Deutsche Telekom AG - The 2009 financial year

Deutsche Telekom boosted its position in this region despite the tough economic environment due to the first-time full consolidation of OTE and the marked increase in the customer base in both broadband and mobile communications. Total. In the 2009 financial year, customer development in Southern and Eastern Europe was influenced by the first-time consolidation of the OTE group, which has fixed-network operations in Greece and Romania, and mobile communications operations in Greece, Romania, Bulgaria and Albania. Fixed network. The broadband market in Southern and Eastern Europe continued to grow in the 2009 financial year. With a total of 3.8 million broadband lines, including bundled and unbundled wholesale lines, the operating segment recorded an increase of 0.5 million lines compared with the same period last year. The 0.9 million line losses in the fixed network were slightly above the prior year figure. The 2009 figure includes 1.9 million (pro forma 2008: 1.7 million) broadband lines in the fixed network of OTE (Greece) and Romtelecom (Romania). Growth in the broadband market was also driven by the ongoing success in the market- ing of IPTV, with the number of IPTV customers almost doubling. Mobile communications. The mobile communications market in Southern and Eastern Europe exhibited slow growth in several countries in the 2009 financial year, reflecting macroeconomic trends. In Slovakia, customer numbers stagnated compared with the prior year. In Hungary, the number of customers decreased as a result of the overall economic situation. All mobile communications companies contributed to the increase in customer numbers in absolute terms. The percentage of contract customers in the total customer base remained at the prior-year level. In all countries except Greece and Albania, the share of contract customer business grew, however. The acquisition of the Romanian mobile communications operator Zapp by the Cosmote group resulted in an expansion on the Romanian market. The company was consolidated for the first time in November 2009. Total revenue. Total revenue in the Southern and Eastern Europe operating segment increased year-on-year by EUR 5.0 billion in the 2009 financial year. This positive revenue trend is attributable to the first-time full consolidation of OTE in early February 2009. Adjusted for the consolidation of OTE, revenue decreased by EUR 0.4 billion, mainly as a result of negative exchange rate effects from the translation of Hungarian forints to euros. The strained economic situation and the continued intense competition in mobile com- munications and in the traditional fixed network also impacted revenue. Broadband growth in all countries did not make up for the decline in revenue in the traditional fixed-network area. Hungary. The decline in revenue related to both mobile communications and fixed-network business due to the difficult economic situation. The main driver (accounting for around 70 percent) of this revenue decrease in euros was exchange rate effects owing to the substantially weakened Hungarian forint, which recovered to a certain extent in the course of the year. Croatia. The Croatian business underwent a small downward trend because of the slight weakness of the Croatian kuna and the overall eco- nomic situation. Mobile communications was more seriously affected than the fixed network, partly because of the recently introduced mobile communications tax set at 6 percent of revenue. Slovakia. Revenue from both the fixed network and mobile communica- tions were slightly down year-on-year. Currency effects partially offset this trend compared with the prior year. EBIT, adjusted EBITDA. EBIT in the Southern and Eastern Europe operating segment rose by just EUR 0.1 billion year-on-year, despite the positive contribution from the consolidation of the OTE group. The rise was partially offset by impairment losses as follows: On the basis of information available at the reporting date and expectations with respect to the market and competitive environment, the impairment tests performed at the cash-generating units in the fourth quarter of 2009 identified the need for impairment losses totaling EUR 0.5 billion to be recognized in Greece (mobile communications and fixed network), Romania (mobile communications), the F.Y.R.O. Macedonia and Slovakia (fixed net- work). These impairment losses were largely due to the country-specific risk in connection with the current financial and national crisis in Greece. Other impairment losses were primarily recognized as a result of negative developments in connection with the financial market crisis. In the 2009 financial year, adjusted EBITDA in the Southern and Eastern Europe operating segment increased year-on-year by EUR 1.8 billion. Adjusted for the positive contribution of the first-time full consolidation of the OTE group in February 2009, adjusted EBITDA in the operating segment decreased by around EUR 0.2 billion or 8.7 percent. The negative exchange rate effects in Hungary, and to a lesser extent in Croatia, were a major cause of this decrease. The impact of negative revenue trends on adjusted EBITDA was reduced and in Slovakia more than offset by cost cutting measures. EBITDA for the 2009 financial year includes a one-time positive effect from the first quarter amounting to EUR 0.2 billion from the Greek government’s contribution to the costs of a voluntary early retirement program. This was offset by provisions of approximately the same volume for severance pay- ments recognized at OTE in the second quarter of 2009. 90