Investor Presentation. Deutsche Telekom. West LB German Telco Day 30th August 2006 Walter Raizner Member of the Board of Management Deutsche Telekom CEO Broadband/ Fixed Network
Disclaimer. This presentation contains forward-looking statements that reflect the current views of Deutsche Telekom management with respect to future events. They include statements as to market potential, the “Targets 2006 and 2007” statements as well as our dividend outlook. They are generally identified by the words “expect,” “anticipate,” “believe,” “intend,” “estimate,” “aim,” “goal,” “plan,” “will,” “seek,” “outlook” or similar expressions and include generally any information that relates to expectations or targets for revenue, adjusted EBITDA or other performance measures. Forward-looking statements are based on current plans, estimates and projections. You should consider them with caution. Such statements are subject to risks and uncertainties, most of which are difficult to predict and are generally beyond Deutsche Telekom’s control, including those described in the sections “Forward-Looking Statements” and “Risk Factors” of the company’s Form 20-F report filed with the U.S. Securities and Exchange Commission. Among the relevant factors are the progress of Deutsche Telekom’s workforce reduction initiative and the impact of other significant strategic or business initiatives, including acquisitions, dispositions and business combinations. In addition, regulatory rulings, stronger than expected competition, technological change, litigation and supervisory developments, among other factors, may have a material adverse effect on costs and revenue development. If these or other risks and uncertainties materialize, or if the assumptions underlying any of these statements prove incorrect, Deutsche Telekom’s actual results may be materially different from those expressed or implied by such statements. Deutsche Telekom can offer no assurance that its expectations or targets will be achieved. Deutsche Telekom does not assume any obligation to update forward-looking statements to take new information or future events into account or otherwise. Deutsche Telekom does not reconcile its adjusted EBITDA guidance to a GAAP measure because it would require unreasonable effort to do so. As a general matter, Deutsche Telekom does not predict the net effect of future special factors because of their uncertainty. Special factors and interest, taxes, depreciation and amortization (including impairment losses) can be significant to the company’s results. Among the adjustments to be made in determining adjusted EBITDA in 2006 and 2007 will be the costs of the Group’s workforce adjustment initiative, which Deutsche Telekom estimates will result in costs and charges totaling approximately EUR 3.3 billion. In addition to figures prepared in accordance with IFRS, Deutsche Telekom presents non-GAAP financial performance measures, e.g., EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, adjusted EBIT, adjusted net profit, free cash flow, gross debt and net debt. These non-GAAP measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Non-GAAP financial performance measures are not subject to IFRS or any other generally accepted accounting principles. Other companies may define these terms in different ways. For further information relevant to the interpretation of these terms, please refer to the chapter “Reconciliation of pro forma figures” of this Report, which is also posted on Deutsche Telekom’s Investor Relations website at [www.deutschetelekom.com.] August 30, 2006, Page 2
Broadband/Fixed Network. Development in H1 2006. Group revenue (€ billion) Domestic revenue (€ billion) 13.0 11.7 12.3 10.9 -6.5% -5.5% Group adj. EBITDA margin (%) Domestic adj. EBITDA (€ billion) 4.4 4.1 37.4 36.7 -7.0% -0.7%p H1 2005 H1 2006 August 30, 2006, Page 3
Domestic market. Challenging market environment. � Loss of access lines -> Loss of 1 million PSTN access lines in H1/06 � Strong price competition specially in the DSL segment -> DSL usage prices trend towards € 0 from € 29.95 in H1/05 � Bundled offers -> Bundled tariff price decline 30% in H1/06 � VoIP and fixed mobile substitution -> Market share of VoIP now at 6% -> Mobile minute prices decreased by 13% y-o-y in July � Regulation on VDSL network -> Regulatory environment still unclear August 30, 2006, Page 4
Broadband/Fixed Network. Guidance & strategy. Guidance of Broadband/ Fixed network Revenue 2006 Adj. EBITDA (€ bn) 2006 (€ bn) BBFN New 24.6 –25.0 8.8 –9.0 Nov 2005 25.4 – 25.8 9.4 – 9.6 Strategy � Defend fixed core business/ churn management � Attack with new products � Secure international growth August 30, 2006, Page 5
Broadband/Fixed Network. Re-invent – measures to fight back. � DSL � New product portfolio Innovation and Growth � T-One � Triple Play � Churn management � Optimizing end-to-end-process Customer Centricity � Separation of sales & care organization � Expand customer promises � Product portfolio reduced by 40% Quality and Efficiency � Headcount reduction program on track � Streamlining of T-Com Headquarters Integration of T-Online August 30, 2006, Page 6
Broadband/Fixed Network. Future broadband growth supported by low penetration. Domestic DSL access lines (million) Development 15 � Broadband growth driven by DSL resale � Bundled products to defend retail market share only after merger possible 9.0 10 +1.1 � Launch of new portfolio 7.9 2.5 1 . 2 1.6 + � 52% of customer base on 2 Mbit/s or +1.8 5.8 higher DSL speed 5 0.2 4.0 � Still great potential of broadband growth* 0 2003 2004 2005 H1/06 Resale BBFN Retail * As example New Street Research expects roughly doubling of penetration rate in Germany up to 62% in 2010. (YE 2006 expectation is 34%) August 30, 2006, Page 7
T-One – fixed mobile convergence. Unique mass market product in Germany. � Successful launch in August GSM � Customer benefits � Attractive tariffs everywhere � Quality � Convenience � T-One - the power of ONE � One phone GSM/WLAN phone � One mailbox @home � One address book � One bill August 30, 2006, Page 8
Triple Play. Upgrade and development of DSL. � Successful launch in August � 100 TV channels under contract � Attractive content secured e.g Bundesliga � VDSL network � More than 3 million households passed in 10 cities, 6 million hh envisaged by end of 2006 � Further roll out in other cities depends on regulatory environment and customer demand � Future of Triple Play � More attractive content and features � Interactive � Individual August 30, 2006, Page 9
Defend core business. New product portfolio. Goals of the new portfolio Level I Level II Level III Attractive Offers for demanding Top service � Simple tariffs offers customers „All Inclusive“ � Attractive prices T-Home T-Home T-Home Triple- Complete Classic CompletePlus Play Basic � Push of flat rates DSL 2000 VDSL 25Mbit VDSL 25Mbit + Double- Flat + Double- Flat + Double- Flat � Push of service + T-Home Classic + T-Home Plus + T-Home Basic Call&Surf Call&Surf Call&Surf Double- Basic Comfort Comfort Plus Play DSL 2000 CallTime new DSL 16.000 + Double-Flat + DSL2000 + Double-Flat + 500MB + Security XXL Local new Calltime new XXLFulltime new Single- Unlimited calling 120 free minutes Flat rate to Play to city area within Germany German fixed line Level of service August 30, 2006, Page 10
BBFN national: quality- and process improvements Conversion from a company so far focused on products to a company focused on customers. Roadmap BBFN Transformation 200 2006 2007 007 Q4 Q3 Q4 Q2 Q1 Reti Re tire reme ment of1 of13 I IT- ap applicat lications ns IT-Systems ONE c customer er da databa base se ONE Fr E Fron onte tend nd System (CRM-T -T) Cus Customer er cent centrici city ty guides guid Order Full ll a automa tomated ted ord rder p er proc ocessi sing ng process process relignem elignement nt processing an and monitoring mo ng New b w billi illing layout yout Synchronisati Synchroni ation o n of b billi illing time-fr -frames and nd billi illing flexib flexibili ility ty perf perform ormance nce Billing CallCenter ONE t ONE telephone lephone numb umber voice entranc trance Order Firm confirmat Firm confirmation on of of of offer fer at Poi t Point of t of Sale Sale confirmation Internet Harmonis isat atio ion Web- Fully lly integ tegrated ed se self lf-servic ervice-offeri erings gs Of Offer ferings August 30, 2006, Page 11
Simplicity program right on track. EBITDA improvement of EUR 450 m achieved as of June 2006. Re Realized EBITDA effec lized EBITDA effect [ [EUR m] UR m] Job r b reduc duction [ ion [FTE] TE] 1, 1,500 500 15,167 15,167 1, 1,084 084 3,083 3, 083 14,000 14,000 2, 2,800 800 8, 8,200 200 Target Q4 2006 500 500 450 450 Sum until Full Year Target Actual Substitution Outsourcing Staff left Staff to Q2 2006 Effect 2006 reduction of subcon- company 1) leave 2008 2006 tracting company August 30, 2006, 1) 2.800 FTE left the company by end of Q2 2006 Page 12
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