Deutsche Telekom AG - The 2009 financial year

Telecommunications market. Toward the end of 2009, upward trends also became apparent in the infor- mation and telecommunications market. The Bitkom sector index of the German Association for Information Technology, Telecommunications and New Media (Bundesverband Informationswirtschaft, Telekommunikation und neue Medien – Bitkom) recorded an increase of 18 points for the ICT sector in the third quarter of 2009 – the strongest growth in the last five years. According to other recent Bitkom sector surveys, the IT and telecom- munications sector has weathered the crisis very well compared to other sectors of the economy, with only one in three high-tech companies having suffered from the economic crisis. The international delphi study, which surveyed 551 decision-makers from politics, industry, and science on key developments in their sectors, also shows that the IT and telecommunications sectors are emerging from the crisis with renewed strength. 58 percent of German industry observers firmly believe that the German IT sector will come out of the current eco- nomic crisis stronger than before. 37 percent of respondents expect the importance of the telecommunications sector to increase after the economic crisis. U.S. experts hold a similar view. 70 percent expect the IT sector to emerge from the crisis with renewed strength and 74 percent say the same of the telecommunications sector. The high-tech companies surveyed by Bitkom see further positive economic signs for 2010. Four out of five companies expect demand to rise noticeably. Much of the growth may well come from Germany in 2010, as 92 percent of companies expect strong domestic demand. 62 percent of companies also expect international business to be strong, with Western Europe at the forefront, followed by Asia, Eastern Europe and the United States. Germany. According to the Federal Network Agency’s Activity Report, revenue in Germany’s telecommunications market is down 2.5 percent compared with the full 2008 financial year. This is mainly due to falling consumer prices caused by the increasing proliferation of complete packages and the fact that the market is essentially saturated. These effects are giving rise to predatory competition and consolidation attempts in the market. Providers are reducing costs by integrating key value creation processes, thus securing themselves a competitive edge. According to the Federal Network Agency, the number of employees in the German telecommunications market is decreasing. Average consumer prices for telecommunications services in the fixed network and in mobile communications in Germany were once again lower than in the prior year. The price index for fixed-network and Internet telephony was down 2.3 percent, while rates for mobile telephony were 2.5 percent lower. Aside from pure call charges, prices for mobile data services also decreased. The significance of the traditional telephone line is declining in the fixed- network market due to the rising number of new ways of making calls using the fixed network, such as IP telephony via DSL lines or the cable TV network. The total number of voice communications accesses in the fixed network has remained relatively constant in recent years. The broadband market is still growing, albeit at a much slower pace than in the last few years, since demand for broadband lines is nearing saturation point. In terms of broadband coverage, Germany has now exceeded the European average. At the same time, however, demand for higher bandwidths continues to grow, driven by various factors including multimedia applica- tions in ever-increasing quality (high definition) which often have to be transported via the network simultaneously. The growing appeal of cable TV lines is due to the very large bandwidths that are already available – in some cases up to 100 Mbit/s – at attractive prices. In Germany, there is a broad range of wholesale products for putting together broadband packages, including access to the unbundled local loop (ULL) line, bitstream access, WIA and WIA Gate. These products enable competitors, whether they have their own network infrastructure or not, to draw up business models at various points in the value chain. A rising number of alternative providers are able to offer their customers complete packages from a single source. The Federal Government’s broadband strategy for nationwide coverage in Germany set ambitious targets. High-performance broadband lines shall be available all around the country by the end of 2010 at the latest. By 2014, lines with transmission rates of at least 50 Mbit/s shall be available for 75 percent of households, the aim being to achieve full nationwide coverage as soon as possible. In addition, authorities at local, regional and federal level as well as industry are called upon to become involved in implementing these measures. 67Group management report The economic environment