The economic environment This section provides additional information on, and explains recent changes to, the economic situation as described in the 2018 Annual Report, focusing on macroeconomic developments in the first nine 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 nine months of 2019, leading institutions and banks revised their growth outlooks downwards. The Organisation for Economic Co-operation and Development (OECD) cut its global GDP growth forecast for 2019 from 3.2 percent to 2.9 percent, and expects to see growth of 3.0 percent in 2020. For the German economy, the OECD projects growth in the current year of 0.5 percent. Despite the sharp decline in industrial activity in Germany, domestic consumption remains robust. According to the Bitkom-ifo-Digital index report, while the digital sector also continues to enjoy a robust business climate, it cannot completely detach itself from the overall negative economic trend. The national economies in our core markets in Europe (excluding Germany) and North America continue to grow albeit at a slower rate. Outlook Under the current conditions, we expect to see weaker economic trends in the economies of our core markets. With domestic consumption remaining at a stable level and sustained steady demand for telecommunications services, we do not expect the weaker economic growth to have a material impact on the development of the telecommunications markets. Overall economic risks The economic risks have increased. Trade conflicts, political uncertainty – not least with respect to the terms and conditions of Brexit – and further declines in industrial activity which could also spread to industries with a stronger domestic focus are all factors that could interfere with the recovery of the economy. Furthermore, geopolitical crises could also have a negative impact on the economies of the countries in which we operate. Regulation Federal Network Agency to adapt regulation of the “last mile.” The Federal Network Agency carries out regular reviews to determine whether and which companies are in dominant market positions and what regulatory requirements this entails. To date, Telekom Deutschland has had to comply with extensive regulation of what is known as the “last mile.” The Agency published its draft of a new market analysis on access to the “last mile” for consultation on May 27, 2019. According to the draft, Telekom Deutschland remains in a dominant market position. However, the Agency emphasizes that the regulations governing Telekom’s existing copper network do not necessarily have to apply to FTTH; rather, the Agency advocates – at most – minimal regulation provided the market participants can reach mutual agreement. The details of the regulatory requirements will be determined in separate proceedings, the outcome of which cannot be predicted. Fixed-network termination rates given final approval for four years. On June 28, 2019, the Federal Network Agency issued final approval of the fixed-network termination rates (FTRs) both for Telekom Deutschland and for alternative telecommunications operators in the form of a four-year glide path. The following FTRs will apply effective January 1, 2019: 2019 = 0.08 ct/min., 2020 = 0.06 ct/min., 2021 = 0.05 ct/min., and 2022 = 0.03 ct/min. The rates approved by the Agency will apply until the European Commission enacts an FTR cap to replace the national regulation. Federal Network Agency planning further MTR cuts. In a draft ruling published by the Agency on October 7, 2019, mobile termination rates (MTRs) are to be reduced from 0.95 ct/min. at present to 0.90 ct/min. effective December 1, 2019. In two additional steps to be implemented annually also effective December 1, MTRs will be cut further to 0.78 ct/min. and 0.70 ct/min. We expect that the final approval for these cuts will be given in late November 2019 once the national and international consultations are concluded. Here, too, it is anticipated that the rates approved by the Agency will apply until the EU-wide MTR cap required under the new EU legal framework enters into force – possibly following a transition period. Deregulation of mobile termination rates for calls from non-EU countries. The Federal Network Agency has deregulated the termination of calls originating outside of the European Economic Area (EEA) on the mobile network of Telekom Deutschland and other German mobile network operators. As a result, from December 1, 2019 we ourselves can decide on the pricing and terms that apply to the charging of calls to network operators outside the EEA. This differentiation between EEA and non-EEA calls is now standard practice in most EU member states, since MTR regulation binds European network operators to extremely low termination rates while the rates charged by network operators outside of the EEA are significantly higher. However, in order to prevent prices from spiraling to the detriment of the consumer, while these rates are freely negotiable, they must not exceed the rates that the network operators in the originating countries charge for comparable services. Increase of rates for unbundled local loop lines (ULLs). The Federal Network Agency increased 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 increasing from EUR 6.77/month to EUR 7.05/month and the rate for the longer section from the customer to the main distribution frame is increasing from EUR 10.02/month to EUR 11.19/month. The rate for leasing cable duct capacities is increasing from EUR 0.04/month to EUR 0.06/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 rate approvals are valid until June 30, 2022. StreamOn. In its ruling announced on July 15, 2019, the Münster Higher Administrative Court confirmed as part of expedited court proceedings that the Federal Network Agency’s orders regarding the optimization of data traffic in connection with internet access services as well as the obligation to also make the services available within the EU must be followed for the time being. In consultation with the Federal Network Agency, we have modified the product pursuant to the authority’s requirements. Nevertheless, the Cologne Administrative Court will review in ordinary court proceedings (known as principal proceedings) whether the steps to optimize data traffic as well as the restriction of the offering to Germany are compatible with the EU regulation. Spectrum auction in Germany. The Federal Network Agency’s auction of nationwide frequencies for Germany in the 2.1 GHz and 3.4 to 3.7 GHz bands was held between March 19 and June 12, 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. All participants purchased spectrum. We won four frequency blocks in the 2 GHz band and nine lots in the 3.6 GHz band worth a total of EUR 2.17 billion. In place of a lump-sum payment, government representatives agreed to let us pay the purchase price in annual installments from 2019 through 2030. This was granted on the condition that we assume additional build-out obligations. These additional licenses double our spectrum holdings in the 2.1 GHz band and give us almost a third of the available spectrum (90 MHz) in what is the optimum band for us, the 3.6 GHz band. Achieving this desired outcome to the auction helps us sustain our leading position in the competition to deliver the best quality mobile network in Germany. The three existing network operators and six service providers had brought legal action in connection with the auction terms and conditions; however, this had no effect on the auction timing. Spectrum auction in Austria. The auction in Austria of key 3.6 GHz spectrum (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) worth EUR 57 million, 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 high frequency 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 available. T‑Mobile US also participated in this auction. Over the course of the two auctions for 28 GHz and 24 GHz spectrum, T‑Mobile US paid around USD 843 million for a total of 367 MHz, thus securing itself a solid mmWave holding in preparation for 5G. A further auction is due to start on December 10, 2019 for spectrum in the 37 GHz, 39 GHz, and 47 GHz bands. The FCC is currently finalizing the details. In addition, the FCC plans to auction spectrum in the 3.5 GHz band in June 2020. 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. (XLS:) Download Main spectrum awards Expected start of award procedure Expected end of award procedure Frequency ranges(MHz) Award process Spectrum acquired(MHz) Spectrum investment a Simultaneous electronic multi-round auction with ascending, parallel bids for all available frequency ranges. b Annual installment plan until 2030 agreed, starting in 2019, provided we take on additional build-out obligations. c Sealed-bid tender: auction in which bidders submit their offers in sealed envelopes. d Combinatorial clock auction: three-stage, multi-round auction for spectrum from all available frequency ranges. Germany Completed 2,100 / 3,400-3,700 Auction (SMRAa) 20 MHz/90 MHz € 2.17 billionb Greece Q2 2020 Q3 2020 700 / 1,500 / 3,600 / 26,000 Auction (SMRAa), expected tbd tbd Croatia Completed 2,100 / 2,600 Assignment on application 2x 20 MHz in the2,600 MHz band Annual fees, no one-time charge Croatia Q1 2020 Q2 2020 700 / 3,400–3,800 / 26,000 tbd tbd tbd Netherlands Q2 2020 Q3 2020 700 / 1,500 / 2,100 SMRA-clock hybrid auction expected, details tbd tbd tbd North Macedonia Completed 1,800 Extension of licenses 2x 10 MHz No extension fees North Macedonia Q4 2019 Q1 2020 2,100 Sealed-bid tenderc tbd tbd North Macedonia Q2 2020 Q3 2020 700 / 3,400-3,800 Auction, details tbd tbd tbd Austria Completed 3,400-3,800 Regional auction (CCAd) 1x 110 MHz € 57 million Austria Q1 2020 Q2 2020 700 / 1,500 / 2,100 Auction (CCAd), expected tbd tbd Poland Q2 2020 Q3 2020 800 / 3,600-3,800 Auction, details tbd tbd tbd Poland Q3 2021 Q4 2022 700 / 3,600-3,800 Auction, details tbd tbd tbd Romania Q2 2020 Q2 2020 700 / 800 / 1,500 / 2,600 /3,400–3,800 / 26,000 Auction, details tbd tbd tbd Slovakia Q3 2019 Q4 2019 700 / 900 / 1,500 / 1,800 Auction (SMRAa), expected tbd tbd Czech Republic Q4 2019 Q1 2020 700 / 3,400-3,600 Auction (SMRAa), expected tbd tbd Hungary Q4 2019 Q4 2019 700 / 2,100 / 2,600 /3,400–3,800 Auction, details tbd tbd tbd United States Completed 28,000 Auction (SMRAa) 367 MHz(all in 24 / 28 GHz) $ 843 million United States Completed 24,000 Auction (CCAd) See above See above United States Q4 2019 Q1 2020 37,000 / 39,000 / 47,000 Auction (CCAd) tbd tbd United States Q2 2020 Q3 2020 3,550-3,700 Auction (clock auction) tbd tbd schließen FTTH - Fiber To The Home In telecommunications, FTTH means that the fiber-optic cable is terminated right in the user’s home or apartment. schließen 5G New communications standard, which offers data rates in the gigabit range, converges fixed-network and mobile communications, and supports the Internet of Things – rollout starting 2020. schließen 5G New communications standard, which offers data rates in the gigabit range, converges fixed-network and mobile communications, and supports the Internet of Things – rollout starting 2020.