell the licenses.