Group strategy and Group management.

Fix – Transform – Innovate. New strategy successfully implemented since March 2010. Telecommunications is an industry that sees permanent, dynamic change and is influenced by global trends. All relevant areas are affected: the fixed network, mobile communications, and the Internet.

Infrastructure is and will remain the basis of our business. We expect the gigabit society to need faster and faster networks. Two factors are of crucial importance here, if we are to be efficient and successful: next-generation networks and standardized IT. Telecommunications providers will also have to focus increasingly on realizing growth potential. In our opinion, the mobile Internet and Internet services, for example, provide a wealth of growth opportunities. What do customers expect? Secure and universal access to all services – from all devices. In our view, cloud computing and dynamic computing provide considerable growth potential for business customers. Furthermore, intelligent networks will in future support the upcoming changes in industries such as energy, healthcare, media, and transportation/automotive. We still firmly believe on the whole that a strong national competitive position is vital for a profitable business.

After successfully implementing our preceding strategy called “Focus, fix and grow” between 2007 and 2009, we have been developing our strategic approach further with the new Fix–Transform – Innovate strategy we presented in March 2010. We are focusing specifically on the challenges and opportunities in the market, which will safeguard our successful position in the long term. Our vision is still to become an international market leader for connected life and work. This is why we will systematically restructure our business model in the coming years – with investments in intelligent networks, with IT services and with Internet and network services. The aim of this strategic approach is to expand our activities across the entire value chain and position ourselves as an open partner for consumers and business customers as well as for the Internet sector.

We have defined five new strategic action areas:

We are systematically implementing the new strategy within these action areas and have achieved initial successes in all areas.

In all countries in which our operations primarily provide mobile communications services, we are planning to enhance our performance and specifically invest in next-generation technologies, develop innovative services, and expand our portfolio of mobile devices.

In the United Kingdom, for instance, our new joint venture Everything Everywhere got off to a good start as the market leader, measured in terms of the combined customer base. In the United States, we have developed a new strategic orientation to further improve our competitive position. We increased our average data revenue per user by more than 20 percent in the U.S. market in 2010 thanks to our 3 G/4 G network. In addition, we improved our position in the other mobile-centric markets, for example in the Netherlands and Poland, where we also substantially increased our data revenues.

We are continuing to integrate fixed-network and mobile communications – an approach we had taken under the One Company project – as planned and again in line with the new strategy. On the back of the successfully completed integration in Germany and several European markets (e.g., Croatia and Slovakia) in the course of the year, we generated additional revenues, further improved our customer service and leveraged synergies. We have also reorganized our activities in Europe with good results: EBITDA margins in the integrated markets are still at a high level despite the challenging economic situation in some countries.