Highlights in the 2017 financial year
BOARD OF MANAGEMENT
As of January 1, 2017, the Deutsche Telekom AG Group Board of Management was extended to include an additional Board department. The new Technology and Innovation department is headed by Claudia Nemat. Srinivasan (Srini) Gopalan also joined the Board of Management as of January 1, 2017 to head up the Europe Board department. The number of Board of Management members has thus been increased from seven to eight. Dr. Dirk Wössner was appointed as the new Board member responsible for Germany effective January 1, 2018. He succeeds Niek Jan van Damme, whose position as a Board member ended on December 31, 2017. In addition, Adel Al-Saleh was appointed as the new Board member responsible for T-Systems and as CEO of T-Systems International GmbH, both effective January 1, 2018. Adel Al-Saleh succeeds Reinhard Clemens, whose position on the Board of Management also ended effective December 31, 2017.
Following approval by the Bundeskartellamt, we completed the sale of our hosting service provider Strato to United Internet for a purchase price of EUR 0.6 billion effective midnight March 31, 2017.
The sale of DeTeMedien to a consortium of medium-sized publishers was completed on June 14, 2017. The purchase price, which is not to be disclosed pursuant to the agreement, comprises a cash component along with additional elements that included a settlement of the dispute with the buyers, who for several years have pursued legal proceedings concerning the level of charges for subscriber data. In addition, the publishers have assumed the obligation to publish subscriber directories.
In an accelerated book-building process, effective June 23, 2017 we placed the remainder of our direct stake of 9.26 percent in Scout24 AG on the market at a price of EUR 32.20 per share; until that point, it had been accounted for in the consolidated financial statements using the equity method. The proceeds from the sale amounted to EUR 319 million.
On November 9, 2017, T-Mobile US signed an agreement to acquire 100 percent of the shares in online TV provider Layer3 TV. The agreement includes a cash purchase price of around USD 325 million. The transaction was completed on January 22, 2018. T-Mobile US expects the acquisition to further strengthen its TV and video portfolio and its plans include rolling out its own TV service in 2018.
On December 15, 2017, we signed an agreement with the Tele2 Group on the acquisition of telecommunications provider Tele2 Netherlands by T-Mobile Netherlands. This transaction is part of our long-term strategy and will establish a stronger, more sustainable provider of convergent fixed-network and mobile services on the Dutch market. Tele2 Group receives a purchase price in the form of a 25.0 percent stake in T-Mobile Netherlands and a cash component of EUR 190 million. We expect the transaction to close in the second half of 2018, following approval by the responsible antitrust authority.
On December 22, 2017, T-Mobile Austria agreed to acquire Austria’s leading cable operator, UPC Austria, from Liberty Global. The agreed purchase price is around EUR 1.9 billion in cash less net debt. In line with our strategy, this acquisition will allow us to offer convergent product bundles to our customers on the European market. We expect the transaction to close in the second half of 2018, following approval by the antitrust authority and the City of Vienna.
SIGNIFICANT IMPAIRMENT LOSSES AND REVERSAL OF IMPAIRMENT LOSSES
In our Systems Solutions operating segment, the unexpected decline in order entry prompted intra-year impairment testing of the assets assigned to this unit. As a result, we have recognized an impairment loss on goodwill of EUR 1.2 billion. In the course of the annual impairment tests for our Europe operating segment, we recognized an impairment loss on goodwill and property, plant and equipment of EUR 0.9 billion – mainly relating to Poland. In our Group Development operating segment, we reduced the fair value of our financial stake in BT by around EUR 1.5 billion in 2017 due to the share price performance and the exchange rate effect. Impairment losses on spectrum licenses previously acquired by T-Mobile US were partially reversed, increasing the carrying amount by EUR 1.7 billion. This reversal of impairment losses is attributable to the fact that the grounds for the impairment loss recognized for the United States cash-generating unit in 2012 no longer apply thanks to the performance of T-Mobile US’ share price. The increase in the value of the licenses was indicated by the results of the spectrum auction held by the U.S. regulatory authority, the Federal Communications Commission (FCC), which was completed in 2017. Of the EUR 1.7 billion after accounting for deferred taxes, income of EUR 0.6 billion is attributable to the owners of the parent (net profit (loss)).
In the first quarter of 2017, T-Mobile US prematurely canceled senior notes held by external investors with a total volume of USD 8.25 billion. In addition, in December 2017, T-Mobile US prematurely canceled senior notes originally due in 2022 with a nominal volume of USD 1 billion. Repayment was made in January 2018.
In 2017, Deutsche Telekom International Finance B. V. issued euro bonds with a total volume of EUR 5.0 billion and U.S. dollar bonds with a total value of USD 3.5 billion. In addition, Deutsche Telekom International Finance B. V. issued foreign-currency bonds with a total equivalent value of EUR 0.6 billion at particularly favorable terms. In 2017, T-Mobile US issued senior bonds with a total volume of USD 1.5 billion with external investors.
In order to optimize the financing situation at T-Mobile US and the Group as a whole, in 2017 T-Mobile US was largely financed on an intra-Group basis. T-Mobile US received internal term loans and bonds in the volume of USD 11.5 billion.
SHARE BUY-BACK PROGRAM AT T-MOBILE US
In early December 2017, T-Mobile US announced a share buy-back program. Under the program, T-Mobile US may, until the end of 2018, buy back ordinary shares of the company in the capital markets for a total amount of up to USD 1.5 billion. By December 31, 2017, the company had already bought back ordinary shares valued at USD 0.4 billion (approx. EUR 0.4 billion).
TAX REFORM IN THE UNITED STATES
The reduction in the applicable federal tax rate (from 35 percent to 21 percent) as of the 2018 financial year resulted in a non-cash deferred tax benefit of EUR 2.7 billion for T-Mobile US due to the remeasurement of the surplus amount of deferred tax liabilities. EUR 1.7 billion of this benefit is attributable to the owners of the parent (net profit (loss)).
INVESTMENTS IN NETWORKS AND NEW SPECTRUM
The spectrum auction at which T-Mobile US acquired 1,525 licenses for 600 MHz spectrum – 31 MHz on average nationwide – for a purchase price of USD 7.99 billion ended in April 2017. In addition, swap arrangements were also consummated at T-Mobile US in the reporting year, giving rise to a total non-cash gain of EUR 0.1 billion.
Clear commitment to building out broadband. We are working hard to build out fiber-optic infrastructure and laid 40,000 kilometers of fiber-optic cable in the reporting year, far more than the 30,000 kilometers originally planned. For 2018, the planned figure rises to as much as 60,000 kilometers. Our fiber-optic network, which is extending over 455,000 kilometers, is already the largest in Germany and has grown by some 25,000 kilometers per year on average since 2010. The majority of the Group’s investment volume in Germany, which currently amounts to over EUR 5 billion a year, is for the build-out of broadband networks. A main focus of our FTTH activities is providing coverage to business parks and we launched a special campaign to put the infrastructure in place for 100 business parks, the majority of which will be covered by the end of 2018. This is in addition to subsidized build-out activities and partnerships with competitors. At the same time, our program to supply 80 percent of households with a download bandwidth of at least 50 Mbit/s continued, with 3 million new households connected to our high-speed network in 2017. We are also working non-stop in our European companies to upgrade our networks with optical fiber. 9
Project launch of “LTE everywhere.” In March 2017, we launched a further step in the network build-out with the large-scale roll-out of LTE 900 in Germany. This will get our network ready for 5G, the communications standard of the future. The 900 MHz spectrum range is especially suited to carrying the mobile signal deeper into buildings and homes. This frequency will enable us to offer LTE by the end of 2019 everywhere where mobile telephony is already possible today. In addition, we are fitting out every cell site in Germany with the RAN (Single Radio Access Network) technology. The conversion of the technology and the use of LTE 900 are additional elements with which we are preparing our network for 5G.
Network build-out for Narrowband IoT in eight countries. We are clearing the way for the Internet of Things with NarrowBand IoT (NB IoT), which will not only be used for 4G but also for 5G. We are upgrading the network to support sensors that, for instance, display vacant parking spaces or indicate how full the local trash cans are. At the start of 2017, we began building out the network infrastructure for these applications in Germany and the Netherlands. We will make the existing NarrowBand IoT network coverage available in additional cities in Greece, Poland, Hungary, Austria, Slovakia, and the Czech Republic. 11
Mobile campaign in Bavaria. We plan to install 1,000 additional cell sites in Bavaria and cover 135 previously unserved areas by the end of 2020. This will help the Bavarian state government roll out mobile coverage to areas considered difficult to develop due to their topography and economic circumstances. 10
“Feel connected all over Europe” was our motto at the 2017 Mobile World Congress in Barcelona. At the trade fair, we focused on the communications standard of the future, 5G. We used augmented reality and robotics to demonstrate that 5G is much more than just high-speed Internet, looked to the future of a connected Europe, and brought exciting developments to visitors’ fingertips: augmented reality and position tracking on a slot-car track, smart parking, and predictive maintenance solutions using the Internet of Things, and the secure, Europe-wide Pan-Net. 9
Europeʼs first 5G antennas and new 5G applications. 5G technology is expected to launch worldwide in 2020. Four radio cells in the Deutsche Telekom network are demonstrating the future of communication right now. We have launched low-latency programs at our hub:raum sites in Berlin and Krakow to drive the development of new applications for 5G. These programs are aimed specifically at innovative developers who want to develop products and services using edge computing and enhance the performance of the 5G network at an early stage. We are also planning to pilot 5G for industry, for example, with the Port of Hamburg, which needs a network tailored specifically to its needs. In 2017, we showcased the potential of 5G technology in live demonstrations in Romania and Greece.
Our motto for CeBIT was: “Digitization. Simply. Make it happen.” At our trade fair booth, we demonstrated specific success stories and solutions for new digital business models and secure networks centering around the key trends, i.e., the Internet of Things, drones, 5G, cloud services, virtual reality, smart city, and artificial intelligence. In addition, we unveiled new IoT starter kits for companies and demonstrated the opportunities of Narrowband IoT, the new network for IoT mass applications.
New Mobility at IAA 2017. At the International Motor Show (IAA), we showcased the digital mobility of the future at the International Motor Show (IAA). Like the smart parking app, Park and Joy, which makes it easy to find a parking space: find, book, and pay – it’s all done using the mobile app. The app displays and guides drivers to vacant parking spaces. The Digital Drive retrofit option transmits information on a vehicle’s condition, location, and driving behavior direct to the user’s smartphone. In addition, at eMove 360°, the first international trade fair for Mobility 4.0, we presented an end-to-end electro mobility service chain, from the installation, maintenance, service, and logistics of electric charging points, IT software and operation, to billing between consumers and the operators of charging points. 10
Smart city progress in Europe. Our goal is to be a leading provider of smart city solutions in Europe and a trustworthy, reliable, and long-term partner for the digitalization of cities. We have already equipped 18 European cities in 10 countries with digital solutions, and the Bonn Smart City project was officially launched at the UN Climate Change Conference in November 2017. The Budapest-based European Smart Solutions Center (ESC) plays a key role in the project, providing centralized functions such as marketing, partnering, pre-sales, and delivery services and working closely with local experts. At the Smart City World Congress in Barcelona in November 2017, we showcased a host of smart city solutions along with live data from existing projects: smart transport solutions including smart parking, smart electric vehicle charging, traffic and passenger management systems, smart waste management, smart lighting, smart metering, and smart public safety. We also featured NarrowBand IoT-based solutions and the Mayor’s Dashboard – a web application that enables city administrators to monitor, control, and optimize their city infrastructure and applications conveniently from any device. Together with Cisco, we developed a package for cities to implement tailor-made, secure, and user-friendly WiFi4EU solutions with ease. In the mySmartLife project, we are testing other innovative solutions for energy supplies, mobility and communications with the City of Hamburg and other partners. 13
With Smart Speaker, your home listens to your every word. We collaborated with internationally renowned research and development partners to create voice control technology for our services. The Smart Speaker is an intelligent assistant that makes life easier by allowing users to control our services with a simple call of “Hello Magenta.” The voice-activated assistant learns continually and can be used to operate connected devices in the user’s home, like our EntertainTV service. The Smart Speaker will be available in Germany in the first half of 2018. 11
Sea Hero Quest VR – using modern virtual reality capabilities for dementia research. In the #gameforgood initiative, we are working in partnership with academics and game developers to collect data about the spatial orientation of healthy people. A further development of the mobile games app Sea Hero Quest uses modern virtual reality capabilities to refine the existing standard data for spatial orientation. To date, anonymous data from over three million players has been analyzed and used as the basis for defining the first ever standard data on human spatial orientation. This is an important step towards developing new ways of diagnosing dementia at an early stage. 3 For further information on our innovations, please refer to the section “Innovation and product development.”
Partnerships are key to the success of our Group. We have successfully partnered with key players for many years, including Apple, Samsung, and Microsoft. We again entered into and expanded a large number of partnerships in the reporting year. We would like to present some of them in detail:
International partnership with Netflix. Our international partnership with streaming service Netflix will benefit all of our international subsidiaries by bringing hit shows exclusive to Netflix to our customers’ screens. EntertainTV customers in Germany have been able to access Netflix shows in ultra-HD directly via their EntertainTV set-top box since October 2017, while
T-Mobile Polska has been offering the Netflix service to customers in Poland since 2016. A new offer just launched by T-Mobile Netherlands combines its extremely popular Unlimited rate plan with the option to try Netflix for six months at no cost. In addition, our customers in Germany, Poland, Croatia, Greece, and Romania can stream unlimited Netflix titles via the mobile network using the free add-on option StreamOn, which includes Netflix. At T-Mobile US, Netflix is part of the Un-carrier campaign launched in September 2017.
Partnerships to drive the fiber-optic build-out. Together with EWE, we are planning to build out the fiber-optic network and directly connect one million private households. Specifically, we plan to jointly build out fiber-optic infrastructure in the regions of Lower Saxony, North Rhine-Westphalia, and Bremen, with a main focus on rural areas, over the next ten years. EWE and Deutsche Telekom intend to invest a total of EUR 2 billion in this initiative, which is scheduled to begin in mid-2018. The partnership still has to be approved by the Bundeskartellamt. Going forward, we will utilize the infrastructure of five city network operators in Bavaria and Baden-Württemberg. The partnerships cover some 125 thousand households, roughly half connected through municipal fiber-optic lines to the home (FTTH and FTTB) and through VDSL via fiber-optic lines to the street cabinets (FTTC). Previously, we agreed similar partnerships with EWE Tel, NetCologne, and innogy TelNet.
Partnership between BT and T-Systems improves global reach for international customers. At the beginning of March 2017, BT and T-Systems signed an agreement giving T-Systems access to numerous BT network services in future. T-Systems and BT will link up their networks in specific cases in the future to even better meet the needs of individual customers. This will not only increase T-Systems’ international reach, but also allow it to offer its customers global network services such as MPLS (Multiprotocol Label Switching) with seamless connectivity. 9
Toll4Europe GmbH commences business activities. In April 2017, T-Systems together with Daimler AG and DKV Euro Service GmbH & Co. KG established Toll4Europe GmbH to develop and implement a European Electronic Toll System (EETS) for vehicles over 3.5 metric tons. With a 55 percent stake, T-Systems controls the company. A toll box that can be used across Europe is scheduled to be available from 2018. Belgium and Germany will be connected to the system from its launch, with France, Austria, Spain, Portugal, Italy, and Hungary expected to either join at the same time or at a later date.
Telekom Open IoT Labs: Opening of an enterprise lab with Fraunhofer IML. We have added an industrial IoT component to our existing network of research and development organizations in the form of the Telekom Open IoT Labs, which were established in November 2017 together with the Fraunhofer Institute for Material Flow and Logistics in Dortmund. Up to six experts from the Fraunhofer Institute and three of our IoT experts are jointly developing, testing, and readying Internet of Things solutions for market launch with the aim of optimizing processes in the manufacturing, logistics, and aerospace industries. The Labs are open to working with further companies interested in developing application-specific IoT prototypes. 9
Membership in the Industrial Data Space Association (IDSA). In February 2017, we became a member of the Industrial Data Space Association e.V. (IDSA), a non-profit organization that has set itself the task of advancing the general conditions for a digitally connected economy and to establish secure exchange of data. We contribute in particular our expertise in the area of data security to this alliance of research and industry partners. 16
Together with Huawei, we are connecting the Internet of Things for KONE. Over the next few years, industrial company KONE will be working with T-Systems and hardware and technology vendor Huawei to connect over a million elevators, escalators, and doors to the cloud. As KONE’s longstanding IT service partner, T-Systems helped to develop the 24/7 connected service and used its expertise to help with the integration into the existing system landscape. KONE’s goal is to optimize maintenance processes, establish “predictive” remote diagnostics systems, and ensure that service technicians are better prepared for site visits.
NEW PRODUCTS AND RATE PLANS
Of course, we again launched new products, services and rate plans on the market in the reporting year, some of which are presented below: For more information, please go to www.telekom.com/media.
StreamOn: We are revolutionizing the mobile market. StreamOn was launched in April 2017 and is a revolutionary new rate option that enables Magenta customers to stream music and videos over the mobile network to their smartphones without using up the high-speed data volume included in their rate plans. We also offer similar options, for example, in Croatia, Poland, Romania, Greece, and at T-Mobile US.
StartTV: The simple way to switch to digital TV. In May 2017, we added StartTV to our portfolio. It is a simple, cost-effective way to switch to digital television. From just EUR 2 a month, StartTV includes around 100 channels (22 in HD), a program guide, and a smart search function. Customers can additionally purchase further HD channels and the “EntertainTV mobil” option for on the go.
Telekom Sport: The world of sport in one offer. In August 2017, we expanded our live sport offering. One highlight is the option of watching the original Sky conferences of the soccer Bundesliga, the UEFA Champions League, and the games of the DKB Handball Bundesliga (HBL) live via Sky Sport Kompakt. The program package also contains all the games of the 3rd soccer league, top games of the women’s Bundesliga, content from FC Bayern.tv live, and all games of the Basketball Bundesliga and the German ice hockey league. We also added combat sports events to the service at the end of the year.
MagentaEINS 12.0: More for families and young people. MagentaEINS 12.0 is full of great benefits for families. Since September 2017, customers can add up to four low-cost Family SIM Cards for partners and family members to their mobile contracts. For all customers under the age of 27, MagentaEINS Young offers an exclusive benefit: MagentaZuhause Surf allows a flexible combination of mobile communications and Internet at home. This offer is targeted at all young people who need a mobile contract and a high-performance DSL connection without telephony.
In January 2017, T-Mobile US introduced Un-carrier Next, where monthly wireless service fees and sales taxes are included in the monthly recurring charge for T-Mobile ONE. T-Mobile US also unveiled Kickback on T-Mobile ONE, where participating customers who use 2 GB or less of data in a month, will get up to a USD 10 credit on their next month’s bill per qualifying line. In addition, the Un-contract for T-Mobile ONE with the first-ever price guarantee on an unlimited 4G LTE plan was introduced which allows current T-Mobile ONE customers to keep their price for service until they decide to change it. In September 2017, T-Mobile US introduced Un-carrier Next: Netflix On Us through an exclusive new partnership with Netflix where a standard monthly Netflix service plan is included at no charge to qualifying T-Mobile ONE customers on family plans.
Global network service for business. In September 2017, T-Systems began offering corporate customers international network connections and services with high-speed availability. This service is based on the ngena network – the Next Generation Enterprise Network Alliance – a global alliance established by us and several other partners. The resulting business model remains unique so far in the industry: All ngena partners connect up their networks to create one global, highly standardized network. Thanks to state-of-the-art technology and software-based management, corporate networks and data connections as virtual private networks (VPN) can be set up for multinational corporate customers much faster than before. T-Systems is the first partner in the alliance to launch a network service based on the ngena platform. The service is called Smart SD-WAN powered by ngena (software-managed wide area network) and is available in various access formats. 8
Digital revolution for small companies: MagentaBusiness POS. Offering small companies digital solutions that have previously been reserved for large corporations, thereby making them fit for the digital age: That is the central idea behind the partnership we signed with IT startup enfore. enfore has developed an integrated point-of-sale/service (POS) system, we make our network available, and our POS specialists provide service and support. We have been marketing the product since September 2017 as a complete solution under the name MagentaBusiness POS.
We received a large number of awards again in the reporting year – among other things for our outstanding networks, our excellent service, our innovative marketing concepts, and for our extremely valuable Telekom brand. The following graphic summarizes the main awards received in 2017. For details on more awards, please go to www.telekom.com/media. For information on awards received for our HR activities, please refer to the section “Employees.”