Deutsche Telekom Ag S/Adr

Good afternoon and welcome to Deutsche Telekom's conference call. At our customer's request, this conference will be recorded and uploaded to the Internet. May I now hand you over to Mr. Hannes Wittig.

Good afternoon, everyone, and welcome to our third quarter 2020 conference call. With me today are our CEO, Tim Hutkes, and our CFO, Christian Illig. Tim, as usual, will first go through a few highlights here to date, including our raised guidance. And this will be followed by Christian, who will talk about the quarter's financials in more detail. And then we have time for Q&A. And as usual, before I hand over to Tim, please pay attention to our disclaimer, which you'll find in the presentation. And now it's my great pleasure to hand over to Tim.

Yeah, high five, guys. So welcome from my side here for a great quarter of Deutsche Telekom. Another, you know... Very good outlook for the remainder of the year and the future we're having. I want to share some of the highlights with you today and our strong results, which we have presented earlier this morning. As usual, my overview will be followed then by Christian, and then we go deeper into the questionnaires. This was a good quarter, as I mentioned, on both sides of the Atlantic. Strong commercials, a lot of progress with the merger and underlying strong financials. most important thing for me we are growing and this despite covet i think this tanker is on its way through a storm in in a very very clear way and i'm very happy about commitment of our people to this we are investing at the same time um with 17 billion record high levels and this uh at despite uh covet so um um we are not you know negatively tangled by that. In the US, we made great progress with the Sprint integration. You saw the numbers already. And with the rollout of our 5G services, we are well ahead of AT&T and Verizon. We raised our full year guidance. On this side of the Atlantic, we continue to deliver commercial and financial growth. And here, too, we raise our full year guidance as well. So that makes it a good story for whole Deutsche Telekom. Germany has grown 16 quarters EBITDA in a row now, and the euro segment grows 11 quarters in a row. So I think that shows you the good performance. Our commercials remain strong. We added 97%. broadband customers in Germany on the broadband side. Our line losses are down by two-thirds, 45,000, you know. So this is almost nothing this quarter compared to the history. And we have achieved a grand slam of German service awards. Look, I would say every company, every tagger would name them. We have so many awards. that I cannot, you know, list them here, but I will definitely do that in the capital markets day. So that I show you at least, you know, how we are outperforming our competition. And just today we got another award. There was a big network drive test made in seven categories. Deutsche Telekom won six out of them. So from a network perspective, there's no one else even close to our performance these days. We entered a benchmark wholesale agreement with Telefonica Deutschland, which is helping us to improve our commercials around the FTTH rollout going forward and is even helping us big time in our credibility towards regulators. Our headline debt is up due to T-Mobile's long-term American Tower Agreement, but our financial leverage dropped to 2.5 times this quarter, which is a good note as well. I'm also happy to confirm our clear intention to pay a 60 cent dividend for 2020 next year, which is subjected to the board approvals. Let's go to our presentation and looking at page four, where you see that we are growing despite COVID. Headline financials are up a lot, boosted by the consolidation of Sprint, but also by our consistent strong organic growth. Organic revenues are up 1.2% year-to-date. Organic EBITDA grew by 7.5% and all segments contributed here, including to systems. Free cash flow was up by 1.8% despite COVID-19 and more than 1 billion euros year-to-date US merger integration costs supporting the financial numbers. Let's move to the U.S. merger on page five. And I think it's obvious to see that we made great progress with the merger. since our closing in April. On the commercial side, we implemented the rebranding in August, and yet we had a record quarter for our net debt numbers. By the way, we looked it up. This is the second most successful quarter in the history of T-Mobile US. Our postal churn remained low at 0.9%, well below historical pro forma levels. And that's despite the fact that we are integrating the Sprint customer base in the T-Mobile one. As for the network, the team will cover 100 million pops with 5G in 2.5 gigahertz by year end. And then they will double this again next year, at least. 15% of the Sprint traffic is already on our T-Mobile infrastructure. This will jump to well over 50% in 2021. We are very confident about our synergy targets. We will realize 1.2 billion of synergies and I'm talking now annual savings already this year and we will double this then in 2021. T-Mobile also significantly improved its financial position in a series of refinancing transactions. Last week, T-Mobile raised their EBITDA and free cash flow guidance, as you know. Clearly, the team is very well on track to deliver the promised goods for customers and shareholders. And by the way, only looking at the track record since the announcement of the deal, the company has more than doubled its valuations. And you know who is T-Mobile US biggest shareholder, don't you? So moving to page six and the investments. We show that our key investments outside of the US are moving on as expected. We keep our flying wheel going. In Germany, we now cover 35.7 million lines with fiber, of which 1.9 million are with gigabit connectivities. In the EU, we passed 7.6 million with gigabit cable lines. This brings our total gigabit footprint, including Germany, to almost 10 million now. So across Europe, we added 1.3 million giga lines in the last 12 months. We agreed a benchmark fiber wholesale deal with Telefonica Deutschland, and we think this is a very important win-win situation for our partners in Munich. The agreement extends our proven contingent model approach for the next 10 years and from VDSL to FIBA to the home. As part of the deal, both parties have entered commitments. We have agreed certain minimum build and Telefonica has committed minimum volumes. The German regulator has a stated preference for light touch fiber regulation based on voluntary commercial agreements. They immediately welcomed this deal. Moving on to customer service and we further improved our service KPIs. Fault repairs are down by another fifth. Our first contact resolution rate is up by a quarter and complaints are down by over a third. We keep winning most service awards. Our chatbot came first in the recent computer build. We achieved a grand slam, as we call it, in the recent chip service hotline. We came first for mobile and for fixed and for TV and for hosting services. And we won most other awards as well. I mentioned that already at the beginning. And I'm very happy with these wins. We won't stop until everyone is connected. That is our purpose, and I think that the company is really aiming for leading. On page seven, let's talk about the investments into 5G. In Germany, we are well on track for our plan to cover two-thirds of POPs with mid-band 5G by year end. This is far ahead. of our competition. And I can tell you one thing, I'm here since 20 years. I was witnessing the 3G, the 4G launch, but we never in our history in Germany had a bigger advantage compared to our competition than we have it today. We now offer 27 5G capable devices, including the iPhone 12, but also more affordable models like the ones from OPPO. Moving on, the iPhone arrived. The share of 5G-capable devices has more than doubled to almost half of all new devices. So step-by-step 5G is becoming increasingly relevant for our customers, both on the B2C and on the B2B side. We already mentioned the great progress T-Mobile is making in the U.S. with their 5G build. We are covering over 270 million pops with 5G service already, way ahead of the competition. By the way, for the first time in history, T-Mobile U.S. is ahead of competition with regard to a network technology. And their 5G error cover is twice that of AT&T and three and a half times of Verizon. 5G in 2.5 gigahertz is already available to over 30 million people, and it will be available to 100 million by the end of this year. And by the way, we are doubling up. On 2021, we will cover 200 million. In the Netherlands, we already have 90% of the population covered with 5G services, and other markets like Poland and Hungary are doing well as well. We are also off to a good start elsewhere. It depends a bit on where Spectrum has been awarded and where not. Moving on to our customers. And here again, we keep growing in our European footprint. We added 1.2 million converged customers in the last 12 months. In Germany, 15.5 million customers are on our fiber products and 600,000 on super vectoring. And we saw very good mobile customer growth, not just in the US. With that, let me go to the guidance. Today, we raise our EBITDA guidance for the group, not only in the US, but also in Europe. We also raise our free cash flow guidance. But first, let me look into the ex-US EBITDA guidance. Here we raise our 2020 target from 13.9 to 14 billion, and you might know that last quarter we already improved it. And we do this despite some headwinds in our operations from the COVID-19 crisis. Our group EBITDA guidance is based on our increased ex-US guidance plus the 15.5 billion from T-Mobile's year-to-date. Then we add the midpoint of T-Mobile's implied Q4 guidance, and that's 5.9 billion. And finally, we deduct the expected fourth quarter gap IFRS bridge of 0.2 billion. And so we get to at least 35 billion for the group this year. I know, guys, you know it, but, you know, it's so impressive to just, you know, reflect that again. Think about that one. Last year, Deutsche Telekom was 10 billion euros, if it are smaller than, you know, what we are showing this year. And we have increased our guidance by almost 1 billion, 1 billion. Remember, before COVID, we said we are going to achieve a result of around $34 billion. Using the same approach based on T-Mobile's guidance increase, we also raised our group free cash flow guidance to at least $6 billion. This was at least $5.5 billion in August. Our full year group capex guidance remains around 17 billion and our dividend remains at 60 cent for 2020 as well. We confirm this today. And now let me hand it over to Christian for giving you all the details around that.

Thank you, Tim, and also welcome from my side. And as usual, let me start with the key financials on slide number 11. And let me start with the revenues. Reported revenues were up by 32%. Organically, we grew by 2% in the third quarter. So that means we're growing despite corona-related headwinds, in which I will get into more detail later on. Headline EBITDA grew by 50%. Organic growth would have been 10% in the third quarter, and that compares to a year-to-date growth of 7.5%. Also in the ex-US business, we are growing in earnings. The ex-US EBITDA on a reported basis was up by 2.6%, and that translates into an organic growth of 3.2%. Free cash flow was down this quarter by 24%. That reflects the rapid pace of our U.S. merger implementation. and it's slightly up for the first nine months in the year. Adjusted earnings grew by 6.3% this quarter or 3.6% year to date. Net debt was up by 58%. That was all driven by the Sprint integration, which we have seen this year. And I will talk about that, the drivers later. So let's move on to page number 12, where you see the strong growth, which we're consistently delivering on both sides of the Atlantic when it comes to earnings growth. I think that chart speaks for itself. Let me give you a little bit more details on the COVID-19 impact and especially how they translated into financial impact in Q3. So you know that we have given the indication on the COVID impact back in May. If you now take a look and how it played out in the third quarter, you see obviously that the roaming revenues are still depressed and the negative impact was 65 million in the third quarter. The mobile handset revenue, we only see a limited impact. We see a shortage in the revenues in the third quarter, but there was, for different reasons, there was lower spot sales and especially the delay of the iPhone launch. On the ICT revenue, We're seeing actually an effect, a lower order inflow on the ICT revenues, and that basically covers both T-Systems but also the business in our German segment. That impact was negative 100 million, around about 100 million. And I think it's noteworthy to tell you that in the SME business, in the small business customer business, the momentum is just very steady, and we don't see any kind of negative impacts, nor do we see any negative impacts on bad debt. So if you add everything up, the negative drag was about $100 million in the third quarter. And despite this drag and due to the strong underlying operational performance, we're still able to raise the ex-US guidance by 100 million from 13.9 to 14 billion. I think that proves to me also that the immediate reaction which we have taken on costs back in March really helped us to support the operational performance of the business outside the US. So now let's walk through the individual segment results, Germany. And let's move on to page number 14. Headline revenues were down by 1.1% year over year. And what I said is the handset revenue accounts for about 1.5% on this one. But that was especially driven by the iPhone delay and also by lower spot sales in the handset segment. So the total service revenues grew by 0.9%. EBITDA after leases slowed down sequentially in that third quarter to a growth of 1.3%, but that reflects a bit of phasing and we're well on track with the full year guidance. When comparing the growth rates, and that's important, shown here to the previous quarters, please know that we have restated the first and the second quarter for this year for the T-Systems integration, but we did not do this for the prior years. So fixed line service revenue growth grew by a solid 1.6%. That was very much driven by the very strong net ads in the broadband business. and a smaller contribution from the out-of-bundle revenues. But as I said, they were very, very small in the third quarter relative to the second quarter. Mobile service revenues improved sequentially to negative 0.5%. If we would adjust for the roaming and the visitor revenue impact, that growth would have been around 2%, and that is in line with our midterm guidance. So German mobile commercials are strong. We registered 190K branded contract net ads. We see a continuous low churn in the business. And we have now 60% of the mobile contracts on converged offers. We recently launched Magenta 1+. This takes the customer to a different experience when it comes to convergent offerings. So what you get is an unlimited fixed and mobile offering at a bundle price with a single bill. You can obviously add any additional services to it in an easy fashion, and there is no fixed contract duration. It's still early days, but what we're seeing from the market is very positive in terms of feedback. So we see how this plays out over the course of the upcoming months. Page 17 shows the excellent performance in fixed line. In retail broadband, we added another 97,000 net ads. This is the highest intake since Q4 2007. The line losses improved to negative 48,000. That's an improvement year over year of 80%. And I was joking this morning on the press conference and I said, hopefully I'm going to see a time where I can actually communicate some line ads rather than line losses. We added 367,000 customers on fiber connections. Two-thirds of our broadband customers are now on a fiber infrastructure. And we have now 600,000 customers on super vectoring, which is an increase of 400,000 year over year. Stable TV net ads based on a net ad addition of 64,000 in the third quarter. Moving to slide number 18. Our fixed retail revenues, they grew by 1.7%. That obviously reflects our strong broadband performance. Some phasing of the former T-Systems business has to be included here as well. The revenues grew obviously at a slower level. There are two reasons for this. One is there was a rollover of last year's unbundling fee price increase. And secondly, also in the wholesale business, we have seen a lower tailwind from the out-of-bundle calls. Let's move to page 19 to T-Mobile US. And you see the usual pictures, and Tim already talked about the T-Mobile US. We're really happy with the merger progress, and that obviously led to that significant guidance increase. Q3 revenues amounted for $13.6 billion, up from $13.5 billion last quarter. The organic revenue was up 14.6. EBITDA growth was up 46% year-over-year. And if you compare these quarterly trends, please note that the financials and the growth rate, including Q1, reflect T-Mobile before the merger, while Q2 and Q3 are shown on a pro forma basis. So moving to page 20, as Tim already mentioned, T-Mobile grew its customer base quite significantly in the second quarter as a combined company. They added another 2 million postpaid customers or 700 on phone. And that 700,000 on phone represent a third of the total net in the US market. The churn remains low at 0.9%. I kind of find this remarkable because in a time of a merger, usually you will be heavily attacked by competitors. And secondly, if you take a look at the sprint churn rate on a standalone basis, which was significantly higher and still we achieved an 0.9%, I think it's an outstanding result. And also the KPIs on bad debt and ARPU trended well as well. Let's move over to Europe on page 21. So the organic revenues in our European business were stable despite meaningful roaming effects and other COVID-19 headwinds. Organic EBITDA was up by 2.1%. So it's the 11th consecutive quarter with EBITDA growth despite COVID. And our customer momentum remains consistently strong as you can see on page 22. We added 171,000 contract customers, 258,000 converged customers, a stable 60,000 increase in broadband, and 26,000 additional TV customers over the course of the third quarter. Let's move to page 23, TSI or T-Systems. and obviously what you see is this business is negatively impacted by the covet crisis we're seeing quite a bit of headwinds that clearly resulted in a weaker order book declining revenues in our legacy business especially in the it space but also in the systems integration space we have seen some Good growth in security and especially in the public cloud, but still this is not able to compensate the overall effect. Q3 revenues were negatively affected by also our international business and EBITDA declined by 13 million this quarter. So the visibility on the ICT business is quite low, so we have to see how it plays out. But right now, obviously, we don't have a positive outlook right now. We're seeing a negative trend in that industry as a total. GD, let's move over to this one on page 24. Solid revenue and EBITDA growth continued. T-Mobile on page 25. Netherlands continues to outgrow its competitors by strong customer results. They added in the third quarter again 62,000 mobile customers and 17,000 broadband customers. Mobile service revenues remain positive despite a negative drag of three percentage points coming from roaming effects. And the EBITDA was up 7% year over year. Page 26, GD Towers. What you see here is, first, we have added 1,800 sites over the past 12 months. That translates into higher recurring revenues, which grew by 4%, and higher EBITDA growth, which grew by 5%. So we're seeing a very steady performance in that business, and we're really optimistic that this continues also going forward. Let's move over to page 27 to the financials. And here you see reported cash flow, which was down by 24% in the last quarter. And again, it massively is impacted by the efforts which are done on the merger in the U.S. The adjusted net income was growing by 6.3%, and that is obviously driven and supported by strong EBITDA growth. And if you take a look to our net debt chart, development in the third quarter, you see that if you include IFRS 16, the net debt grew by 3.6 billion. And despite the fact that we had to absorb 2.5 billion additional lease liabilities, which almost 200% coming from the US, and the biggest one is obviously the ATC Tower Agreement. So we think that the ATC tower agreement is a sensible commercial agreement. Unfortunately, it hits us on the lease liability according to IFRS 16. But we also had some positive effects. So we saw obviously a good growth and free cash flow in that number, in that 6.9, which you see in the middle graph on page 28. There is also included the sales of the boost business, which accounted for 1.2 billion, and we also had some positive effects or supporting effects on a stronger euro versus the dollar. What's noteworthy to mention is if you exclude the lease liability impact and you go to the pre-IRFRS 16 world, you see that the interest-bearing debt has actually increased by 4.6 billion. And if you translate this into the leverage ratios, according to the old standard, it would have been a 2.5. And I think that was the upper end of the original corridor before we introduced the new standard. If you include the lease liabilities, obviously we haven't moved. It's another 2.9 metric for the third quarter. So I'm... Remaining really confident also for the remainder of the year. We're seeing a great momentum in the business. Long-term, obviously, a huge opportunity to leverage. So I think we're also committed to deliver everything which we said to the capital markets, especially when it comes to leveraging and when we're getting back into the comfort zone. I think with that, I'll leave it for – I'll hand it over to Hannes for discussion. Thank you.

Yes, thank you, Christian, and thank you, Tim. And now we can start with the question and answer session. As always, if you'd like to ask a question, please press star 1 on our touch-down telephone, and I will announce your name. And should you require to cancel your question, please press star 2. You can also send questions by webcast or sometimes I get questions by mail, so that's fine too. And I think we have a first question that is from Polo at UBS.

Yeah, hi. Thanks for taking the question. I actually have two questions. The first one is really around German fibre. Can you maybe give us your latest thoughts in terms of the cost for home paths for FTTH? And is there anything in the latest Telecommunications Modernisation Act that helps bring down costs? And can you maybe also talk about how you think about the impact from Deutsche Glaser growing its footprint in rural areas? And what do you think of the latest announcement from Telefonica Infra on rural fibre bills? I mean, are they potential partners Or do they present overbilled competition for DT? And then maybe just a very quick question, second question on COVID-19. How should we think about the impact of a second European lockdown on your business in Q4?

Hi, Paul. It's Tim. So first on the question about the average cost per home passed, that varies massively due to the topography of Germany. So something in the vicinity of around 500 euros in the cities. up to five-digit numbers when it comes to the more farming areas and the very rural areas. It really depends on the area. Interestingly, even on the level of subsidization, which is differing very much, all of the subsidization is going in areas in the very rural areas. In 2020, given our focus on the lower-density areas, on the B2B areas, on schools, We have spent an average of 2,000 euros per home passed, but this will come significantly down. And on average, we estimate something in the vicinity of 1,000 euros per home. So that's the level of what we thought about. I know it's expensive, but it's expensive for everyone. So we do not have any kind of disadvantage compared to the alternative carriers. And we are working very hard to get this cost further down. There are different areas which we are talking about. The one is the defective fiber, which is fully digitized. So including, let's say, the planning tools, including even the The outdoor planning cars, everything is based on new technologies. We are using two technologies for cheaper deployment of fiber. One is the trenching and the other is a kind of drilling we are working on. The third one is the amount of subsidization which we are getting, as in white spots and in the Stuttgart partnership. And the last one is even, you know, that we are working with others together. There are a lot of activities going on. Even the idea of, you know, how we synchronize every kind of construction with construction of municipalities in a much better degree. So lots of things going on in this degree. And therefore, Srini's task is definitely to bring down the cost per homes passed. That's what we're working on. And I'm very, very encouraged about the progress we made already over the last years. The second question was around the question around COVID-19. Look, I will start with that question on a more industry perspective. The interesting... The thing is that the new lockdown seems to be milder than in Q2. The way how it is handled here in Germany is in a more disciplined way on wearing the masks and not meeting friends too many. At Deutsche Telekom, most of the people are back to home offices. We have reduced the meeting, the amount of members at a meeting to a maximum 10. So we're reducing the physical contact, but in principle, our industries are working. And as you know, we have already managed Q2 in a very nice way. And I always say, you know, convergence means resilience. The more a fixed line you have, the better you can compensate for shortfalls on the mobile side, which is mainly affected by less travel. For the current situation, I'm expecting a lower impact from roaming. The reason is because traditionally we have less roaming anyhow in this fourth quarter. So, therefore, the gap or the loss will be smaller. On the bad debt side, so far, so good. We haven't seen any kind of significant impact on bad debts. So, insolvency, which is due to the fact that the government heavily supports industries, now in specific restaurants and SMBs. So, there is a lot of, let's say... subsidization going on to keep our industry up and running and therefore we are not affecting bad debts. So when I talk to the Minister of Economy here, Altmaier, he always, you know, stresses that, you know, they have sufficient funding even going deep into 2021 with their programs. So I believe the new lockdown will be even milder than the Q2 results where we have, I think, you know, shown with our fixed and business grade performance.

If I may add a couple of thoughts here, I think we have very good grip on the key drivers except for one, which is the ICT revenues. So I think how this will evolve in a second lockdown is really hard to project because you need to be on customer premises. You need to interact in a physical way. And if you're not allowed to basically enter customer premises, then it becomes difficult to sell large IT projects. So this is something I think where I would say we don't have a grip on. On the roaming effect and all this stuff, you can take a look on our predictions versus how it played out. We're very, very close. And the final question on Glasfaser impact, Deutsche Glasfaser and the Telefonica infra investment. Look, we're building 600K fiber this year. We're going to double next year and we're roughly double another time the year after. So what I heard from Deutsche Glaser and their recent commentary is that they're suggesting to have a target of 3 million by end of 2025. So by all means, that means that we are the biggest, by far the biggest fiber builder and infrastructure investor in the German business. And I think, I don't know, Tim, whether you have a thinking on the Telefonica investment. I think it's too early to make a comment on what's going to be the commercial impact.

Yeah, let me maybe also add that I think they might be a bit of a scramble for the same sweet spots when it comes to the overbuilders, because what they are looking for is areas without VDSL and areas without cable and areas where the cost to build is lower than, say, 2,000 euros per home past, and those areas are, let's say, not abundant in Germany. So that's maybe a bit of competition there amongst themselves, and we might not be able to add them all together.

uh... in terms of their targets so the next question is from frederick's bank of america please uh... two questions please uh... first of all on on the leverage uh... so you you are two point nine times now on a a first basis uh... pre-pension uh... we have the c-band ahead uh... you have options to increase your stake in timus so if we look at your leverage level in the next two to three years uh... are you comfortable with the your path of organic deleveraging, and would you consider any other options to accelerate deleveraging? So thinking about, you know, disposals, including towers. And then maybe a second point just around the Y-Wave, if you can give us an update on your working assumption in terms of decision you expect that the German government will take, and maybe if you can talk about the different variables and impact on your business. Thank you.

So, Fred, on the leverage question, let me start with the potential development. Look, as you know, we have registered for the C-band auction, but we can't talk about this because this is currently in the quiet period, so we have to see how this plays out. I think the The long-term free cash flow generation of T-Mobile in the U.S. is massive. If I'm not mistaken, I think the free cash flow consensus is about 14 billion euros by the year 2024. So there is massive deleveraging potential. Obviously, as we crafted the deal back in 2018, nobody was foreseeing a C-band auction. So obviously, that hasn't been part of the original deal model. But in any case, I think it doesn't change the story. And from this perspective, I think even whatever is going to play out on the C-band auction, which we're going to see, and it's too early to make a comment on this one, we're still confident that we're staying within that framework, which is returning back into the corridor after three years. I think there's one caveat I would make. If you take a look between the difference of including or excluding leases, we thought a quarter of a point is sufficient. If you can take a look right now at the Q3 numbers, it's 0.4 points. So we have to take a look whether the adjustment which we have made for lease liabilities remain to be the way how we initially crafted them. But I think the whole story on deleveraging is absolutely intact. And we have shown 2.5 X leases this year, so you see that we're getting in that vicinity area in any case. I'm truly confident that this all holds true. And obviously, we always said there is disposal potential in the – In the portfolio, we're open about T-Mobile Netherlands and also monetization of towers hasn't taken place yet. So that could serve as a supporting funding source. But let's take the decision first and then see how to use the funding. Tim, do you want to do the Huawei?

Yes. Look, I think they're on the Huawei situation already. Pre-elections in the U.S., the public discussion and pressure, you know, was slowing down, smoothening a bit here. We are expecting that the IT security law will be ratified by the parliament soon. Nevertheless, they take a long time here in Germany to get that through the parliament. And we are supporting all the positions which are mentioned in this paper. There is clearly the intention to regain digital sovereignty in a lot of areas. And the one thing is that the core network of our infrastructure should be independent from Chinese vendors. Here I can mention that Deutsche Telekom is already clean or very close to be clean. By the end of this year, the smaller functions will be rebuilt. The second thing is that we are supporting Oran. All the industry players are doing and we are intensively working on the software code so that the 2G, 3G, 4G dependence on one vendor is not automatically reduced. predefining the selection of 5G services. We highly appreciate this protocol and working on it. So hopefully in the next, you know, latest two years, you know, we have this capability as a software tool so that we can use that for 5G antennas and new vendors are open for us. The third thing is that we do not see security risks on the antennas and the access nodes which we are deploying from Huawei today. So does the government at that point in time. So in principle, we do not have any negative impacts on our business so far, nor commercially, nor from the speed of the 5G rollout. And you have seen these impressive numbers, which we put forward in the first half year. So that's where the current situation is. I think the German-Chinese relationships are highly dependent from a lot of industry sectors exporting products to China. My understanding is that the government doesn't want to have an escalation here. They're very much working on a neutral position, considering the digital serenity and the independence from any vendor here, single vendor here. And we are working according to this policy.

Thank you, Tim. Next question is from Ulrich at Jefferies, please.

Yeah, thanks very much, Seth. Two quick ones, I hope. The first one is, You have said in the past that Deutsche Telekom cannot be the full coverage incumbent in fiber in the way it was in copper. So how do you think about the revenue position in Germany in that situation? In other words, are you foreseeing a situation where potentially you're going to shrink into a slightly smaller scale operator once you are arrived in the fiber world simply on the basis that you are not incumbent everywhere? and you're losing these wholesale revenues that you currently have from universal copper coverage? Or is this sort of a more comment on the margin, and overall it's not something that would sort of create a smaller Deutsche Telekom in Germany? The second question is, you have in the past sort of expressed your dissatisfaction with the way Deutsche Telekom is trading, is not getting enough credit by the equity markets. Do you think that is a conglomerate discount issue or a market concern over the German business? And what levers would you touch or not touch to address the underlying issue for investors? Thank you.

Ulrich, thank you. Good questions. The first question, I think, is, look, I do not see us shrinking here in our fixed-land business. Our plans internally, and it was very wise of us to deploy the vectoring and super-vectoring, not only from a societal perspective, bringing this country through the crisis here, But as well, from a market share and churn related position, you have seen we are constantly growing on our fixed line position, constantly gaining new customers on that one. Almost 13 million customers are using our retail offering here, plus the wholesale business. So this is, let's say, the market size and perspective we're having. And with the current net market share, that is our expectation. We haven't seen the waterfall numbers yet, but we are optimistic that we are achieving our 40% market share in this regard. Now, that said, so we are not shrinking these days. We are growing in the fixed-line business, which is, I think, after, let's say, all the attempts from our competition and impressive performance. Now, our anticipation going forward is that you're totally right. We will not build the fiber for the whole country. It's impossible for one player. And by the way, we are not the state-owned company anymore who had this universal build-out obligation. So we will build, you know, according to our scale and to our customers' needs, we will build network infrastructure our own. And we will have capabilities we call this whole buy where we are able active and passive infrastructure to be used, which is built from other players. So we are open and you have seen the deals which we made already so that we do not have to automatically own every infrastructure. In Münster, for instance, we are taking over, let's say, the infrastructure from the city, from the municipality. And we are now using it for our customer base, but as well for managing the wholesale business with third parties. So this is, let's say, passive infrastructure built by municipality. We help them to utilize the infrastructure, but we have access for all the millions of customers in this region for our Magenta service as well for our wholesale partners. And this is a model which is extending our footprint beyond our own. So on top of that, we can build with others. I can even, you know, imagine that we have a partnership of balance where we are committing in a contingent model from our side so that we overall, you know, create scale and have access to the FTTH, which is built across Germany. Today, VDSL has a nationwide share of 85%. In FTTH, it will probably be a bit lower at the end, but when it comes to the revenue perspective, I can tell you we believe that both on the retail and on the wholesale side, we will at least be in the magnitude of the scale and the size which we are offering already today. So that's the good way forward. And so we are not concerned about what Telefonica, others are doing. I think this is adjacencies where we can collaborate to bring fiber into the households here in Germany without having all the burden on our shoulders. When it comes to your second question and the question around the The valuation of Deutsche Telekom now clearly and, you know, it always reminds me that I should not, you know, teach the market. I always do. I'm sorry for that, guys. But, you know, I clearly believe that, you know, the share price performance is unsatisfactory of what we are offering. And looking to that one, I'm not concerned. I'm not concerned about it because, you know, at the end of the day, the operating execution, the way of making our business, solving the problems, being cost-cautious, investing in the right field, staying focused in the business while we are, don't making bad deals, and moving forward, I'm sure... I'm sure we will get the credit from the investor side as well. If you look to the situation, there is a super performance of the U.S. As I mentioned earlier, cap doubled since announcement. Now, if I look to the German entity and the European ones, we might have lost equity value in the past, which is a little bit according to the negative sentiment the whole telco sector has. I understand that because what we have seen is most of our competitors are shrinking. And even this quarter, again, most of them are shrinking. The second quarter by minus 7% to minus 10%. If I look to Telefonica, I look to Orange, looking to Vodafone and the like. The only thing is, you know, Deutsche Telekom in its core market in Europe is growing. We grew by 4% in Q2. We're growing by 3.2% this quarter. So we have another development than our competition. I believe not all the investors are recognizing this. They're looking at the telco sector as a whole for the European situation and not, you know, differentiating among the players here. So it's our task, you know, to show this difference, to make clear that, you know, our business is doing better than the one from the other telcos here in Europe. And then we will, over time, close this existing gap which you mentioned, Ulrich. I think maybe a last sentence on that one. I always believe at the end the good wins. So put your blinkers on and execute along your plan. This is our strategy at Deutsche Telekom, and we feel very close to our American colleagues working very closely. They are very happy that we are working together and sharing the synergies. So therefore, all this pressure which I see from the capital market is not something which is bringing us apart from our strategy.

Very good. Thank you, Tim. And I actually don't think the market is always right. I think right now it's wrong, but at least we can understand what some people's concerns are, and it will be our job to address those concerns. And I think it's pretty evident that we will see pretty strong earnings growth. In fact, our third quarter shows that even in a year of massive merger investments, we can deliver $6 billion free cash flow or more, and our earnings are pretty steady. So I think we we can show that we address these concerns and that will translate into benefits for shareholders quite soon. So next one is Josh at Exxon, please.

Hi there, guys. Thanks very much. Two questions from me. The first is on the fixed line trends in Germany. So you highlighted very strong service revenue trends in fixed line and also broadband net ads. just wonder how you square that with what you're seeing on the fiber side so overall fiber to the to the cabinet or five to the home net ads slowing down both in the retail and the wholesale segment are you seeing that the people buying those fiber products is paying more or is there generally a bit more um upselling within the overall broadband base including dsl but it's great to hear a bit more on that and then the second question One and One Drillish last week was saying that they have requested that BNXR become involved as a referee with regard to national roaming and that they don't consider your offer, the offer from either you or Vodafone, to be satisfactory. It would just be great to hear a couple of lines from you on your perspective around that. And is there any legal scenario where the BNXR can actually force you to lower pricing or is it still a commercial negotiation? Thanks very much.

So, Joshua, on the fixed line German question, no, we don't expect that there is a slowdown in trends. Look, let me go back about a year ago as the Cairo merger was approved with Vodafone and United. You were all concerned that we are not able to basically compete against cable, and now we're having net ads, which will be very likely above 50% net ad share. in that given quarter. I think there is a, we're seeing a slowdown of roughly 100, but I wouldn't say this has something to do with the slowdown in our performance. And I think what you see in the German market is quite right. People are willing to spend money where they see the clear value. But the Germans are not very famous on buying basically the latest and greatest technology and willing to pay a premium. And if the vectoring technology is still satisfactory, they may have a conservative approach to further upgrade. So that would be my question. I think take a look at what's happening on the market on the net ads. I think that's a better indicator rather than how many fiber ads we're producing. So from this perspective, I think there's no negative momentum change in the fiber business from my perspective.

Let me add one sentence, Christian. For customers, the service is something which matters as well. And the reliability and the precision on how we are delivering on fixed line services these days is something which has a big value. And we see all the feedback which we are getting in the test. You see that as well in our net promoter score and the trim values. And we have made really leapfrog, you know, a jump on the service quality. And that is something customers appreciate. So they're highly appreciating our VDSL and vectoring services these days. A very good product. But what we are doing is now after having finalized our build out on this area, we and the IP migration, we are using this money to deploy a fiber to the home in areas where the subsidization is high. That makes totally sense for us. from a commercial perspective, but as well now in areas where we can regain market share, where we add to the good service, you know, a fiber proposition. So this is, let's say, how we are looking in this world and that is how we are selecting the markets. We do not want to be too late on fiber. So we are now increasing now our fiber rollout, as said, up to 2 million households per annum in selective areas, plus the partnerships which we're seeing with investors like Telefonica and Allianz. So this is, let's say, a good path going forward to safeguard our good position. Today, customers don't need it and don't buy it so much. but prospectively that might change and then Deutsche Telekom is ready. Your second part of the question, Joshua, was to relation eins and eins. And look, we are in principle, and I do not mean in principle, we are open to third-party businesses and reasonable commercial terms. So that is a principle which you can see everywhere, being it our contingent model, being it open up our fiber infrastructure, being it and the joint ventures, which we have this AVA tail and being at our passive infrastructure partnership, wherever you see us. And as well on the mobile side, we have decided to partner with Vodafone and Telefonica when it comes to the rule build out and where everybody has committed to 2000 sites, which we jointly share. This is, let's say, a model which makes the servicing and the service quality for our customers better. However, national roaming is no off-the-shelf access solution. I think it is a temporary backstop until a network operator has carried out its own full network rollout. And if an operator relies on national roaming in the long term or if conditions do not reflect the commercial interest of the host network, this undermines incentives for further network rollout, especially in rural areas and leads to less and not more capacity in the market. And this is my point. Look, it cannot be that we are investing into 30,000 mobile sites that we are investing into full coverage, which costs us billions, and that any partners coming and asking for access to this infrastructure on variable cost terms, on incremental costs or whatsoever. This is something which will, if this is the mall, nobody will invest into fixed line, fixed infrastructures anymore. And that is something where I'm criticizing the principle, I'm open to share with anybody if he's paying an appropriate condition. This is, let's say, the partner model, which we have laid out with others as well. Now, Drillich and 1&1 has called for mediation by the Bundesnetzagentur. both regarding negotiations with us and with Vodafone. And we are now part of this involvement here. But, you know, we will be very clear on our positions that, you know, it cannot be that we are going to a variable incremental cost model. This is something which is very negative for Germany prospectively. Maybe one last sentence. I don't think there is a lot of political support for free riding these days. I think everyone is expecting that eins und eins start building. To my knowledge, they haven't built any site yet. So I would question whether they are really serious on building an infrastructure. My expectation is more that, you know, perspective that they find a commercial agreement with Telefonica.

Okay, thank you. Next question I think is from Akhil J.B. Morgan.

Hi, good afternoon. Thanks for taking the questions. I've got two both in various ways related to the same fiber topic we've been going through. The first is just a very high-level question. I'm sure you get the same questions yourself, but I guess a lot of the conversations around fiber today are somewhat simplistic and revolve around the fact that you're saying, obviously, $2 billion a year for fiber spend is the sort of parameter you've laid out. But the concern is that at some point you might want to get to 30 million homes or more, and therefore the run rate cap is going to go to $3 billion or higher for fiber. So I just wondered, without going into the details of things that you haven't guided to yet, how do you at least address the bigger picture points of could there be a scenario where CapEx goes up that much, and what would you do in that sort of scenario? And I guess the second question, which is a bit linked to that, is that if you look at this year, there's been a very clear trend of private equity money increasingly ramping into the sector given low cost of capital. And I guess one of the reasons is a very different view of duration. Obviously, with listed companies, we're all very focused on near-term cash flow with infrastructure funds. They care about long-term infrastructure value creation. So I guess I'm just trying to understand when you think about those things as a listed company, How do you think about your options if you are trying to maximize the long-term infrastructure value creation within the context of trying to manage what investors are worrying about, which is near-term cash flow?

Thanks. Okay. Look, guys, before we go into the main question, which we have, and it's interesting, you know, we always have one topic, which is the hottest topic then, and this seems to be FIBA these days. And it has a bit of overhang on our stock as well, this storyline. I just, you know, I just don't get it because 2 million FIBA households, and we said we are carrying that out in the envelope, which we have laid out. And even if you do the math and see a shortfall whatsoever from an investment perspective, guys, we have just increased our EBITDA guidance by 1 billion euros. So I'm just questioning that there is so much money for compensating all the other topics that I just don't get the math. If I see on the one side, you know, the increase on the EBITDA line, while on the other side, you are very concerned about some, for me, I would not say minor, but, you know, at least, you know, questions around the CapEx envelope, which we have laid out. The second one is. Our learning curve is steep when it comes to the cost reduction and the capex reduction for fiber. And thirdly, the money which is flowing into this market from a subsidization perspective is the highest in whole Europe, which is harming us significantly to improve the internal rate of return for all the investments we are doing into fiber. So we are not sleeping on the tree. We are trying to make a commercial model out of FTTH build out. And there is a limitation to our capabilities. No one in Germany is able to just go for 2 million fiber holes just on the next morning. We have to build up the scale and everybody has to do this. So therefore, we're going from 600,000 now. We will now focus on, you know, going up to 1.5 to 1.8 then the year after. And then we're going into the 2 million fiber per year rollout, which is a super big attempt going forward. I believe that others will invest into this scenario as well because of, let's say, even the subsidization, which is available there. And therefore, I'm not criticizing. I appreciate that because, as I mentioned earlier, we will not be able to build 100% of this country with FTTH, nor we have the interest to do this because not all of this is commercially viable. So therefore, let us go now. I can, you know, with all the track record, I hope we have built. I can give you a kind of guarantee, you know, that our financial envelope is the financial envelope which we have defined and which we are able to build this 2 million households here. We have to get the learning curve up and running. We have to see, you know, the take-up rates, and that's the way forward. There is no bigger picture of this scenario, which I see, at least not the capabilities at that point in time. And the last question on the private equity money sector. Look, there's anyhow a lot of money which is barbering around in this world. So... And yes, I think not all of this money will probably, let's say, earn its returns. Nevertheless, you know, having a company, maybe even, you know, a company outside of our consolidation who is, let's say, building infrastructure at reasonable terms in reasonable areas, this is definitely, we are definitely open to share that for perspectively, let's say, bringing our customers into their infrastructure. So we are open to all of them. And by the way, we're talking to all of them.

Well, you know my repeating sentence on this one. I love owner economics. So wherever we have the opportunity to build by ourselves, I would always prefer this versus using private equity money. The second, I would say, most attractive category is what we have done with EVHL to build that joint venture on infrastructure because we're basically using one infrastructure but two distribution structures and have also offers. And yeah, I think there's an incremental market for private equity money, but we always have to think through how this plays out with the lease liabilities. And I think this is something where you have to factor this into your implications on the balance sheet as well, because depending on the duration of a contract, that really can kill a deal because we have seen that already.

Great. And with that, let's move on to Christian at HSBC.

Yeah, thank you. I have actually two. One is also, again, on the whole FTTH CapEx thing. You know, just in terms of timing, is it fair to assume that you will give us, you know, a real guidance in terms of CapEx at the next couple of market day, or is there a possibility to hear, you know, at least some kind of color on this before that? And the second one is on the new German telco law that is in draft status. It seems that the current draft is not, you know, really different to the early draft, the Referentenentwurf. You know, can you share what kind of debate is happening behind the scenes? What are the risks in the current draft? I mean, for example, the conflict length is still under investigation, the Nebenkostenprivileg. Can you share your latest thoughts around that? And then maybe one last point is actually a third question. Sorry about that. On the guidance upgrade, XUS, you know, it's 100 million higher on adjusted EBITDA, but it's not being adjusted on the free cash flow. Is that really, you know, a cash tax thing, or is it because of lower cash flow from T-Systems? Can you share a bit of light why you didn't really increase the XUS free cash flow? Thank you.

Okay, Christian, there's a complex question with regard to the telecommunication law. So politicians are still, let's say, debating the incorporation of the EU code into the German telecommunication law, and I think this is offering an opportunity to support the network investments. Now, the major topics, and you know them, are national roaming, removal of the rental privilege, FTTH regulation, symmetric access regulation, contact durations. And so the discussion is going on. There was already a first draft expected earlier this year, so it postponed until now. So that's a little bit later than we originally thought. I think there is not so much political support for any kind of national roaming. That is my readout. I do not see that there is a very aggressive HTTH regulation which is enforced. So I think the new law reflects that. aspects like switch from Exante regulation to Xbox regulation. There is this kind of non-discriminatory access regulation. And by the way, we are doing that anyhow, that we give access to our infrastructure. So these are positives. There is this idea which we are trying to incorporate, which is calling about the reciprocity, the reciprocal access fees. And being discussed the regional price differentiation and as well the non-discriminatory wholesale access regulation. Well, we think, you know, these are topics which should get included, but, you know, which are under discussion at that point in time. When it comes to the hottest topic on this list, Christian, I think it is the removal of the rental privilege. And Deutsche Telekom is together with the Verbraucherschutzorganisation and others are very much pushing for this topic. The logic for us is the following. Having 20 to 25 percent of the houses not being accessible for us, you know, this is clearly reducing the amortization of new FTTH build-out. And that is not only true for us. This applies as well for the smaller carriers who are deploying FTTH in Germany. So, therefore, we find ourselves with the challengers in one boat here. On the other side, we see the housing associations as well, Vodafone, trying to define their monopolies here. This is an issue which is debated, and I'm in the middle of this process talking to all relevant stakeholders in this regard. Look, we will see how it is out today, the Nebenkostenprivileg, the rental privilege. is in violation with EU law and should therefore be removed, that is, let's say, the current draft on this one. I think in principle the new German telco law is not worsening situations, it's improving the situation, but it's not, let's say, a big leapfrog change to the current situation. That would be, let's say, a summary in short. And maybe if you want to go to specific topics, please ask again on this subject. But I don't want to spend too much time on the details here. Christian, maybe do you want to go into the guidance?

Yeah, sure. Look, we're looking at the following area. First, we have just increased the guidance for the group to at least $6 billion or greater. The second one is, yeah, we increased the EBITDA guidance by 0.1 billion. But please also reflect that we have already a significant increase in free cash flow announced with 3.3 for this year. And don't forget that we have reduced factoring in the first quarter by 700 million. So that was already significant. an ambitious target. And I think there are many factors influencing free cash flow beyond EBITDA. And we don't have full visibility, for example, on taxes right now or on some interest expenses. So from this perspective, that led to the decision to increase the EBITDA, but not the free cash flow.

Right. On the question, I think your first question related to fiber to the home and the next capital markets day and all of this. Yes, I think it's likely we'll have another capital markets day coming up next year because that's what we do. Every three years we lay out a plan for four years and then we stick to it. And I think you can see that we delivered on what we promised. More or less, and we feel on a good way towards this promise. And one of the promises was that we gave a clear outline on CapEx and we stuck to it. So 18, 19, 20, and let's see, 21, you know, no intention to not to deliver on that. And from that perspective, I think hopefully we've earned a bit of trust in terms of what we are guiding. There's no indication here that we, you know, whether we will guide anything hugely surprising on FTTH, given what the discussion is. given what our thinking is, that's speculation. So I don't think it is right now to think that I wait until the capital markets day and then something terrible will be announced on FTTH and all good things will end. So let's not forget also on the discussion with the ex-US free cash flow, I mean, T-Mobile is part of the group. And so it's a bit of an artificial separation. Sometimes it's good for some of the parts logic perspective, but maybe it's falling a bit short in terms of what the group is generating. And that's what Tim also tried to highlight before. When you look at the whole group, consensus currently expects 17 billion in 2024. That's you guys. So with that, let's move on to Robert at Deutsche Bank.

Yeah, thank you. Towers EBITDA AL growth of 5% in Q3 diverged from EBITDA growth before leases, I think that was 1%, by about 4 percentage points. So basically, it grew faster. In Q2, the growth rates were similar. Is this a one-off in Q3, or do you see more opportunity to renegotiate lease costs to drive EBITDA AL faster than the IFRS EBITDA? And then just going back to Christian's comment about lease liabilities, From a credit rating perspective, is it more helpful to strike a cheaper, longer-term deal with a high capitalized lease cost, like people have just done, but which boosts IFRS 16 debt, or is a less cheap, shorter-term deal with lower capitalized leases better from a credit perspective? Thanks.

Robert, let me start with the second question because I don't have the first question top of my head, but someone's looking for this. Look, on the lease liabilities, from a credit rating perspective, absolutely. It is, from a rating perspective, a shorter deal makes sense. But I would never take that entrepreneurial decision. Look, it helps you on the rating leverage. And if you take a look, for example, what the U.S. has done with the ATC deal, they were going for a 15-year deal in order to create stability and predictability in what's going to happen on their tower leases. And I think from an entrepreneurial point of view, this is exactly what you want to do. You want to take risk out of the system and therefore go for a long-term deal. But obviously, it hits you on the lease liability side under IFRS. The U.S., they don't care because the net leverage is a non-GAAP figure. Therefore, they don't include the lease liability. So you don't see that impact. But I would always try to do the right entrepreneurial decision versus preferring or basically taking advantage from a rating perspective. Does anybody have an answer?

No, on the first question, Robert, I mean there is sometimes a bit of – quarterly volatility and talking about small numbers and we haven't changed any strategy in the towers and so on. We built 1,800 sites in the last 12 months in Germany, mainly rooftops. We get steady growth. There's no discontinuity in the tower operations. And by the way, something not to forget, we are building we are building new sites, right? Not many people do that. Organic growth is very strong in the towers. This is a part of our strategy, but also, you know, going forward, there will be the coverage obligations that we will deliver against and so on. So I will, we will get back to you on this one. It didn't strike us. So good spot. We'll look it up if there's something untoward. And in terms of leases, let me just say again, in terms of the metric, to that excluding leases, and Christian answered the question related to leases, and that was the question, but if you exclude leases, which is how most of our peers look at it, we are 2.5 times end of this quarter. Anyway, next question is from Jacob at Credit Suisse, please.

Hi, good afternoon. Thanks for taking the questions. I won't ask on Fiverr. Two questions on the German market. Firstly, could you share a little bit of your thoughts around the impact of the new iPhone on the market? Do you see it as a significant event for the German mobile market or not really? And then secondly, you've obviously had very strong net ads and you mentioned a market share above 50%, but it does also look like there is a sort of slightly more durable acceleration in net ads in aggregate for the German market overall. So just interested if you could share your thoughts on what's sort of driving that re-acceleration in the German sort of aggregate subscriber numbers. Thank you.

I think, you know, it's very early to say, you know, on the iPhone, you know, the market, it's not that it's, you know, something like creating a super hype. It's it is, I think, you know, an innovation, no doubt about that. One is to add it to say what we learned from the U S it seems to be from a mixed perspective, a little bit different between the S and and the other lineups here. So a little bit of shift in this regard, but in principle it is perceived as a, as a, as a very relevant device, but nothing where we would say now it is a super game changer in our markets yet. So too early to say, but let's wait for the Christmas business and then we will see. Asking me about the device, 5G services working nicely. It's coming with great functionality and good technology. It's well supported by advertising money from both from our companies but as well from from apple itself so um too early to say but it will definitely help us to drive 5g so on the net ad question first of all we we're not seeing a big acceleration in the broadband market i think we're still feeling is pretty steady

Look, our numbers are fairly strong because we always said we believe that customers are buying for a basket of reasons. And yes, speed is one, but the product proposition you're getting, the service proposition you're getting, the brand you're buying are also paying into this. And I think this is why we feel our net ads are as strong as they are. But you see on the other side, for example, on 1&1 and Telefonica, that growth has come down in the recent quarters. And I don't know what Vodafone is going to tell you on Monday. I think we have a good proposition in place. We have a good offer in place. We have sufficient bandwidth performance in our network. I think that drives our strengths in the broadband market. And there's customers trust us, they trust our reliability, but we don't see a momentum change in the German broadband market.

Thanks, Christian. And next question is from James at New Street, please.

Yes, good afternoon. Thanks very much. Two questions, please. I mean, it sounds like the tone you're making on the call, you're both more confident about your leverage in particular, I think, kind of quite rightly said. Focusing on the X leases measure and you're also sounding I think quite rightly more confident on the US business where the share price has been rising So this is where I'm really going with this is you know updated thoughts on when you might want to exercise the option to buy out Softbank because looks like the team of share price could potentially run away from you and the balance sheet today has the capacity to handle buying that out and And then the second question, please, would just love to get your thoughts around the next generation EU fund. How do you see that playing out in Germany? What are you hearing from politicians at the moment about how much might be allocated towards digital services? And in particular, how do you think about the benefits for that for the telecom sector, specifically in Deutsche Telekom? Thank you.

The first question is, I will not tell you. Let's think about it. But when we do it, we will inform you. But this is something which we are not discussing publicly. And by the way, we have decided to say we are not doubling up immediately. We could have done that earlier. We didn't because we thought it's good to get proof of the pudding first and understanding how this merger is moving forward, the new team, the attempt to the market, all these changes to the technology and the like. So why doubling up at that point in time? And on this journey, we will learn when the right timing is, and then we will let you know. On the second question, honestly, I'm not sure whether I got the question right. Maybe you can help me. I was not listening carefully enough. Sorry. Can you repeat it?

Yes, hello. Can you hear me?

Can you hear me?

Yes, we can.

Great. Yes. And I was just asking about the next generation EU fund, the 750 billion euro recovery fund, and how you think about that in Germany. What are you hearing from the politicians at the moment on how they might be looking to allocate those funds? What percentage might go towards digital and the telecoms industry specifically?

Yeah, you're totally right. And that's a good question. Look, the EU leaders agreed on this extraordinary summit in July on 750 billion recovery package to mitigate the social and the economic consequences of the COVID-19 pandemic. It compromises 390 billion in grants and 360 billion in loans. The recovery fund comes on top of one trillion in the 2021 and 22 seven multinational financial framework. So and by the way, on top of that, we have a German program. in the magnitude of 150 billion, which is on top of these numbers. So there are unbelievable big numbers on the table. And the EU and their program have earmarked 20% of this recovery fund for digital. So this is a good sign, and I can tell you're spending a lot of time with politician leaders in Europe but as well in Germany on really, let's say, understanding and allocating the money in the best manner for the European societies. We are ready to support and leverage these initiatives. And we are, as I said, heavily engaged on this one. We have our own team working on this, by the way. And we see different areas where it may be different. One of the areas is what we call the Cloud Federation, or we call it Gaia-X. There are big discussions going on around an automotive cloud about governmental services and when it comes to digital sovereignty in other industries. We have partnered up with OVH in France. This is to combine our software skills with bar metal services to provide this software for the industries. It is based on a very open, interoperable architecture, which we are providing. It's always full compliance to GDPR, and it can be an alternative to the U.S. cloud services, environment. Another area is the Corona app. And you know that Deutsche Telekom is one of the main system integrator service providers for this app. We're doing well. It's the most successful app in the world. More than 20 million customers are using it. We are now extending the functionalities. for the European member states who are using decentralized app services. So this is something we are doing. I even see areas in the connection of both from an infrastructure perspective, but as well including cloud services. This is under discussion, at least, you know, here in Germany. So there are a lot of initiatives going on. I cannot go through all of them, but definitely there will be double-digit billions going into the telco sector and helping via our industry society to be better connected.

Thanks, Tim. On an eventful day for European Towers, we're also now able to answer Robert's question related to the discrepancy of the EBITDA growth in the third quarter in our tower operations. So basically, we had a one-off related to an IFRS correction booking, a 16 correction booking. So that is basically related to something last year rather than this year. So nothing particularly to worry about. And with that, we have our last question today from Usman at Bernberg, please.

Hi, gentlemen. Thank you for taking my question. The first question was just on 5G mid-band build-out using the 3.5 gigahertz band, or the C-band in the U.S., as it's called. I was just wondering, I mean, if you were to build a mid-band network using that frequency, I mean, what would the reasonable level of coverage, you know, what could it actually end up being? I mean, I see a team that's obviously using the 2.5 gigahertz to build out, you know, 99% in the long term. But, you know, if you only had the 3 gigahertz band, I mean, what would economically be the limits that you could build up to? So that was the first question. And then the second question was just related to a comment that the Monopoly Commission in Germany made at the end of July when they were giving a recommendation to the government of prohibiting, you know, cooperation kind of deals like the one we've done with EVE TELS. on kind of future fiber build-out unless it's absolutely necessary. So just regarding that, do you think that that changes anything, that opinion changes anything, or should we just disregard that? Thank you.

Maybe on the second question, the cartel office commented on it, but they said that the concessions that were agreed are such that the joint venture should go ahead. So why they are in principle... There are principal concerns with regard to collaborations in fiber because they might foreclose some competition, which I take pretty much as a holding statement for the agency that they don't want to write out a blank check for this kind of collaborations going forward. But in the specific case of EWETL, they did say that the concessions agreed will have addressed their concerns. Okay. So also on the 3.5, let me say. you know it's a good question but it's one that we really cannot answer right now because uh we are in a quiet period ahead of the auction uh if we let's say now go into details of a 3.5 gigahertz plan for us or for ourselves or others it it you know it's telling you too little or too much too much and it's um it's it's not uh prudent at this point in time to to provide this commentary we are happy to talk about our 3.5 gigahertz plans in germany where we've got the spectrum or other markets where that's the case. But, you know, at this point in time, let me just reiterate, we will have 200 million homes passed, sorry, not homes passed, POPs covered in the United States with 2.5 gigahertz spectrum by end of next year. And that's surely a pretty amazing deployment of high-speed frequencies for 5G. And so I think with that, we come to the end today. Sorry, I couldn't be more helpful on the last question. Tim, you want to... wrap up or say goodbye, whatever.

Look, thank you very much for your questions. Look, I think this was a fantastic, you know, quarter for Deutsche Telekom, especially if I look, you know, how we performed against our European peers and as well our US peers. Now, there is a lot of work in front of us, which we have to solve. We want to deliver the U.S. merger synergies as fast and as big as possible. So accelerating is, let's say, one of the tasks which we are giving ourselves. We are very intensively working on digitization internally. That is another thing we are working on. I couldn't, you know, spend today time with you on the ESG topics. This is something we are intensively scaling up in our organization, by the way, just to know you. We just, you know, I became the... manager of the year with regards to diversity here yesterday. So this is another award which is showing that we're taking this topic seriously here. We are working on the leading infrastructure in every market we are operating. That's our strategy, simply as that. And that is what we are doing. And the biggest challenge which we have is the one which we discussed is our FTTH rollout here in Germany with a new management, with a new push behind that. And we will find appropriate answers. We want to further improve our customer experience. Honestly speaking, this was a main topic in the past. For us, it's now a differentiator, which we have on our hands. So you haven't had questions on that one, but I cannot underestimate how important that is for our perception and how this is helping us these days. All our competitors were with price promotions in the market. We were the only ones without price promotions, but with great service awards. And you have seen the outstanding growth results we were able to deliver both on market share and as well on the revenue side. I think the US merger is on an excellent track. Across the group, we are digitizing and we're taking out costs. Cost discipline is very high. We didn't mention that today. We are well ahead of our cost targets. We are well below when it comes to our headcount numbers. So the numbers of new hires is lower and therefore, you know, the ramp up is or the starting point is at a lower level. And we are very well leading on 5G. I think that's so important for us. And you have seen the numbers, two-third of the countries, sorry, two-third of the population covered by 5G by the end of the year in Germany. This is a benchmark for everybody who is working on us with this. I know that many of you are worried about the capex risk, but please let me put that in perspective. And I'm always trying to calm you down and to cool it off, but we just added one billion, one billion to our 2020 EBITDA guidance. And we will deliver 6 billion of free cash flow this year. And we do this while investing 17 billion all-time high of capex into our businesses. And while we spend a couple of billions on the U.S. integration, we are showing this performance. So our investments will drive big growth in cash flows. and earnings in the upcoming years. And therefore, I'm very optimistic that this envelope, which we have shown, is the one serving the growth expectations. So therefore, thank you for your kind attention. Thank you for your trust in Deutsche Telekom. And we won't stop.

Thank you, Tim, and thank you, Christian. And so we come to the end of this call, and if you have further questions, please get in touch, and hopefully we can then answer or help. So with that, I give back to the operator. Stay healthy. Have a good rest of the day.

We'd like to thank you for participating at this conference. We are looking forward to hear from you again. Goodbye and stay healthy.