Group organization, strategy, and management

With regard to our Group organization, strategy, and management, please refer to the explanations in the combined management report in the 2019 Annual Report. The following changes and/or additions were recorded from the Group’s point of view:

Our responsible corporate governance and business success are based on our shared corporate values and our updated Guiding Principles from February 2020:

Business combination of T‑Mobile US and Sprint. The business combination of T‑Mobile US and Sprint was completed on April 1, 2020, forming the all-new, larger T‑Mobile US. The transaction had previously worked its way through various approval processes involving numerous national and regional courts and authorities in the United States. Most recently, on April 16, 2020, the business combination was approved by the California Public Utilities Commission (CPUC). This merger is the culmination of Deutsche Telekom’s successful strategy for its U.S. operations. The new T‑Mobile US created by the business combination has market capitalization of around USD 142 billion (based on the share price of the new T‑Mobile US on September 30, 2020) and a more comprehensive spectrum portfolio. This portfolio provides a much stronger basis for T‑Mobile US to significantly expand nationwide coverage and to extend its mobile network capacities, which translates into clear potential for sustained customer growth. The planning for the merged entity remains based on expected cost and capital expenditure synergies with a net present value of USD 43 billion (after integration costs). The cost savings generated by these synergies are predicted to exceed the integration costs, starting three years after the transaction takes effect.

The business combination of T‑Mobile US and Sprint took the form of an all-stock transaction. At the completion of the transaction, Deutsche Telekom held around 43.6 percent of the shares in T‑Mobile US. However, under a proxy agreement reached with SoftBank, at the time the business combination took effect Deutsche Telekom controlled a majority of the voting power of around 68.3 percent of shares in the new T‑Mobile US. On June 22, 2020, Deutsche Telekom received call options from SoftBank to buy around 101 million T‑Mobile US shares, thus securing itself long-term access to the majority shareholding in T‑Mobile US. In return, we granted SoftBank the option to immediately sell around 198 million shares. T‑Mobile US profits from a transaction fee of USD 0.3 billion (EUR 0.3 billion), which it has already received. The sale of the shares held by SoftBank reduced the proportion of T‑Mobile US shares for which we can exercise voting rights to around 52.5 percent as of August 5, 2020.

The structure of the new T‑Mobile US must factor in the agreement reached with the U.S. Department of Justice (DoJ), one condition of which is that Sprint divests its prepaid business to satellite TV operator DISH for around USD 1.4 billion (EUR 1.2 billion). The sale of Sprint’s prepaid business includes around 9.4 million customers. The agreement also includes the sale of part of the 800 MHz spectrum held by Sprint to DISH for approximately USD 3.6 billion (EUR 3.2 billion). As of July 1, 2020, the U.S. authorities’ requirements regarding the divestiture of Sprint’s prepaid business were duly met and the agreement to sell spectrum to DISH duly confirmed.

In the course of the business combination, a number of refinancing measures were implemented in the second and third quarters of 2020. On April 1, 2020, T‑Mobile US raised a new term loan of USD 4 billion (EUR 3.6 billion). Senior secured notes, issued on April 9, 2020 for a total of USD 19 billion (EUR 17.5 billion), with terms of between 5 and 30 years and bearing interest of between 3.500 and 4.500 percent, were used to repay a short-term bridge loan facility taken out to finance the business combination on April 1, 2020. Moreover, T‑Mobile US issued senior secured notes on June 24, 2020 for a total of USD 4.0 billion (EUR 3.6 billion) with terms of between 6 and 11 years and bearing interest of between 1.500 and 2.550 percent. In the third quarter of 2020, T‑Mobile US repaid bonds in the amount of EUR 3.6 billion; some of them prematurely.

As announced in 2018, rating agency Standard & Poor’s downgraded Deutsche Telekom AG’s rating from BBB+ to BBB with a stable outlook on completion of the business combination of T‑Mobile US and Sprint. We are therefore still a solid investment-grade company with access to the international capital markets.

Realignment of the B2B telecommunications business in the Germany operating segment. Consistent with Deutsche Telekom’s efforts to systematically implement the Group strategy pillar “Lead in business productivity,” TC Services and Classified ICT, portfolio units previously assigned to the Systems Solutions operating segment, as well as Telekom Global Carrier (TGC) and Network Infrastructure (NWI), which had formerly been disclosed under the Europe operating segment and the Group Headquarters & Group Services segment respectively, and which together form the business area designated Deutsche Telekom Global Carrier (DTGC), were combined in the Germany operating segment. Effective the start of the third quarter of 2020, the management of the Deutsche Telekom Group and hence also the reporting structure are both based on this new segment allocation. As part of these transactions, the assets and liabilities assigned to the business areas were transferred to the Germany operating segment. Prior-year comparatives in these segments (development of operations, customer development, headcount development, and order entry) were adjusted retrospectively. The transactions were consummated under company law on July 1, 2020 (TC Services and Classified ICT) and on October 1, 2020 (DTGC).

Changes in the composition of the Board of Management. At its meeting on May 22, 2019, the Supervisory Board of Deutsche Telekom AG resolved to dissolve the Data Privacy, Legal Affairs and Compliance (DRC) Board department effective December 31, 2019. The Internal Audit and Risk Management units were assigned to the Finance Board of Management department. Group Security Governance was assigned to the Board of Management department for Technology and Innovation. The Data Privacy, Legal Affairs, and Compliance units were assigned to the Human Resources Board of Management department and are led by Dr. Claudia Junker, who in her capacity as General Counsel and Executive Vice President reports directly to Birgit Bohle. Birgit Bohle has headed up the extended Human Resources and Legal Affairs Board department since January 1, 2020. Dr. Thomas Kremer left the Group for reasons of age effective March 31, 2020. Until his departure, Dr. Kremer supported the transition to the new structures as part of a designated mandate. Deutsche Telekom AG thus had eight Board of Management departments as of April 1, 2020.

At the start of this year Dr. Dirk Wössner, the Board of Management member for Germany, notified the Supervisory Board of Deutsche Telekom AG that he does not intend to extend his service contract beyond its expiration date of December 31, 2020. On June 18, 2020, the Supervisory Board of Deutsche Telekom AG appointed the current Board member for Europe, Srini Gopalan, as the new Board member for Germany effective November 1, 2020. Dr. Wössner resigned from his position effective midnight on October 31, 2020. On September 7, 2020, the Supervisory Board of Deutsche Telekom AG appointed Dominique Leroy to succeed Srini Gopalan as the Board member for Europe effective November 1, 2020.