Europe

Customer development

Total

In the Europe operating segment we successfully ensured a stable development of customer numbers despite far-reaching lockdown measures imposed in response to the coronavirus pandemic. The focus on expanding digital sales channels, such as our service app, made a substantial contribution. In the first six months of 2021, we recorded slight growth in fixed-network customers. Our MagentaOne convergent product portfolio, in particular, generated growth compared with year-end 2020 of 5.6 % in FMC customers thanks to ongoing demand. We are working flat out to build out our fixed-network infrastructure with state-of-the-art optical fiber. The number of broadband customers has increased marginally to 7.1 million.

The mobile business also recorded a slight increase in customer numbers once again, with the growth in valuable contract customers more than offsetting the decline in the prepaid customer base. Our build-out of the 5G network is making good progress: seven national companies have already launched the commercial sale of 5G products and services.

Mobile communications

In the Europe operating segment, we had 45.8 million mobile customers at the end of the first half of 2021, which was stable compared with the end of 2020 with a positive growth trend. The number of high-value contract customers increased by 1.2 %. The contract customer base grew in all national companies, especially in Poland, Austria, Romania, Croatia, and the Czech Republic. Overall, contract customers account for 59.3 % of the total customer base. In addition to our innovative services and rate plans, this growth is driven by our product portfolio, which is based on the “more for more” principle. Our customers can select high-value add-on services – e.g., more data – for a small additional monthly fee. This data volume can also be used for video streaming and gaming services. In addition, thanks to our integrated network strategy our customers benefited from greater coverage with fast mobile broadband. As of June 30, 2021, we covered 97.8 % of the population in the countries of our operating segment with LTE, reaching around 108 million people in total. The footprint countries of our operating segment are also making excellent headway with 5G. Broad swaths of the populations of Greece, Austria, Croatia and other countries have already been connected to Deutsche Telekom’s 5G network.

The prepaid customer base declined, mainly in Romania. Furthermore, our market approach is focused on contract rate plans and we offer our prepaid customers attractive high-value contract rate plans. Around half of new contract customer additions are former prepaid customers who have taken advantage of these offerings. Furthermore, inactive SIM cards are deactivated from the customer base at regular intervals.

Fixed network

The broadband business recorded growth of 1.7 % as of June 30, 2021 compared with the end of the prior year to a total of 7.1 million customers. The customer bases of almost all national companies, especially in Greece, Hungary, Poland, the Czech Republic, and Slovakia saw substantial growth. Romania was the exception. By continuing to invest in innovative fiber-optic technologies, we are systematically building out our fixed-network infrastructure. At the end of the second quarter of 2021, a total of around 6.3 million households in our national companies had the option to subscribe to a direct connection to our high-speed fiber-optic network with speeds reaching up to 1 Gbit/s. The number of IP-based lines increased to account for 93.7 % of all fixed-network lines in the same period. The total number of fixed-network lines in our Europe operating segment edged up on the prior-year level to 9.1 million.

The TV and entertainment business had a total of 5.1 million customers as of June 30, 2021, up by a marginal 1.0 % compared with the end of the prior year. With both telecommunications providers and OTT players offering TV services, the TV market is already saturated in many countries of our segment.

FMC – fixed-mobile convergence

Our portfolio of convergent products, MagentaOne, was highly popular with consumers across all of our national companies. At the end of the first half of 2021, we had 6.1 million FMC customers; this corresponds to growth of 5.6 % compared with the end of the prior year. Our national companies in Greece, Hungary, Austria, and the Czech Republic in particular contributed to this growth. We have also seen accelerated growth in the marketing of our MagentaOne Business product to business customers.

Development of operations

Total revenue

Our Europe operating segment generated total revenue of EUR 5.6 billion in the first half of 2021, a year-on-year increase of 1.6 %. In organic terms, i.e., assuming constant exchange rates, revenue increased by 2.4 % year-on-year.

Organic growth was driven by the strong performance of the mobile business, especially the increase in higher-margin service revenues, despite slight losses in roaming and visitor revenues, and higher revenues from terminal equipment sales. By contrast, the fixed-network business recorded stable revenues. Higher broadband and wholesale revenues offset the losses in the systems solutions business. Revenues from voice telephony declined substantially.

Looking at the development by country, our national companies in Greece, Hungary, and Austria recorded the best organic development of revenue as of June 30, 2021. This offset the decline in revenue in Romania and Poland. In Romania, the downward trend was mainly due to declining systems solutions revenues.

Revenue from Consumers increased by 1.6 % compared with the prior-year period, in organic terms it increased by 2.7 %, due mainly to higher mobile revenue: both service revenues and sales of mobile terminal equipment increased. In the fixed network, revenue from broadband/TV business increased thanks to our innovative TV and entertainment offerings as well as the continuous rollout of fiber-optic technology. This more than offset the decline in revenue from voice telephony. In addition, the higher number of FMC customers had a positive impact on revenue.

Europe’s Business Customers operations made up for the losses of the previous quarter in the second quarter of 2021 and recorded a stable revenue development compared with the prior-year period. In organic terms, revenue even increased slightly by 0.6 %. The figures in our ICT unit continue to be impacted by the agreed sale of the fixed-network business in Romania; the strong performance recorded in Greece with sales of hybrid cloud and security solutions only partially offset the decline in the second quarter. By contrast, the core business in Europe recorded excellent growth in mobile business, especially in Poland and Austria. In the first half of the prior year, our revenues had been massively impacted by the coronavirus pandemic; in 2021, the economic environment has improved and there is once again increasing demand from our business customers for our business solutions in the areas of productivity, collaboration, and continuity.

Adjusted EBITDA AL, EBITDA AL

Our Europe operating segment generated adjusted EBITDA AL of EUR 1.9 billion in the first half of 2021, up 2.8 % against the level in the prior-year period. In organic terms, i.e., assuming constant exchange rates and adjusted for the reassignment of the Austrian cell tower business to the Group Development operating segment, adjusted EBITDA AL increased by 4.7 %, thus making a positive contribution to earnings. In addition to the positive revenue effects, savings in indirect costs, including due to lower personnel costs, contributed to this development.

Looking at the development by country, the increase in adjusted organic EBITDA AL was largely attributable to the positive trend at all of our national companies, but in particular in Greece and Austria.

EBITDA AL increased by 6.4 % year-on-year to EUR 1.9 billion. The expense arising from special factors was below the prior-year level. In organic terms, EBITDA AL grew by 8.6 %.

Development of operations in selected countries

Greece. In Greece, revenue increased by 5.5 % against the first six months in the prior year to EUR 1.5 billion. The encouraging development in mobile business was mainly driven by higher revenue from terminal equipment sales. In addition, service revenues were also back on course for growth in the second quarter of 2021 compared with the prior-year quarter. Thanks to the intensive fiber-optic and vectoring build-out, together with the resulting high numbers of customers, the fixed-network business also recovered appreciably. In the first half of 2021, it generated growing revenues, driven in part by broadband and in part by wholesale business. Stronger systems solutions revenues in the second quarter of 2021 contributed further to this growth.

In the first half of 2021, adjusted EBITDA AL in Greece stood at EUR 602 million, which was up 5.1 % against the prior-year period. This is attributable to a revenue-related increase in the net margin. Indirect costs remained on a par with the prior-year period overall.

Hungary. Revenue in Hungary totaled EUR 830 million as of June 30, 2021, which was stable compared with the prior-year period, despite negative exchange rate effects. In organic terms, revenue was up 3.4 % against the prior year. The mobile business is the main driver here. Service revenues developed particularly positively. In addition, growth in the number of contract customers had positive effects on terminal equipment business. Fixed-network operations also increased slightly, with rising TV and broadband revenues, both driven by larger customer bases. Our MagentaOne convergence products also continued to perform well, with further customer additions and corresponding revenue.

Adjusted EBITDA AL stood at EUR 239 million, up slightly year-on-year. In organic terms, adjusted EBITDA AL grew by 3.5 %. This growth is attributable in particular to higher revenues, which more than offset the rise in costs.

Poland. Our revenue in Poland decreased by 4.2 % in the first six months of 2021 to EUR 689 million. This decline was due to negative exchange rate effects. In organic terms, revenues decreased by just 1.5 %, with the mobile business recording slight losses as a result of reduced revenue from national roaming. In the fixed-network business, we increased the number of FTTH customers substantially, thereby creating the basis for further growth.

Adjusted EBITDA AL stood at EUR 195 million as of June 30, 2021, up 1.6 % year-on-year. In organic terms, adjusted EBITDA AL increased by 4.1 %, mainly on the back of lower costs.

Czech Republic. In the first half of 2021, revenue in the Czech Republic stood at EUR 549 million, an increase of 5.4 % against the prior-year level. In organic terms, revenue increased by 3.6 %. In addition to the positive development of mobile revenue, the fixed-network business is also increasingly establishing itself as a key revenue driver. The number of broadband customers increased by 7.6 % compared with the prior-year period. Mobile revenue increased year-on-year, despite the declines in roaming and visitor revenues as a result of the coronavirus pandemic. The growth is mainly attributable to business with higher-margin service revenues, plus stronger terminal equipment revenue. We also generated additional revenue in the area of systems solutions.

Adjusted EBITDA AL increased by 7.9 % year-on-year to EUR 231 million in the first six months of 2021. In organic terms, earnings grew by 6.1 % year-on-year, driven mainly by revenue.

Austria. Revenue generated in Austria totaled EUR 652 million in the first half of 2021. This increase of 3.5 % was mainly attributable to growth in the sale of mobile terminal equipment. Business with higher-margin service revenues (excluding visitors) also contributed positively to revenue. These two effects more than offset the declines in visitor revenues resulting from the coronavirus pandemic. Revenue in the fixed-network business also increased. The broadband business in particular generated substantial growth rates, due among other factors to a larger customer base and higher-value rate plans.

Adjusted EBITDA AL increased as of June 30, 2021 by 0.8 % year-on-year to EUR 249 million. In organic terms, i.e., excluding the reassignment of the Austrian cell tower business to the Group Development operating segment, adjusted EBITDA AL increased substantially by 12.7 %. In addition to the positive revenue effects, a reduced cost base contributed to this growth, also attributable in particular to the realization of synergies as a result of the acquisition and integration of UPC Austria.

EBIT

Our Europe operating segment recorded an increase in EBIT of EUR 97 million in the first half of 2021. This primarily resulted from an EUR 88 million increase in EBITDA. Depreciation and amortization were down slightly on the prior-year period, mainly due to depreciation and amortization being suspended since the first quarter of 2021 as a result of the fixed-network business in Romania being held for sale.

Cash capex

In the first half of 2021, the Europe operating segment reported cash capex of EUR 871 million, down 12.9 % year-on-year. This decline is due to a decline in cash outflows for the acquisition of spectrum licenses, primarily in Hungary. We continue to invest in the provision of broadband and fiber-optic technology and in 5G as part of our integrated network strategy.