Deutsche Telekom AG - The 2009 financial year

These companies have potential advantages through size, scale and bundling with other non-wireless communication services. These advantages could allow them to deliver services in a more cost-efficient manner and dispro- portionately increase their customer base, thereby negatively affecting T-Mobile USA’s competitive position. Furthermore, AT&T has had a com- petitive advantage in the past two years with the exclusive distribution of the Apple iPhone. Verizon and AT&T, in particular, achieved proportionately higher net customer additions and increased their market share, which combined with pressure from the regional unlimited wireless carriers resulted in T-Mobile USA’s slight decline in market share in 2009. Despite the competitive environment and economic climate, T-Mobile USA again recorded growth, albeit at a slower rate, in its customer base in 2009. Europe. Europe’s mobile communications markets witnessed uneven development in 2009. In the largely saturated markets, market penetration was some- what higher in Austria, the Netherlands, the Czech Republic, and Poland but down slightly in the United Kingdom (based on the most recent compe- tition figures from the end of the third quarter of 2009). The ongoing intense price war and regulatory price cuts impacted on revenues in all markets. In spite of this difficult environment, revenue market shares expanded marginally in Austria, the Czech Republic, and Poland, while revenue market shares in the United Kingdom and the Netherlands contracted compared with the previous year. The key competitive factors in the mobile communications markets are prices, contractual options, applications, network coverage, and quality of service. In addition, competition in mobile communications increased at European level, partly due to the introduction of Europe-wide services. As market penetration continues to rise, providers are increasingly concen- trating on boosting customer retention. Three main groups of providers compete for customers in the European mobile communications markets: network operators, resellers, and compa- nies that buy network services and market them independently to third parties (MVNOs). A precondition for operating mobile communications networks, and hence for offering mobile communications services, is a frequency spectrum license issued by the public authorities. In Europe such licenses are normally awarded by the national authorities. The number of licenses limits the number of network operators in each market. In the 2009 financial year, Germany’s mobile communications market experienced intense competition and regulatory intervention. The reduction in termination rates on April 1, 2009 and the EU’s roaming regulation effective July 1, 2009 impacted the revenues of all market players. Service revenues in the German mobile communications market contracted by approximately 2 percent in 2009. T-Mobile Deutschland (TMD) maintained its strong position in this difficult market environment, expanding its service revenue market leadership in the 2009 financial year. In the market as a whole, the significant growth in non-voice (data and messaging) revenues continued, largely compensating for the decline in voice revenues. TMD is making a substantial contribution to the upturn in the non-voice market. As subscriber market penetration continues to rise, competitors are increas- ingly concentrating on boosting customer retention. The increase in TMD’s data revenues is also attributable to the rising number of high-value customer relationships, one of the core aims of the company’s marketing strategy. In addition, TMD benefited from machine-to-machine (M2M) technology in 2009 by entering into new strategic partnerships. Deutsche Telekom is forecasting further market consolidation over the coming years, with new alliances allowing market players to leverage synergy effects. At the same time, however, the change in network structures (open access) will lead to the emergence of additional local players. With an extensive, innovative product portfolio comprising mobile and fixed-network products plus first-class customer service they will, however, increasingly set themselves apart from their competitors in terms of market and customer perception. The basic requirement is a high-performance infrastructure with a high bit rate so these products and services can be delivered quickly and at low cost. Deutsche Telekom is ideally equipped to respond to these market trends, thanks to initiatives such as the planned integration of fixed- network and mobile operations, ongoing improvements in essential service parameters since 2007 that are essential from the customers’ perspective (e.g., availability, deadline compliance, first contact resolution rate), and a proposed infrastructure upgrade to create a next-generation network on the basis of optical fiber and LTE. United States. The United States operating segment (T-Mobile USA) competes with three major national providers, Verizon, AT&T, and Sprint, all having a significantly larger national customer base than T-Mobile USA, and various regional operators offering unlimited service. Verizon, AT&T and Sprint together represented an estimated 78 percent of the total United States mobile com- munications market in terms of customers as of September 30, 2009. 68