Deutsche Telekom AG - The 2009 financial year

activities in Germany is a cornerstone of the One Company project that is preparing the Group for further growth. The integrated company for Germany will be responsible for 27 million fixed-network lines – of which some 13 million support DSL – and more than 39 million mobile lines. Approxi- mately 85,000 employees work in the Germany operating segment. Sweep- ing changes are needed in the organizational structure and workflow if the One Company project is to be successfully completed in the second quarter of 2010. If these goals cannot be achieved, there is a risk that the transition will last longer than expected and that operations will be tempo- rarily impacted. Financial risks. The financial risks for the Group arise mainly from liquidity, credit, and currency and interest rate risks. Risky investments by subsidiaries in Southern and Eastern Europe in particular exist on account of transfer restrictions and shareholder resolutions. Following the first-time full consoli- dation of OTE, investments deposited with various, mostly Greek, banks were also taken over and reduced substantially with the aim of spreading these investments and also gradually switching to government bonds. To remain solvent and financially flexible at all times, Deutsche Telekom maintains a liquidity reserve in the form of credit lines and cash. The primary instruments used for medium- to long-term financing are bonds and medium-term notes (MTNs) issued in a variety of currencies and jurisdictions. As of December 31, 2009, 24 banks granted Deutsche Telekom credit lines totaling EUR 14.4 billion. The situation on the international financial markets eased considerably during 2009. From today’s perspective, access to the international debt capital markets is not seriously jeopardized. The 2009 financial year was marked by substantial new issuances. In 2009, Deutsche Telekom raised debt capital of just under EUR 5.3 billion in various markets. Although a number of banks had refused to extend credit lines in 2008, partly due to lending restrictions and consolidation in the banking sector in connection with the financial crisis, all bilateral lines were extended after February 2009. Rating agency Fitch cut Deutsche Telekom’s long-term rating from A– in 2008 to BBB+. Moody’s and Standard & Poor’s ratings for Deutsche Telekom are still Baa1 and BBB+, respectively. The outlook of all three agencies is stable. If Deutsche Telekom’s rating falls below certain defined levels, interest rates for some of the bonds and medium-term notes issued will rise. Impairment of Deutsche Telekom’s assets. The value of the assets of Deutsche Telekom and its subsidiaries is reviewed periodically. In addition to the regular annual measurements, specific impairment tests may be carried out. These may be necessary, for example, when changes in the economic, regulatory, business or political environment could impact negatively on the value of goodwill, intangible assets or items of property, plant and equipment. These tests may lead to the recognition of impair- ment losses that do not, however, result in disbursements. This could impact to a considerable extent on Deutsche Telekom’s results, which in turn may negatively influence the T-Share and ADS price. In the countries of the Southern and Eastern Europe operating segment in particular, future trends in the difficult macroeconomic situation, ongoing intense competition and mobile communications taxes recently imposed or increased in some of these countries might have a stronger and/or negative effect. Sales of shares by the Federal Republic and KfW. As of December 31, 2009, the Federal Republic and KfW held approximately 31.7 percent of Deutsche Telekom’s shares, while the Blackstone Group held 4.4 percent. On April 24, 2006, the Blackstone Group purchased an interest in Deutsche Telekom AG’s share capital from KfW. The Federal Republic may continue its privatization policy and sell further equity interests, including shares in Deutsche Telekom AG, in a manner designed not to disrupt the capital markets and with the involvement of KfW. On May 16, 2008, KfW issued a five-year exchangeable on shares of Deutsche Telekom AG. Exchangeables are debt certificates that the holder can exchange, during a pre-determined period and at a pre-determined conversion price, for shares in another company (in the case of the KfW exchangeables referred to here, registered shares in Deutsche Telekom AG). If the conversion price is exceeded, KfW may exchange the exchange- ables submitted to it for shares in Deutsche Telekom AG and if the holders of the exchangeables exercise the conversion option, it must exchange them. When the exchangeables mature, KfW has the right to pay them out in shares of Deutsche Telekom AG. This exchangeable has a volume of EUR 3.3 billion and a conversion price of EUR 14.9341. 115Group management report Risk and opportunity management