page 1 | 4

Development of business at Deutsche Telekom AG.

Deutsche Telekom AG, which has various branch offices in the Federal Republic of Germany, prepares its annual financial statements in accordance with the principles of German GAAP, as specified in the German Commercial Code and the German Stock Corporation Act.

As the headquarters of the Deutsche Telekom Group, we perform strategic and cross-segment management functions and provide services for other Group companies. The profits and losses of our subsidiaries and Group financing measures have a material effect on our financial position and results of operations. For Deutsche Telekom AG, the 2010 financial year was again marked by intense competitive and price pressure in the telecommunications industry, which was also reflected in the income and loss of its subsidiaries.

Deutsche Telekom AG reported income after taxes for the 2010 financial year of EUR 3.0 billion. The development of business in the reporting year was marked by a number of very different effects, arising from both the company’s day-to-day operations and income related to subsidiaries, associated and related companies, as well as from the restructuring activities carried out in the 2010 financial year.

These activities included spinning off our fixed-network business (hereinafter referred to as the T-Home business unit) to Telekom Deutschland GmbH with accounting effect as of January 1, 2010. The fixed-network business activities that were spun off include voice and data communication based on fixed-network and broadband technology. On account of the spin-off of the T-Home business unit, the figures are not comparable with the amounts for the previous year.

The German Accounting Law Modernization Act was applied in full for the first time in the reporting year. Pursuant to § 265 (2) sentence 3 HGB and Art. 67 (8) sentence 2 of the Introductory Act to the German Commercial Code (Einführungsgesetz zum Handelsgesetzbuch – EGHGB), prior-year figures were not restated.

The balance sheet of the T-Home business unit under German GAAP at the time of the spin-off is presented below in condensed form:

	millions of €

Assets
Non-current assets	13,254
Current assets	1,205
Prepaid expenses and deferred charges	56
Total assets	14,515
Shareholders’ equity and liabilities
Shareholders’ equity	2,232
Accruals	1,015
Liabilities	11,232
Deferred income	36
Total shareholders’ equity and liabilities	14,515