The economic environment

This section provides additional information on, and explains recent changes to, the economic situation as described in the combined management report for the 2018 financial year, focusing on macroeconomic developments in the first three months of 2019, the outlook, the currently prevailing economic risks, and the regulatory environment. The overall economic outlook presupposes there are no major unexpected occurrences in the forecast period.

Macroeconomic development

In the first three months of 2019, leading institutions and banks revised their growth outlooks downwards. The International Monetary Fund (IMF) lowered its growth forecast for global GDP in 2019 from 3.5 percent to 3.3 percent. Global growth is expected to return to 3.6 percent in 2020 on the back of the pickup anticipated for the second half of 2019. For the German economy, the IMF projects growth in the current year of 0.8 percent. Despite the sharp decline in industrial activity in Germany, domestic consumption and the service sector remain robust. The national economies in our core markets in Europe (excluding Germany) and North America continue to expand.

Outlook

Under the current conditions, we expect to see weaker but still stable economic trends in the economies of our core markets. However, the outlook is negatively affected by the economic slowdown in Europe and China and decelerated growth in global trade, with expansion in 2019 and 2020 now expected to be weaker than previously projected.

Overall economic risks

The economic risks have increased. Trade conflicts, political uncertainty – including with respect to Brexit – and further declines in industrial activity could curb a sustained expansion. Furthermore, geopolitical crises could also have a negative impact on the economies of the countries in which we operate.

Regulation

Increase of rates for unbundled local loop lines (ULL). According to a draft consultation published by the Federal Network Agency on April 10, 2019, the Agency is planning to increase the regulated rates received by Telekom Deutschland for leasing the “last mile” of its network with effect from July 1, 2019. Specifically, the rate for leasing the line from the customer to the cable distribution box is to increase from EUR 6.77/month to EUR 7.05/month and the charge for the longer section from the customer to the main distribution frame is to increase from EUR 10.02/month to EUR 11.19/month. Although these rates remain below the level we sought in our application, the Agency has at least recognized that the costs of building out the last mile of the network have risen in the three years since the rates were last set. The draft ruling will be subject to consultation at national and European level. Provided the European Commission expresses no serious doubts, the new rates may take effect as of July 1, 2019.

Spectrum auction in Germany. The Federal Network Agency commenced the auction of nationwide frequencies for Germany in the 2.1 GHz and 3.4 to 3.7 GHz bands on March 19, 2019. Telekom Deutschland GmbH was admitted to the auction proceedings along with three other companies: Drillisch Netz AG, Telefónica Germany GmbH & Co. OHG, and Vodafone GmbH. The three existing network operators and six service providers have brought legal action in connection with the auction terms and conditions; however, this has no effect on the auction timing. As such, the auction began as planned on March 19, 2019. Additionally, the Federal Network Agency published basic terms and conditions for the award of spectrum in the 3.7 to 3.8 GHz band, which is reserved for local assignments. The award of this spectrum is to be prepared and implemented after the auction ends and the award rules have been finalized. Latest information on the spectrum auction is being published on the Federal Network Agency’s homepage.

Spectrum auction in Austria. The auction in Austria of key spectrum in the 3.6 GHz range (3.4 to 3.8 GHz) required for the rollout of 5G was held between February 12 and March 8, 2019. The nationwide network operators A1, T-Mobile Austria, and Hutchison, as well as other regional operators, were admitted to the proceedings as participants. Deutsche Telekom’s subsidiary T-Mobile Austria secured continuous nationwide spectrum of 110 MHz (in the 3,690 to 3,800 MHz band), while Hutchison obtained only 100 MHz and A1 received varying regional spectrum packages due to the success of four regional providers.

Spectrum auctions in the United States. The Federal Communications Commission (FCC) held a 28 GHz auction from November 2018 through January 2019. This was the first time that 5G spectrum in such a highfrequency band (known as millimeter wave (mmWave) had been auctioned in the United States. On March 14, 2019, a second mmWave auction began in which a total of 1.55 GHz of spectrum in the 24 GHz band was being made available. T-Mobile US is participating in this auction and the out-come will be announced after proceedings come to an end. A third auction is due to start on December 10, 2019 for spectrum in the 37 GHz, 39 GHz, and 47 GHz bands. The FCC will announce the details in due course.

Awarding of spectrum

The following table provides an overview of the main spectrum awards such as auctions as well as license extensions in Germany and at our international subsidiaries. It also indicates spectrum to be awarded in the near future in various countries.