Letter from the Chairman of the Board of Management

Dear Shareholders,

This year we have slimmed down our Annual Report and for a very specific reason: We want to concentrate on the essentials. Not only that, but we will use fewer valuable resources by reducing the amount of paper needed for the print version of the annual reports. And, of course – it’s no secret – it saves us money. In this digital age, an era of many exciting digital services from Deutsche Telekom, it is important to ask ourselves how much money we still want to spend on printed material. So we are pleased to present our 2016 Annual Report – no frills, no fancy pictures, just plain facts.

And these facts speak for themselves: Deutsche Telekom once again saw strong growth in 2016. We continued to invest and our customers are rewarding our efforts. We are No. 1 in Europe.

In figures, net revenue rose by 5.6 percent to EUR 73.1 billion. Our two most important indicators also developed extremely positively. Adjusted earnings before interest, tax, depreciation and amortization is the barometer of our earnings power from operations. At EUR 21.4 billion, it exceeded the target we set ourselves. Free cash flow is also up significantly, totaling EUR 4.9 billion despite us ramping up our investment activities further.

As shareholders, you also benefit from our good results. Specifically, in the form of your dividend. And our dividend in kind shows that you, our shareholders, have confidence in our Company and our share. For almost 41 percent of dividend-bearing shares, you decided to make use of the option to convert the dividend for the 2015 financial year into shares instead of receiving it as a cash payment. You kept your money in the Group and, in doing so, sent a clear message of support for our strategy and our investments. Thank you very much for that!

We are seizing the opportunity this presents and last year invested some EUR 11 billion in the best networks and products in Germany, Europe, and the United States. Our efforts are seeing great overall success.

We can now offer fiber-optic broadband lines to 27 million households in Germany and have already connected 6.8 million lines (2.4 million of these in the past twelve months alone).

We have started work to expand our data center in Biere, near Magdeburg. This data center is already the biggest in Europe. The expansion should be finished in just under two years, right on time to serve the growing demand for secure and reliable cloud services. This will help us to continue expanding our market leadership in Europe.

And we are not stopping there. We will keep on offering our customers the best. That is why we continued to set standards in 2016, including with the development of the new 5G standard where we achieve record transmission speeds and have specific applications in mind. 5G will make ultra-fast response times of less than one millisecond possible. Speeds like these are crucial to allow applications such as in-car sensors to respond to dangers in time. And with data rates of 70 gigabits per second, multiple users at the same location can, for example, load movies in HD simultaneously without having to wait for the data to buffer.

In addition, in our networks in Germany and the Netherlands we rolled out the world’s first narrowband communication system. Narrowband technology allows the use of low-energy, cost-efficient sensors and thus is ideal for use in industry and economy. It provides the first essential link between the Internet of Things and our broadband networks.

Our rate plans have also improved: MagentaOne, our one-stop product bundle for worry-free connectivity has been available to consumers in all of our integrated markets in Europe since March 2016. And, since April, MagentaMobil includes even more features, from the inclusive data limit to roaming terms. Our customers like what we’re doing, which is why last year we gained some 1.5 million mobile contract customers in Germany alone.

And speaking of mobile business, T-Mobile US has excelled itself this year. Our colleagues in the United States just kept on raising – and meeting – their projected figures in 2016. T-Mobile US won 8.2 million new customers while continuing to improve its results and the company’s value by a significant margin. T-Mobile US is now No. 3 in the United States and our stake in the company has substantially increased in value. Between May 2013 and the end of 2016, we recorded an increase of some EUR 23 billion, or around 360 percent.

Our TV offerings also set us apart from the competition. The EntertainTV service includes a completely revamped user interface and innovative features such as the restart function, which lets Entertain customers watch a program that is already in progress from the beginning.

Our TV products are very popular in our European subsidiaries, too, because we offer more – more content and more services. In Greece, for example, for a few months now we have been offering a TV product that combines the best of both the satellite and Internet TV worlds. These examples show how our innovations are paying off across all of Europe. Our TV customer base had grown to four million by the year-end.

Throughout all of our efforts, our clear focus remains on one thing: quality. This approach is underscored by numerous awards, and 2016 was no exception. We received accolades for our “outstanding” networks, our “excellent” service, our innovative marketing concepts, and the extremely valuable Telekom brand – at the beginning of February 2017, our brand was singled out as the most valuable in Europe.

All of this is made possible thanks to a great team of people. Our employees work tirelessly to serve customers and the entire Group, and I would like to take this opportunity to express my gratitude for their superb work.

Dear Shareholders,

As you can see, the figures speak for themselves. Our strategy is working. We are seeing ongoing growth and continue to pursue our goal of becoming Europe’s leading telecommunications provider.

An important part of our strategy is to involve you, our shareholders, in the Group’s success. We promised that dividends would increase in tandem with free cash flow growth. That is why, subject to approval by the relevant bodies and the fulfillment of other legal requirements, we will be proposing to the shareholders’ meeting a dividend of EUR 0.60 per dividend-bearing share. We are also considering offering our shareholders the choice once again of having their dividend paid out in cash or converting it into shares.

We are a reliable partner. We have sustained the dynamic growth of recent years and have once again grown profitably. Our forecast through 2018 is set. Here is a brief reminder: We plan to increase revenue by an average of one to two percent per year in the years 2014 through 2018. Adjusted EBITDA is to grow by an average of two to four percent per year in this period, and free cash flow by around ten percent on average.

We are very firmly on track to achieve these goals. We will do this with ambition and motivation, but also with prudence and level-headed reasoning, because we cannot let ourselves be carried away by our success. We are leaders on many levels. Our continued success rests on our ability to keep pushing forward and prove ourselves time and again. That is what we are working to achieve.

Yours sincerely,

Tim Höttges