Deutsche Telekom AG 6-K 2005
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER
For the month of November 2005
DEUTSCHE TELEKOM AG
(Translation of registrants name into English)
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ý Form 40-F o
by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T
by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T
Indicate by check mark whether the registrant by furnishing the information contained in this form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes o No ý
This report is deemed submitted and not filed pursuant to the rules and regulations of the Securities and Exchange Commission.
Deutsche Telekom at a glance.(1)
(a) For detailed information and calculations, please refer to Reconciliation of pro forma figures, page 43 et seq.
(1) All figures are shown according to IFRS. For further information, please refer to Transition to IFRS, page 74 et seq.
Deutsche Telekom at a glance.
At a glance
Number of employees at balance sheet date
Number of fixed-network and mobile customers
(a) For a detailed explanation of the special factors affecting EBITDA, adjusted EBITDA, adjusted EBITDA margin as well as special factors affecting profit/loss and the adjusted net profit, please refer to Reconciliation of pro forma figures, page 43 et seq. For detailed information and calculations of the figures for 2004, please refer to the reconciliation report Historical figures according to IFRS. New Group organization.
(b) Deutsche Telekom defines EBITDA as profit/loss from operations excluding depreciation, amortization and impairment losses.
(c) Investments in property, plant and equipment, and intangible assets (excluding goodwill) as shown in the cash flow statement.
(d) For detailed information, please refer to Reconciliation of pro forma figures, page 43 et seq.
(e) Telephone lines of the Group (including ISDN channels), including for internal use. Includes Telekom Montenegro from the second quarter of 2005 onwards; prior-quarter and prior-year comparatives have not been adjusted.
(f) Number of customers of the fully consolidated mobile communications companies of the Mobile Communications business area. MONET (Telekom Montenegro Group) customers included for the first time as of June 30, 2005. Prior-period comparatives have been adjusted.
A three-year transformation program known as the Excellence Program, which serves to implement the Group strategy, was launched at the beginning of 2005. It supports the realization of the growth potential that emerged following the strategic realignment of the Group towards three growth areas: Broadband/Fixed Network, Mobile Communications and Business Customers. In addition, the program generates opportunities arising from the integration of the Groups organization in areas such as convergent services, marketing and purchasing. The key to achieving sustained growth is to orient the Group consistently to the needs of the customer and increase customer satisfaction.
The Excellence Program has three key elements, which, when successfully implemented, will help Deutsche Telekom achieve its corporate goals:
Growth programs of the three business areas.
Group-wide initiatives to exploit further potential.
Measures to bring about a lasting change in corporate culture.
Broadband/Fixed Network plans to make comprehensive investments in a new high-speed network with a bandwidth of up to 50 Mbit/s as part of Re-Invent. The broadband campaign is being pushed further towards triple play. That means super-fast Internet access, entertainment and communications services.
The Mobile Communications business area is expected to achieve the intended savings with Save for Growth as scheduled and thus make a sustained contribution to the success of the Group. Besides launching new rates, T-Mobile has also further expanded its target group-specific product range. The launch of the Sidekick and webnwalk products marked the introduction of open, easy-to-use mobile Internet access. Furthermore, T-Mobile plans to introduce an attractive rate plan for using mobile phones in the home environment.
Under the Focus on Growth program, the Business Customers was able to win back customers and defend its market shares in the fiercely contested basic services business. T-Systems was also successful in tapping IT market potential, especially among small to medium-sized enterprises. T-Systems was successful in marketing full business process outsourcing solutions to major customers in Germany and abroad.
The Group-wide initiatives encompass projects aimed at harvesting the advantages of an integrated telecommunications provider through close cooperation among the strategic business areas. The goal of these Group-wide initiatives is to focus our solutions on the needs of our customers and the realization of efficiency gains in the Group. Process quality improvements are being implemented throughout the Group and the development of the next generation of network infrastructure is well underway. Measures taken by the Finance department lead to a potential for savings in 2005.
Successful realization of the strategic goals of the Excellence Program depends on bringing about a change in corporate culture throughout the Group. Thus, all the business areas of Deutsche Telekom are pursuing cultural change projects. For example, all top executives are to spend at least five days a year in direct contact with customers. As part of the Use what you sell project, additional measures are being developed for 2006 to strengthen the customer orientation of top management and broaden their range of vision to include the entire Deutsche Telekom product world. A new start-up program ensures that from the beginning of 2006, every new employee joining the Group will have to spend time with the customer.
Outlook for 2006.
Important successes were achieved in all three key components of the Excellence Program in the first nine months of 2005. In the fourth quarter of 2005, the Excellence Program will be further developed based on the new Group strategy for the years 2006 and 2007, while keeping the same structure, and target values will be defined. There will be more measures aimed at improving service quality and expanding the range of broadband and entertainment products for consumers. The same applies to the development of convergent services and products. The measures to be implemented in the business customers sector are aimed at securing our market position in the telecommunications business and opening up new growth opportunities in the out-sourcing business. The Excellence Program will place even greater emphasis on cultural change and human resources development.
Net revenue increased by 3.6 percent, from EUR 42.6 billion in the first nine months of 2004, to EUR 44.2 billion in the first nine months of 2005.
Group EBITDA(2) increased by 4.6 percent year-on-year from EUR 14.8 billion to EUR 15.5 billion; adjusted for special factors, it increased by 5.0 percent from EUR 14.9 billion to EUR 15.6 billion.
Profit before income taxes increased year-on-year from EUR 1.1 billion to EUR 6.6 billion. In a comparison of the third quarters, a profit of EUR 3.1 billion was recorded in 2005 following a loss of EUR 0.7 billion in 2004.
Net profit of EUR 4.4 billion recorded in the first nine months of 2005, after a loss of EUR 0.2 billion in the prior-year period; EUR 2.4 billion in the third quarter of 2005 alone; adjusted for special factors, net profit increased by 11.4 percent from EUR 3.1 billion to EUR 3.4 billion.
Free cash flow(3) before dividend payments decreased year-on-year from EUR 6.7 billion to EUR 3.5 billion in the first nine months of 2005 due to increased investment volume and higher tax payments. In a comparison of the third quarters, it increased 5.8 percent from EUR 2.4 billion to EUR 2.6 billion.
Net debt(4) decreased from EUR 44.6 billion as of September 30, 2004 to EUR 40.8 billion as of September 30, 2005. As against December 31, 2004, net debt increased by around EUR 1.3 billion.
Continued strong customer growth in the third quarter of 2005:
The number of mobile customers increased by 2.2 million; of these net additions, T-Mobile USA alone accounted for 1.1 million.
Further growth in broadband lines, aided in part by resale marketing, to 7.7 million DSL lines; increase of 0.6 million, of which 0.4 million in Germany from resale to third parties.
The level of orders received by Business Customers in the first nine months of 2005 increased by 1.0 percent year-on-year to EUR 9.8 billion.
(2) For a detailed explanation of the special factors affecting EBITDA, adjusted EBITDA, adjusted EBITDA margin as well as special factors affecting net profit/loss after income taxes and the adjusted net profit, please refer to Reconciliation of pro forma figures, page 43 et seq.
(3) Deutsche Telekom defines free cash flow as cash generated from operations less interest paid and cash outflows for investments in property, plant and equipment, and intangible assets (excluding goodwill). For calculation of free cash flow, please refer to Reconciliation of pro forma figures, page 43 et seq.
(4) For detailed information, please refer to Reconciliation of pro forma figures, page 43 et seq.
Events in the third quarter of 2005.
MTS shares sold in full.
Deutsche Telekom AG has sold its remaining stake in the Russian mobile network operator OJSC Mobile TeleSystems (MTS), which represented about 10 percent of its share capital. The proceeds from this transaction were about USD 1.5 billion, or about EUR 1.2 billion. Altogether, the sale of the financial investment in the Russian MTS brought in proceeds of about EUR 3 billion.
Bilateral lines of credit replace syndicated loan.
In August 2005, Deutsche Telekom AG restructured its liquidity reserves. The syndicated loan and short-term bilateral credit lines were replaced by standardized bilateral loan agreements totaling EUR 16.8 billion. In doing so, Deutsche Telekom has now arranged for a comfortable liquidity reserve with numerous highly reputable banks. After varying initial maturities, the bilateral loan agreements will have a maturity of 36 months each that can be extended after 12 months. Whereas the maturities of the syndicated loan were all concentrated on the same point in time, the new structure spreads the maturities, thus diversifying the extension risk. The quality of the liquidity reserve has increased, since the bilateral loan agreements do not include any financial covenants or Material Adverse Change (MAC) clauses.
Acquisition of tele.ring.
With the acquisition of tele.ring, bringing its total number of customers to over 3 million, T-Mobile Austria strengthened its position as the No. 2 in the Austrian mobile communications market. This equates to a market share of 37 percent. tele.ring Telekom Service GmbH was acquired for a purchase price of around EUR 1.3 billion. The transaction is subject to approval by the Austrian telecommunications regulator as well as the European Commission.
Trainee ratio remains high.
Effective September 1, 2005, Deutsche Telekom again sent an important signal to the labor market by offering another 4,000 vocational training contracts to young people looking to start their careers. This makes Deutsche Telekom one of the largest providers of vocational training programs in all of Germany. The Company added a new course of vocational training, retail sales assistant, this year. Trainees pursuing this course will receive most of their practical training at T-Punkt Vertriebsgesell-schaft. Overall, Deutsche Telekom offers vocational training programs for five commercial vocations, four IT vocations, and one industrial-technical vocation. Students who have passed the general college entrance examination and graduated from secondary school with a final grade of very good or good qualify for participation in two nationwide and three regional dual study programs, under which their university studies are combined with hands-on vocational training, leading to a bachelors degree.
Deutsche Telekom prevails in arbitration proceedings against Celcom.
In ICC arbitration proceedings between DeTeAsia Holding GmbH, a fully-owned subsidiary of Deutsche Telekom AG as the plaintiff against Celcom (Malaysia) Berhad, the court of arbitration upheld the action in all points in its verdict of August 2, 2005. Celcom (Malaysia) Berhad was ordered to pay the sum of USD 177.2 million plus interest and costs to DeTeAsia Holding GmbH. The amount to be paid by Celcom in accordance with the verdict is currently around USD 230 million.
DeTeAsia Holding had brought the action before the arbitrational court in March 2003 in response to Celcom (Malaysia) Berhads refusal, after Telekom Malaysia became the new majority shareholder in 2002, to recognize the contractually agreed rights of DeTeAsia Holding as the sole strategic shareholder to date. DeTeAsia Holdings stake in Celcom was sold to Telekom Malaysia, which now holds all shares in Celcom, in 2002.
Broadband/ Fixed Network:
Innovation drive for infrastructure, products and services presented at IFA.
T-Com launched an innovation campaign for infrastructure, products and services by introducing a number of customer-driven innovations at the IFA consumer electronics fair. In the area of infrastructure, a new phase of broadband development in Germany has been ushered in with plans at T-Com for the construction of a modern, high-speed fiber-optic network. This large-scale capital investment program worth EUR 3 billion, which aims to provide especially high-speed broadband access based on fiber-optic technology to customers in 50 large cities, will form the basis for innovative multimedia offerings, including new services and applications. Apart from broadband, future innovations will be focused more and more on the convergence between the fixed-line network and the mobile communications network. Besides the launch of the T-Box (single answering service for calls to the fixed-line number and the mobile number), T-Com has announced the upcoming introduction, in the second quarter of 2006, of a convergent product known as dual phone, which uses both WLAN and GSM technology.
Introduction of innovative new products.
T-Com announced new innovative products in September 2005. Effective October 5, 2005, customers using the new calling plan XXL Fulltime can place low-price calls to T-Coms fixed-line network everywhere in Germany, 24 hours a day. Also effective October 5, 2005, T-Com and T-Mobile together are offering the Local/Local combination package, consisting of T-Coms voice calling plan XXL Local and T-Mobiles calling plan option Relax Local. Initially, the new calling plan will be made available in 10 selected cities5. Through these new calling plans, which are tailored specifically to customers needs, Deutsche Telekom will be able to tap additional market potential.
(5) The offer is initially available in the following cities: Munich, Berlin, Dortmund, Düsseldorf, Essen, Frankfurt/Main, Hamburg, Hanover, Cologne and Stuttgart.
Broadband/ Fixed Network:
Launch of new online marketplace.
In mid-September 2005, T-Online announced the launch of its new online marketplace ElectronicScout24. The focus of this new trading platform is on consumer electronics and telecommunications products as well as computers and household devices. With ElectronicScout24, T-Online is tapping further attractive business potential in the e-commerce sector.
T-Mobile USA crosses the 20 million customer mark.
In the course of the third quarter, T-Mobile USA passed the 20 million customer mark. One main factor in this success is delivering on the Get more promise to customers. T-Mobiles promise to offer more minutes, higher performance, and better service has been enthusiastically received by customers. Since welcoming its 10 millionth customer in the first quarter of 2003, T-Mobile USA managed to double its customer base within a period of only two and a half years. T-Mobile USA also put the EDGE network for mobile data traffic into operation in the third quarter of 2005. EDGE allows considerably higher data transmission rates than GPRS.
HSDPA: Sales kick-off for HSDPA data cards.
T-Mobile began selling the Mobile DSL Card 1800 on September 26, 2005, making it one of the first mobile network operators in Germany to sell HSDPA (High Speed Downlink Packet Access) data cards. HSDPA provides greater speed and convenience to consumers and business customers for all their mobile applications, whether surfing, e-mail or downloads, and is expected to be available from CeBIT 2006 onwards. The decisive advantage of HSDPA is that it increases the maximum bandwidth in the UMTS network from the current level of up to 384 kbit/s to up to 1.8 Mbit/s.
Thomas Cook outsources its telephone infrastructure in the UK and Ireland to T-Systems.
Thomas Cook UK & Ireland has signed a five-year contract with T-Systems for communications services. The Deutsche Telekom subsidiary will upgrade and operate the travel operators telecommunications system in the UK and Ireland.
T-Systems to help bring digital television to Mecklenburg-Western Pomerania.
T-Systems has signed an agreement with its project partners NDR, ZDF and Landesrundfunkzentrale (LRZ) for the distribution of digital terrestrial television, DVB-T (Digital Video Broadcasting Terrestrial), in the German state of Mecklenburg-Western Pomerania. Under the terms of the contract, DVB-T will be broadcast in large parts of Mecklenburg-Western Pomerania as of December 6, 2005. T-Systems part in the project will be to build a new distribution network and to convert seven transmitter sites to the new TV standard. Viewers will be able to receive eight channels of the state-owned TV broadcasters right from the start.
Net revenue at the Deutsche Telekom Group rose to around EUR 44.2 billion in the first nine months of 2005. Compared to the same period of last year, this represents an increase of 3.6 percent. This positive trend in net revenue is also reflected in the quarterly comparison: In the third quarter of 2005, the Deutsche Telekom Group recorded growth in net revenue of 4.8 percent over the same quarter of 2004 to around EUR 15 billion.
The decisive factor was once again the favorable development of the Mobile Communications strategic business area. The 8.9-percent increase in revenues in the nine-month comparison, and the quarter-to-quarter growth of 10.6 percent are primarily due in addition to the first-time consolidation of the Slovak mobile communications investment to customer growth at T-Mobile USA.
Revenue in the Business Customers strategic business area remained at approximately the same level as last year, both in the nine-month and in the quarterly comparison. Revenue gains in the Enterprise Services business unit, in which positive developments in the Computing & Desktop Services area were a primary factor, were offset by a decline in revenues in the Business Services unit.
The total revenue of Broadband/Fixed Network decreased by 3.8 percent year-on-year in the first nine months of 2005. Within this total, revenue growth at T-Online was more than offset by a decrease in revenue at T-Com. T-Online achieved revenue gains, especially by continued expansion in the broadband market. In the third quarter of 2005, however, revenue only decreased by 2.3 percent year-on-year. T-Com managed to slow the decline in revenue: Whereas T-Coms revenue decreased by 4.9 percent in the first half of 2005, the drop in a comparison of the first nine months of 2005 was 4 percent. The year-on-year decline in revenue in the third quarter of 2005 was only 2 percent. Positive factors contributing to this include revenue increases in the areas of broadband and wholesale services, particularly from DSL resale with third parties and subscriber lines, as well as international carrier services and solutions.
Revenue growth in the Group was affected by consolidation and exchange rate effects. Positive effects from changes to the consolidated group totaling about EUR 0.3 billion especially at T-Mobile Slovensko and Telekom Montenegro were offset by negative exchange rate effects in the amount of EUR 0.2 billion. These were primarily the result of U.S. dollar (USD) exchange rate effects.
(a) Total revenue (including revenue between strategic business areas).
(b) Elimination of revenue between strategic business areas.
Contribution of the strategic business areas to net revenue (after consolidation of revenue between strategic business areas)
The Mobile Communications strategic business area made the largest contribution to the net revenue of the Group, with a share of around 47 percent. The percentage of revenue generated by the Broadband/ Fixed Network and Business Customers strategic business areas declined to approximately 37 percent and 15 percent respectively.
Revenue generated outside Germany
The proportion of revenue generated outside Germany continues to show a positive trend. In the first nine months of the current financial year, this figure increased by 3 percentage points over the same period last year to more than 42 percent. This growth is even more evident in the year-on-year comparison of quarters: For the third quarter of 2005, the proportion of revenue generated outside Germany was in excess of 44 percent, or 4 percentage points higher than in the same quarter of the prior year. The key factor underlying this trend is the sustained positive development of revenue at T-Mobile USA.
In the year-on-year comparison of the first nine months, domestic revenue remained slightly below the level of the previous year. The quarter-on-quarter comparison reflected a further decrease.
Profit/loss before income taxes
Profit before income taxes in the first nine months of 2005 amounted to approximately EUR 6.6 billion. This represents an increase over the same period last year of about EUR 5.5 billion. The primary source of this increase is the improvement in profit from operations. The positive effect was created predominantly by the non-recurrence of factors that had depressed profits in the prior year: In addition to impairment losses on the FCC mobile communications licenses of T-Mobile
USA in the amount of approximately EUR 1.4 billion, goodwill impairments totaling about EUR 2.4 billion for T-Mobile UK and Slovak Telecom were recognized last year.
Net financial income/expense also developed positively. The main reasons for this were the successful sale of the interest in MTS, yielding about EUR 1 billion, as well as improvements in finance costs.
Net profit of the Group rose to approximately EUR 4.4 billion. In the same period of the prior year, the Group reported a net loss of EUR 0.2 billion. The underlying factor in this gain was the positive development in profit before income taxes. Countering this development is the fact that in the reporting period, income taxes totaled approximately EUR 1.8 billion, compared with around EUR 0.9 billion in the prior year.
Special factors recorded in the first nine months of 2005 amounted to EUR 1 billion, mainly relating to the sale of the remaining interest in MTS. By comparison, the negative special factors recorded in the same period of the prior year totaled about EUR 3.2 billion. These related mainly to impairment losses on FCC mobile communications licenses in the United States as well as goodwill impairment losses for T-Mobile UK and Slovak Telecom. Adjusted for special factors, net profit in the first nine months of 2005 totaled about EUR 3.4 billion. Compared with the same period in the prior year, this represents an improvement of EUR 0.3 billion or approximately 11 percent; in a comparison of the third quarters, the increase was 27 percent.
(a) EBIT is profit/loss from operations as shown in the income statement.
Group EBIT nearly doubled in a year-on-year comparison of the first nine months, with a gain of about EUR 3.7 billion to approximately EUR 7.7 billion. All strategic business areas as well as Group Headquarters & Shared Services contributed to this result. The Mobile Communications business area contributed the largest proportion. In this area, the non-recurrence of impairment losses recognized on U.S. mobile communications licenses and on goodwill, especially for T-Mobile UK, generated a positive effect.
EBIT in the third quarter of 2005 rose year-on-year by around EUR 2.4 billion to approximately EUR 2.8 billion. While the strategic business areas Broadband/Fixed Networks and Mobile Communications recorded increases in EBIT, the EBIT figures for Business Customers and Group Headquarters & Shared Services showed a decline.
EBITDA in the first nine months of 2005 amounted to approximately EUR 15.5 billion. This corresponds to an increase of EUR 0.7 billion, or 4.6 percent over the prior-year period. The Mobile Communications business area was the main source of EBITDA growth.
Business Customers and Group Headquarters & Shared Services also recorded an increase. EBITDA in the Broadband/Fixed Network business area decreased.
EBITDA in the first nine months of 2005 was affected by negative special factors totaling EUR 147 million. This was the result of opposing effects: Negative special factors primarily severance and voluntary redundancy payments and restructuring costs were partially offset by positive special factors, primarily from insurance refunds.
In the prior year, negative special factors totaling EUR 94 million were recorded, mainly relating to severance and voluntary redundancy payments. Retroactive proceeds from the sale of Virgin Mobile had a positive effect.
Adjusted for the aforementioned special factors, EBITDA for the first nine months of 2005 amounted to EUR 15.6 billion compared with EUR 14.9 billion in the prior year. This represents an increase of EUR 0.7 billion or 5 percent. This gain was due to favorable developments in the Mobile Communications business area, and mainly the result of revenue gains due to customer growth. Headcount reductions and the accompanying decrease in personnel costs improved adjusted EBITDA at Group Headquarters & Shared Services. In the Business Customers business area, adjusted EBITDA was almost at the same level as in the prior year. Positive revenue trends at the Enterprise Services business unit could not fully offset the downturn in the Business Services business unit that resulted from pricing incentives aimed at winning back customers. In the Broadband/Fixed Network business area, adjusted EBITDA declined primarily due to a decrease in revenue. Cost reduction measures had a favorable effect.
Adjusted EBITDA in the third quarter of 2005 improved over the prior-year period by EUR 0.2 billion to EUR 5.5 billion. EBITDA reductions in the business areas Broadband/Fixed Network and Business Customers as well as at Group Headquarters & Shared Services were more than offset by increases in EBITDA in the Mobile Communications business area.
(a) Deutsche Telekom defines EBITDA as profit/loss from operations excluding depreciation, amortization and impairment losses. For a detailed explanation of the special factors affecting EBITDA, adjusted EBITDA, and the adjusted EBITDA margin, please refer to Reconciliation of pro forma figures, page 43 et seq.
Free cash flow
(a) For detailed information and calculations, please refer to Reconciliation of pro forma figures, page 43 et seq.
Free cash flow in the third quarter of 2005 improved by 5.8 percent year-on-year to around EUR 2.6 billion. Besides lower interest payments, this improvement is primarily attributable to the increase in cash generated from operations. Increased cash outflows for investments had an offsetting effect.
In the first nine months of 2005, free cash flow declined by EUR 3.2 billion year-on-year from EUR 6.7 billion to EUR 3.5 billion. Apart from the changes in working capital, this is due in particular to considerably higher tax payments and increased investments, mainly as a result of the acquisition of networks at T-Mobile USA relating to the winding up of the U.S. mobile communications joint venture.
Net debt increased by approximately EUR 1.3 billion to EUR 40.8 billion compared with December 31, 2004. Following an increase of approximately EUR 5 billion in the first six months of 2005, the Group succeeded in achieving a clear reduction of around EUR 3.7 billion in the third quarter.
The increase in net debt in the first half of 2005 resulted mainly from the acquisition of network infrastructure and spectrum at T-Mobile USA and the purchase of additional shares in T-Online totaling approximately EUR 3.9 billion in aggregate, as well as dividend payments in the amount of about EUR 2.7 billion. This was partially reduced by the effect of the positive cash flow.
The clear reduction in net debt in the third quarter of 2005 is primarily attributable to the positive development of free cash flow. This was augmented by inflows from the sale of the interest in MTS and the sale of the shares in comdirect bank for a total amount of about EUR 1.4 billion.
In a year-on-year comparison, the net debt of the Deutsche Telekom Group decreased by approximately EUR 3.8 billion.
(a) For detailed information and calculations, please refer to Reconciliation of pro forma figures, page 43 et seq.
Since the beginning of 2005, Deutsche Telekom has been pursuing its growth strategy under a new Group structure. Through its three strategic business areas Broadband/Fixed Network, Mobile Communications and Business Customers, the Group is focusing on the main growth sectors of the industry, while at the same time sharpening its focus on specific customer segments. The realignment has set the stage for a culture of strict customer focus, which Deutsche Telekom has established as a standard for the entire Group, throughout the world, under a slogan of customer centricity. The goal is to create clear added value for customers while ensuring profitable growth for the Company. Deutsche Telekom has thus laid the groundwork for positioning itself as the leading service provider in the industry and the fastest-growing telecommunications company in Europe.
The financial figures of the Group have been presented under the format of the three strategic business areas since the first quarter of 2005. At the same time, the Groups financial statements have been presented in accordance with IFRS (International Financial Reporting Standards). A detailed description of the new structure of the Group, along with explanations on IFRS reporting, can be found in the Interim Report for the first quarter of 2005 and the reconciliation report Historical Figures according to IFRS. New Group organization.
Broadband and narrowband lines (Germany and Central and Eastern Europe) are the responsibility of the T-Com business unit. The T-Online business unit has also been marketing broadband lines (in Germany) since January 31, 2005.
Customers with broadband and narrowband rates, all Internet customers with a billing relationship as well as PAYG < 30 days (broadband/narrowband) in Germany and Western Europe are the responsibility of the T-Online business unit.
(a) The total was calculated on the basis of precise figures and rounded to millions. Percentages calculated on the basis of figures shown.
(b) Lines in operation.
(c) Since January 31, 2005, broadband lines based on DSL technology for consumers have been marketed by T-Online, broadband lines excluding internal use. Prior-year comparatives have been adjusted.
(d) Definition of resale: sale of broadband lines based on DSL technology to alternative providers outside the Deutsche Telekom Group.
(e) Customers with a billing relationship. Western Europe includes: Ya.com and T-Online France.
(f) The number of narrowband lines rather than channels has been reported since the first quarter of 2005. Prior-year comparatives have been adjusted.
(g) Telephone lines excluding internal use and public telecommunications, including wholesale services. Prior-year comparatives have been adjusted.
(h) Subscriber-line figures are recorded including Magyar Telekoms subsidiary, Maktel, and Telekom Montenegro. Prior-year comparatives have not been adjusted. The rebranding of MATÁV as Magyar Telekom took place at the beginning of May 2005.
(i) Total calculated on the basis of customers (broadband and narrowband rates) with a billing relationship and PAYG < 30 days and PAYG > 30 days.
(j) PAYG: Pay as you go.
The Broadband/Fixed Network strategic business area consists of the business units T-Com and T-Online International AG, and serves consumers and smaller business customers of the Deutsche Telekom Group.
The business area also conducts wholesale (including resale) and international carrier services business, also providing wholesale services for other business areas.
Customer development and selected KPIs
The dynamic growth of the broadband market continued in the third quarter of 2005. The consistent marketing strategy pursued boosted the number of broadband lines provided by T-Com by 599,000 to 7.7 million in the third quarter of 2005. In Germany, approximately 7.3 million DSL lines provided by T-Com were in operation at the end of September 2005, representing an increase of 525,000 DSL lines in the third quarter. Falling prices on the ISP market and packages offered by competitors have further accelerated broadband growth. T-Com is participating in this market growth, particularly through DSL resale to third parties, which is attributable in part to the continuing shift of T-Coms business focus from retail to resale customers. Overall, the Broadband/Fixed Network strategic business area put approximately 147,000 new lines of its own and 379,000 resale new lines of third parties in operation in the third quarter.
T-Com is driving the development of broadband in Germany. Since July 1, 2005, T-Com has been providing T-DSL lines with transmission rates of up to 6 Mbit/s. This has boosted T-Coms competitiveness and made broadband Internet even more attractive. At the IFA consumer electronics fair, T-Com announced that it was taking an important step towards increasing broadband penetration in the long term: By developing ADSL2+ technology with bandwidths of up to 20 Mbit/s and using fiber optic-based VDSL2 technology(6) with bandwidths of up to 50 Mbit/s, T-Com will make particularly high bit rate lines available to a wider public. In addition to increasing its transmission rates, T-Com is continuing to focus on expanding its broadband infrastructure by developing areas with no coverage up to now and increasing the use of outdoor DSLAM technology(7). T-Com is also testing the new wireless technology WiMAx in a pilot project with around 100 customers in the Bonn area. The project is scheduled to be completed in March 2006. The future use of WiMAx technology to increase the availability of broadband Internet access in areas where there was previously no coverage will depend on the findings of the project relating to customer acceptance, technology, and overall profitability. Another important element of T-Coms broadband strategy is the wireless LAN technology, which T-Com is providing together with T-Mobile. By the end of September 2005, the number of T-Coms public HotSpots in operation had increased to more than 4,300.
(6) VDSL Very High Speed Digital Subscriber Line.
(7) DSLAM Digital Subscriber Line Access Multiplexer; fiber optic-based DSLAM technology in the distribution box to increase the range of DSL.
The positive development in the broadband market at T-Coms subsidiaries in Central and Eastern Europe also continued in the third quarter of 2005. In total, the subsidiaries in this region increased their number of DSL lines by around 125 percent year-on-year to 439,000 and by 73,000 quarter-on-quarter. Magyar Telekom was very successful in driving its broadband growth: Year-on year, the Hungarian subsidiary doubled its net additions in the third quarter, thanks to its focused DSL marketing campaigns. All in all, the DSL customer base rose in the third quarter of 2005 from 248,000 to 288,000. The Croatian subsidiary T-Hrvatski Telekom had 71,000 DSL lines in operation at the end of September 2005, an eight-fold increase over the third quarter in 2004 and about one third more than in the second quarter of 2005. The value of pursuing a consistent broadband strategy was also demonstrated in Slovakia: Slovak Telecom posted a quarter-on-quarter increase of around 13,000 to approximately 81,000 DSL lines in operation at the end of the third quarter of 2005. To strengthen its position in the online business, Slovak Telecom bought Zoznam s.r.o., one of the leading portals in Slovakia.
In the narrowband sector, T-Com recorded a further decrease in the number of lines in Germany as a result of customer churn and, in part, fixed-mobile substitution effects. Compared with the prior-year quarter, the number of T-Com narrowband lines decreased by 3.8 percent to 35.6 million. At 9.9 million, the total number of T-ISDN lines decreased by a disproportionately large amount, 5.7 percent compared with the end of the third quarter of 2004. This trend can be attributed to the discontinuation of the price advantage of combining T-DSL with T-ISDN (as compared with T-DSL combined with T-Net). The growing saturation of the market and the new integrated voice and Internet products offered by competitors also had a negative impact.
The volume of call minutes generated by end customers continued to decline. This is mainly attributable to the reduction in the number of lines operated by T-Com as a result of leased subscriber lines and to competitors rolling out their own infrastructure. In addition, call-by-call and preselection are contributing to the negative trend in call minutes, though the decline slowed further in the third quarter, following on from the first half of 2005. This can be principally attributed to the success of the Wünsch Dir Was (make a wish)(8) calling plan that was successfully introduced on March 1, 2005. This plan has enabled T-Com to further stabilize its market shares(9) for local, national, and fixed-to-mobile calls. At the end of the third quarter of 2005, the customer base for the Wünsch Dir Was calling plan had already grown to more than 10.4 million customers. Customers have been especially attracted by the ability to add optional features such as the international rate option CountrySelect, already selected by 450,000 customers. This option allows customers to select three countries they can call at especially low rates. T-Com is continuing to develop its range of rate options step-by-step in line with customer needs in order to remain successful in competition in the future.
(8) Since March 1, 2005 T-Com has been offering a highly simplified rate portfolio with four rate variants (Call Plus, Call Time, XXL and XXL Free-time) and two optional rates (XXL Local und CountrySelect) that can be added to these variants. Since March 1, 2005, the following service features have been included as standard with all lines with Call Plus, Call Time, XXL or XXL Freetime: calling line identification, call waiting, call completion on busy, consultation call, switching between lines, three-way conferencing, call forwarding and calling line identification restriction. In the case of Call Plus/T-Net, however, the service has only included the T-Net Box since August 1, 2005. Furthermore, to-the-minute billing is available for all rates that are currently offered, including those for City calls.
(9) Ratio of call minutes realized on T-Coms own lines to the total number of minutes in T-Coms network.
In the third quarter of 2005, Broadband/Fixed Network continued to implement its Re-Invent growth program as part of Deutsche Telekoms Excellence Program. The three strategic elements of Re-Invent are innovation and growth, quality and efficiency, and customer focus. For this purpose, T-Com has identified and launched a series of short-term and medium-term campaigns. One of the main goals is to increase innovation. T-Com underscored this strategic goal when it established the new Innovations T-Com board department on October 1, 2005, to be headed by Bernd Kolb. At the beginning of July 2005, the new Innovation Center commenced its activities to drive the development of T-Com with new products, solutions and business models. The Innovation Center will be managed by T-Coms new Innovations board department. As part of its quality and efficiency drive, T-Com has started radically streamlining its product portfolio to make it simpler and leaner.
Under the umbrella of Re-Invent, T-Com has also launched Simplicity, a program that is designed to enhance efficiency. A large number of individual measures such as the automation of sales and technology processes, the upgrade of the technical infrastructure, and the streamlining of the product portfolio are intended to reduce personnel requirements.
Customer development and selected KPIs
In the first nine months of 2005, T-Online continued to pursue its strategic focus on maintaining an innovative, sustainable position on the dynamic broadband market.
By marketing full-service packages comprising a DSL line, Internet access and hardware components, T-Online has been making its mark in Germany as a full-service DSL provider since January 31, 2005. This repositioning and the further development of the DSL rate portfolio in July 2005 have enabled T-Online to expand its DSL rate customer base. Since the beginning of the year, a total of 0.8 million German customers have opted for a DSL rate plan, more than 95 percent of whom were won over by the DSL full-package marketing drive. Compared with September 30, 2004, the DSL rate customer base has grown by 37.9 percent to around 4.0 million. The overall DSL rate customer base rose in the same period from 3.2 million to 4.6 million customers. In the third quarter of 2005, T-Online attracted 342,000 new DSL rate customers in Germany. Nevertheless, T-Onlines competitive environment intensified further in the third quarter of 2005.
In its Voice over IP business, T-Online made DSL telephony more attractive in the third quarter of the year. T-Onlines DSL telephony has been rounded off by a video component since mid-August 2005.
An important element for benefiting from the positive development of the broadband market is the expansion of entertainment services. For example, T-Online gained yet another well-known partner from the U.S. film industry for its video-on-demand (VoD) service: Warner Bros. International Television Distribution Studios. As a result, T-Online now has contractual relationships with six major Hollywood studios. At present, T-Onlines video-on-demand service comprises over 1,000 titles from all genres, documentaries, and own productions by ProSiebenSat.1 Media AG, with which T-Online has been collaborating since March this year. The success of this service is demonstrated by the high demand for videos by customers: At the end of the quarter, the number of videos viewed averaged 80,000 per month.
Musicload gives T-Online a leading position on the German online music market. By the end of September 2005, more than 9.5 million titles had been downloaded from Musicload, exceeding the number of downloads in the full-year 2004. With Gamesload, T-Online has established its third digital distribution platform following video on demand and Musicload for entertainment on the Net. In the rapidly growing PC games market, T-Online was one of the first major German providers to unveil a proprietary digital purchase platform for full versions of PC games at the Games Convention (adventure fair for interactive entertainment) in mid-August 2005. In a practical comparison carried out by PC Games magazine (Nov. 2005 issue), Gamesload was voted the best among seven providers of legal game downloads.
In France, T-Online is setting the scene for setting up its own end-to-end IT-based, high-bandwidth network. This will enable the company to offer customers Internet access, entertainment and broadband communication services with high bandwidth and the required quality. The first step was to sign agreements for the use of optical fiber capacity. Then, T-Online started unbundling the central offices. By the end of September 2005, around 100 central offices had been unbundled, on schedule for the building of T-Onlines own network infrastructure.
T-Online France also continued to position itself as a provider with aggressive prices during the third quarter of 2005: With its offer of unlimited Internet access over a three-month introductory period as well as the possibility of calling fixed lines in France with no time limit using Voice over IP, T-Online France is complying with customers wishes for an attractive package comprising Internet access and telephony. The success of such offers increased the French subsidiarys DSL customer base further in the third quarter of 2005, expanding its market share yet again. T-Online France also posted strong growth in the number of Voice over IP customers. In the third quarter of 2005, more than 50 percent of new customers opted for a Voice over IP offer from T-Online France.
In Spain, T-Online was largely able to complete the announced integration of the newly acquired carrier Albura in the third quarter. To expand its share of the ADSL consumer market in the long term, T-Online is driving ahead the establishment of a network operation of its own with top priority. According to Ya.com planning, 220 central offices should be ready for operation by the end of 2005. Alcatel, a partner in a strategic alliance since the end of September 2005, will supply a turnkey triple-play solution for the network. T-Online has also made further investments to pave the way for launching a product portfolio based on ASDL2+ with rates of up to 20 Mbit/s.