Deutsche Telekom posts strong customer growth in the first quarter of 2013

• Number of branded customers in the United States rises for the first time in 15 quarters, growth in mobile contract customers and fiber lines in Germany, mobile customers increase in Europe
• Adjusted net profit up more than 30 percent
• Revenue down by 4.5 percent, adjusted EBITDA by 4.3 percent; adjusted EBITDA margin remains unchanged year-on-year at 31.1 percent
• T-Mobile USA sells some 500,000 iPhones in four weeks
• Growth in TV, B2B, and mobile data in Europe
• New orders at T-Systems grow by 33 percent
• Guidance for the year confirmed

Deutsche Telekom's start to 2013 was characterized by a successful strategic direction, clear growth in customer numbers, and sound financial data. For the first time in 15 quarters, the number of branded customers at T-Mobile USA has risen, bringing with it the turnaround. The slight increase of 3,000 customers contrasts with a decline of 261,000 in the prior year. In Germany, the number of mobile customers grew by 441,000, 144,000 of which under the Telekom and Congstar brands. In German fixed-network business, sales of optical fiber products saw strong growth of 156,000 lines, boosted by reseller business under the so-called contingent model. In Europe, the subsidiaries reported an increase in mobile contract customers of 72,000. This growth was matched by the increase in TV customers, along with 58,000 broadband additions in the fixed network.

With the merger of T-Mobile USA and MetroPCS, positive regulatory decisions on unbundled local loop (ULL) lines, and encouraging indications of how vectoring will be deployed in Germany, promising prospects are opening up for the Group. At the same time, Deutsche Telekom generated a year-on-year increase in adjusted net profit of more than 30 percent to EUR 767 million in the first quarter. Reported net profit increased by 3.5 percent to EUR 564 million.

Net revenue decreased by 4.5 percent compared with the prior-year period to EUR 13.8 billion. At the same time, adjusted EBITDA declined by 4.3 percent to EUR 4.3 billion. This results in an unchanged adjusted EBITDA margin of 31.1 percent compared with the first quarter of 2012. Free cash flow between January and March 2013 amounted to EUR 1.0 billion, down 7.5 percent on the prior-year quarter. This is in line with the guidance for the year, which is below the 2012 level. Deutsche Telekom therefore confirmed its guidance of free cash flow of around EUR 5 billion for 2013. Adjusted EBITDA is expected to come in at around EUR 17.4 billion plus pro rata contribution for the year from the consolidation of MetroPCS.

"We have resolved some major issues," said René Obermann, Chairman of the Board of Management of Deutsche Telekom. "The biggest of those were our customer figures in the United States, which are finally back on the up. The positive regulatory decisions form the basis for our planned broadband build-out."

In terms of cash capex, investments exceeded the EUR 3.0 billion mark in the first quarter of 2013. However, the growth of almost 40 percent compared with the first three months of 2012 was not yet attributable to the intensified network roll-out planned for the coming years, but rather to expenditure for the acquisition of spectrum in the Netherlands. As of March 31, 2013, net debt amounted to EUR 37.1 billion. Thus, the Group reduced its debt by EUR 1.5 billion against March 31, 2012.

Germany - Mobile service revenues improved further

In its home market, positive trends continued for Deutsche Telekom in the first quarter of 2013. Smartphone sales recorded growth of 16 percent, reaching over a million. In the fixed network, fiber-optic products are growing increasingly important. The total number of them (VDSL and FTTH) climbed 63 percent, compared with the first quarter of 2012, to 1.1 million. With 156,000 new fiber-optic customers in the quarter, Deutsche Telekom achieved a record high. Of these customers, 46,000 came from the wholesale area, mainly due to the successful launch of what is known as the contingent model.

The number of mobile contract customers increased by 441,000 in the first three months of the year, after a decline of 107,000 in the prior-year quarter. In addition to the expanding reseller segment (service providers), new customer growth was also attributable to 144,000 new customers under the Deutsche Telekom and Congstar brands.

Revenue in the Germany operating segment amounted to EUR 5.6 billion in the first quarter of 2013, 1.6 percent lower than in the prior-year period. Adjusted EBITDA fell by 3.8 percent to EUR 2.3 billion due to an increase in market investments, giving an adjusted EBITDA margin of 40.5 percent. Adjusted for the reduction in mobile termination rates, service revenues in the German mobile business remained more or less stable compared with the first quarter of 2012, down just 0.1 percent. This was the best figure since the fourth quarter of 2011 and underlines the progress Deutsche Telekom has made compared with the competition.

USA - Trend reversal in customer numbers

At the start of 2013, T-Mobile USA's competitive position improved substantially thanks to a number of initiatives. The most important point is the conclusion of the merger with MetroPCS as of April 30, 2013. The merger opens the way for anticipated cost synergies with a present value of USD 6 to 7 billion, improves the mobile spectrum available, and increases the number of customers of the new joint company by some 9 million. Other milestones for T-Mobile USA so far in 2013 have been the marketing of the successful value plan as part of the uncarrier strategy and, since April, of the Apple iPhone. Some 500,000 iPhones were sold in the first four weeks after marketing began.

The U.S. subsidiary already recorded successes in customer figures between January and March of this year. The number of branded customers grew for the first time in four years. The number of branded contract customers declined by 199,000, after a decrease of 510,000 a year earlier. The total number of customers increased by 579,000 to 34 million.

Revenue in the United States operating segment amounted to EUR 3.5 billion in the first quarter, 8.0 percent lower than in the prior-year period. Adjusted EBITDA declined by 9.7 percent to EUR 0.9 billion. In U.S. dollars, revenue decreased by 7.3 percent, while adjusted EBITDA decreased by 9.0 percent.

Europe - Growth in mobile data

The European subsidiaries made progress in growth areas, while at the same time battling with negative effects from the economy and regulation. Total revenue in the Europe operating segment declined 6.9 percent year-on-year to EUR 3.3 billion. Excluding the reduction in mobile termination rates, the decline in revenue would have been much lower at 3.4 percent. In Greece, for example, rates were reduced by 74 percent compared with the prior-year quarter. Adjusted EBITDA fell by 8.6 percent, to EUR 1.1 billion. More than half of this was attributable to regulatory decisions in mobile communications and special taxes for telecommunications companies in Hungary. As of this year, a tax is being levied in Hungary on infrastructure, calculated by kilometer of line. Thus, in the first quarter, Magyar Telekom paid an additional EUR 23 million for the full year 2013, to maintain and expand the infrastructure.

In the first three months of the new year, mobile data revenue in Europe increased substantially by 14 percent year-on-year due to exchange rate effects. Successes were also recorded in B2B/ICT business, with revenue increasing by 4.3 percent. This revenue growth was slowed in part by reduced spending on the part of public institutions. Netted across all national companies, 72,000 new mobile contract customers, 72,000 new TV customers, and 58,000 new broadband customers were gained.

After the end of the quarter, the OTE group concluded an agreement to sell its wholly-owned Bulgarian subsidiaries Globul and Germanos for EUR 0.7 billion (before purchase price allocation) to the Norwegian telecommunications provider Telenor. The agreement is still subject to the necessary approvals. In the first quarter, OTE had already reached an agreement on the sale of HellasSat. These transactions, combined with the existing liquidity reserves and the successful bond issues in the first quarter of 2013, will bring long-term stability and financial independence for the group, thereby fully covering its financing requirements for the coming years. Once complete, the OTE group's net debt will have decreased by EUR 2.4 billion, or more than half, compared with the end of 2010, to a figure expected to total around EUR 1.9 billion. In addition, the expansion of growth areas in mobile data and broadband business can be driven forward in both the consumer and business customer segments.

Systems Solutions - Market Unit delivers stable figures

The positive trend for T-Systems in the fourth quarter of 2012 is continuing. In the first quarter of 2013, Deutsche Telekom AG's Systems Solutions segment recorded strong order entry of EUR 2.1 billion, up 33 percent compared with the prior-year period. This was due to agreements with EADS and the Swiss National Railways (SBB) as well as numerous deals for cloud services.

In the area of intelligent networks, T-Systems concluded further strategically important agreements and partnerships. The Deutsche Telekom subsidiary is working with BMW and Sixt to bring hotspots to the car from this summer and, for Daimler, it is developing the communications infrastructure for online services in the car.

External revenues remained almost stable at EUR 1.6 billion in what was a difficult competitive environment characterized by price pressure. By contrast, in the Telekom IT unit, which comprises the Group's internal IT business in Germany, revenue fell as expected, falling to 25 percent below the prior-year level due to seasonal effects. The EBIT margin of the Market Unit, which manages Deutsche Telekom's corporate customers worldwide, increased from minus 0.7 percent in the prior year to 0.4 percent. This is the result of efficiency enhancement measures, as well as of improvements in numerous new agreements from the past year.

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