Deutsche Telekom AG - The 2009 financial year

Southern and Eastern Europe. The macroeconomic situation in Southern and Eastern Europe was consider- ably influenced by the global economic crisis. The total decrease in the GDP of individual countries was considerable. Initial forecasts for 2010, however, predict the first signs of overall economic recovery. The economic crisis also had a negative impact on Deutsche Telekom’s operations. Visitor and roaming revenues decreased as a result of fewer people traveling. Business was also impacted by intensified price compe- tition, regulatory intervention and special taxes. The product side, by contrast, showed a positive development. In mobile communications, attractive handsets, and in particular the Apple iPhone, were a growth driver in the high-value customer segment in a number of countries. The growing significance of mobile data services also became apparent. On the other hand, however, mobile operations were impacted in some countries by cuts in termination charges imposed by regulation and special mobile communications taxes. Intensifying price competition also contributed to revenue declines. The fixed-network business recorded positive trends on the broadband market, with IPTV business developing particularly well. By contrast, lines were lost in the traditional fixed-network business. Systems Solutions. 2009 was completely dominated by the global economic crisis. Companies experienced a sharp increase in cost pressure. Many companies post- poned IT upgrading and adjustment plans or trimmed their ICT budgets. This general trend impacted the individual segments of the market in very different ways. The economic crisis had little effect on the telecommunications business, a market that has experienced intense competition and price erosion for years. In IT services, however, projects were thinned out or put off until 2010. This resulted in a rapid decline in the IT projects business, the core business of Systems Integration. The outsourcing business, on the other hand, continued to develop at a stable rate, though prices are increasingly coming under pressure. Demand on the whole has continued to change, however, with customers increasingly interested in full-service solutions and new billing models that will improve processes within companies and help enhance value. Innovations such as cloud services (e.g., dynamic application services) and dynamic infrastructure services are changing the face of the market. As the economy recovers in 2010 and beyond, analysts and industry associations expect the ICT market to start growing again, mainly driven by clearing the backlog of investments that has built up in recent years plus the transition to cloud services and consumption-based billing models. Regulatory influence on Deutsche Telekom’s business. Deutsche Telekom’s business activities are largely subject to state regula- tion, combined with extensive powers of government agencies to intervene in product design and pricing. Regulation in Germany. The German Telecommunications Act (Telekom- munikationsgesetz – TKG) imposes far-reaching regulation for many tele- communications services provided by Deutsche Telekom. Under this Act, the Federal Network Agency (Bundesnetzagentur – BNetzA) can impose obligations on companies with “significant market power” in individual markets regarding the services they offer on those markets. For example, the Federal Network Agency may oblige them to offer certain wholesale products at prices subject to prior approval by the Agency. Since the Federal Network Agency regards Deutsche Telekom as having “significant market power” in broad sections of the German telecommunications market, regulation encroaches on Deutsche Telekom’s entrepreneurial freedom in many areas. Deutsche Telekom was again subject to extensive regulation in its fixed- network business in 2009. Despite the deregulation of national calls in the retail market, telephone lines continue to be subject to ex-post regulation by the Federal Network Agency. According to the Federal Network Agency’s current draft, the regulation of telephone lines is to be extended to include pure IP networks. The most important wholesale markets, such as access to the unbundled local loop (ULL) line, interconnection, leased lines and bitstream access, remain subject to extensive ex-ante regulation and price approval by the Federal Network Agency. The roll-out of the fiber-optic network subjected Deutsche Telekom to new obligations. Firstly, access to VDSL networks is subject to obligations that have existed since 2007 and were refined in 2009 to cover passive infrastructure components of the new network, such as multi-functional street cabinets, underground cable conduits and dark fiber. Secondly, in a current draft consultation paper, the Federal Network Agency also provides for ex-post regulation of a bitstream-based wholesale product. 69Group management report The economic environment