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Development of revenue and profits.¹

Economic outlook.

The positive trend in the global economy is expected to continue in 2011, albeit with slightly less momentum. Leading indicators, such as the OECD’s composite leading indicators and the international purchasing managers indexes, continue to show a consistent and sustained upward trend. It will again be the emerging markets that will enjoy above-average growth, supported by the continued solid trend in Germany and slowly, but steadily improving growth in the United States.

For our core markets the economic outlook is varied: The German economy is currently expected to remain robust compared with other European economies and continue to develop positively in 2011. While the upturn in 2010 was primarily export-driven, increasing support is expected from domestic demand in 2011. In its 2010 Autumn Report for Germany, the Joint Economic Forecast Project Group (Projektgruppe Gemeinschaftsdiagnose) predicted an increase in real GDP of 2.0 percent for 2011. The Federal Ministry of Economics currently forecasts growth of 2.3 percent for 2011.

The latest forecasts for the United States are predicting a growth rate of between 3 and 3.5 percent for 2011. The most recent improvement in the outlook is due in particular to the tax relief passed at the end of 2010, which will have a positive knock-on effect on retail consumption. Nevertheless, economic developments in the United States are still distinctly uncertain, particularly with regard to the relatively high rate of unemployment and national debt.

We expect to see a moderate upward economic trend, which in some cases is gathering momentum, in our core markets of Poland, Austria, the Czech Republic, Hungary, the Netherlands, and Slovakia with annual growth rates of between 2 and 4 percent. In the core markets of Greece, Romania and Croatia, by contrast, the economic situation will continue to be challenging in 2011, although Croatia recorded marginally positive growth rates at the end of the 2010 for the first time since the crisis. The Romanian economy is expected to start growing again in the course of 2011. For Greece, the Joint Economic Forecast anticipates a decrease of 2.1 percent.

In view of the sustained high pressure to consolidate public finances in some countries, we cannot rule out the possibility of further austerity programs or tax rises in 2011, which would have a corresponding negative effect on consumption and on individual companies.

Market expectations.

The German mobile communications market once again began recording healthy growth in 2010, driven by the increasing penetration of smartphones and strong growth in mobile data traffic. This positive trend of growing mobile data and Internet use is set to continue in 2011, although the extensive regulatory intervention in the form of a cut of almost 50 percent in termination charges will have a negative impact on this positive underlying growth for the entire industry. We only expect a small increase in the number of broadband lines in the fixed network. Traditional voice revenues will continue to decline. Demand for telecommunications products from small and medium-sized enterprises is expected to continue to grow, especially in mobile data transmission and automated machine-to-machine data exchange.

In our European footprint markets, excluding Germany, price erosion in voice telephony resulting from regulation and competition will lead to stagnating market revenues. The growth in revenue from mobile data usage and from new telecommunications products will only partially compensate for the decline in revenue from voice telephony. The economic crisis will continue to impact our footprint markets in Southern and Eastern Europe in 2011. In some countries, governments will endeavor to improve the financial situation through fiscal policy intervention. Such action could negatively affect private consumption and consequently market volumes. We expect the macroeconomic situation in Greece to remain strained.

In the United States in the next two years, while the consumer climate improves and unemployment remains relatively high, the mobile communications market will continue to grow and, at the same time, be characterized by intense competition among the major mobile providers. Growth is expected to be driven primarily by the ever more successful marketing of data services. This additional revenue will probably offset falling revenue from voice telephony and text messaging. Price pressure will continue due to flat rate products. Prepay business is expected to continue to gain strength. Postpay business should maintain its moderate growth thanks to mobile broadband connections.

The economic recovery is expected to have a positive impact on the ICT

business with corporate and business customers in the relevant domestic and foreign markets. We expect the continuous economic recovery and fast growing demand for cloud computing to result in sustained growth in corporate customer business in the next few years.

¹ The forecasts for the development of revenue and profits contain forward-looking statements that reflect management’s current views with respect to future events. Words such as “assume,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “could,” “plan,” “project,” “should,” “want,” and similar expressions identify forward-looking statements. These forward-looking statements include statements on the expected development of net revenue, adjusted EBITDA, capital expenditure, and free cash flow until 2012. Such statements are subject to risks and uncertainties, such as an economic downturn in Europe or North America, changes in exchange and interest rates, the outcome of disputes in which Deutsche Telekom is involved, and competitive and regulatory developments. Some uncertainties or other imponderabilities that might influence Deutsche Telekom’s ability to achieve its objectives, are described in the “Risk and opportunities management” section in the combined management report and the disclaimer at the end of the Annual Report. Should these or other uncertainties and imponderabilities materialize or the assumptions underlying any of these statements prove incorrect, the actual results may be materially different from those expressed or implied by such statements. We do not guarantee that our forward-looking statements will prove correct. The forward-looking statements presented here are based on the current structure of the Group, without regard to significant acquisitions, dispositions, business combinations or joint ventures Deutsche Telekom may choose to undertake. These statements are made with respect to conditions as of the date of this document’s publication. Without prejudice to existing obligations under capital market law, we do not intend or assume any obligation to update forward-looking statements.

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