Development of business in the Group
This section provides additional information on, and explains recent changes to, the significant events as described in the combined management report of the 2021 Annual Report, and looks at the effects of these changes on the development of business in the Group. In the section “The economic environment,” we also focus on macroeconomic developments in the first nine months of 2022. For more information on global economic developments and the associated business risks, please refer to the section “Risks and opportunities.”
War in Ukraine. Our business has hitherto not been directly affected by the war in Ukraine. Deutsche Telekom does not operate any networks in Russia or Ukraine. Neither does a stop on gas deliveries from Russia directly impact on our network operations. Deutsche Telekom is discontinuing its developer activities in Russia. We cannot assess with certainty how Deutsche Telekom will be indirectly affected, in particular by the impact on the global economy. The overall economic outlook has deteriorated significantly, above all as a result of the extensive sanctions, the limitations on trade in goods, and rising energy prices.
Coronavirus pandemic. The pandemic continues to have implications for the global economy and for society. Although the pandemic has only had a limited negative impact on the telecommunications sector so far, if the global pandemic were to re-escalate, it could lead to prolonged and increased supply-side shortages. Based on experience so far, we expect the coronavirus pandemic to only impact our business to a limited extent going forward.
Presentation of GD Towers according to the management approach. On July 13, 2022, Deutsche Telekom reached an agreement with DigitalBridge and Brookfield on the sale of a 51.0 % stake in GD Towers, comprising its tower assets in Germany and Austria, currently assigned to the Group Development operating segment. This transaction has not yet been consummated. The GD Towers entity has been recognized in the interim consolidated financial statements as a discontinued operation since the third quarter of 2022. However, in the interim Group management report we continue to include the contributions by GD Towers in the results of operations according to the management approach.
For further information on the agreement with DigitalBridge and Brookfield on GD Towers, and the presentation of GD Towers according to the management approach, please refer to the section “Group organization, strategy, and management.”
Gross vs. net recognition of revenues – change in the principal/agent consideration. In light of the IFRS Interpretations Committee’s agenda decision published in May 2022 on transactions involving the commercial resale of software, Deutsche Telekom has implemented comprehensive changes to its accounting practices with respect to the recognition of gross vs. net revenues, effective the start of the third quarter of 2022. For Deutsche Telekom, the question arises particularly in the case of branded digital products (e.g., streaming services, software licenses, cloud-based software as a service) provided by and purchased from third parties and sold to customers as part of Deutsche Telekom’s product portfolio. In considering the change in policy, Deutsche Telekom determines that it only acts as a principal and thus recognizes revenues on a gross basis if the customer does not enter into any contractual relationship with the third-party supplier, Deutsche Telekom bears primary responsibility for product acceptance and customer support, and is in a position to set the price for the customer. In contrast to its previous accounting practice, the application of the new policy results in a decline both in revenues and in goods and services purchased of EUR 0.9 billion in each case for the first three quarters of 2022, and of EUR 0.7 billion in each case for the first three quarters of 2021. As of the third quarter of 2022, the prior-year comparatives on revenue and order entry were adjusted retrospectively.
Reassignment of the security business. Effective July 1, 2022, Deutsche Telekom reassigned its subsidiary Deutsche Telekom Security GmbH and the security business in Germany, Austria, Switzerland, Hungary, and Slovakia from the Systems Solutions operating segment to the Germany operating segment in order to maintain a consistent focus on implementing our Group strategy pillar “Lead in business productivity.” As of the third quarter of 2022, the prior-year comparatives on the development of operations, headcount development, and order entry were adjusted retrospectively in both of the segments affected.