Deutsche Telekom Ag S/Adr

Telecom's Q1 2024 conference call. As you can see with me today are our CEO, Tim Hodges, and our CFO, Christian Illig. As usual, Tim will go through a few highlights, followed by Christian, who will talk through the quarter in more detail. After this, we have time for Q&A. Before I hand over to Tim, please pay attention to our usual disclaimer, which you'll find in the presentation. And please also note that this conference call will be recorded and uploaded to the Internet. And now it's my pleasure to hand over to Tim.

Thank you, Hannes, and welcome everybody to the first quarter 2024. And if you have seen it, it was a very good start into the year. Very predictable and reliable numbers from all the businesses we are having. We are very happy on the track of our stated targets. Our first quarter financial results are very consistent with the multi-year trends that we showed. And that was, well, the 4%, you know, service revenue growth, a 7% organic EBITDA growth, and a 15% growth in adjusted earnings per share. So I really like that. T-Mobile was able to raise its full-year guidance, and we are reflecting this in our group guidance today. T-Mobile announced the creation of a fiber joint venture with EQT, which targets 3.5 million households in the U.S. by 2028. And T-Mobile received the necessary approvals for the Mint transaction and finally received the 2.5 GHz spectrum from the Auction 108. The German regulator made a proposal on the spectrum extension, which is now being consulted upon. So I think everything is working in the direction which we were foreseen, and we are coming along very happily with these topics. Let's take a closer look at our financials on page 5. First, old segments contributing to our growth. Second, organic growth. Service revenues grew up by 4.1% in the first quarter, which is even a bit faster than last year's growth of 3.6%. Organic ex-US service revenues grew by 3.6% in Q1, again marking acceleration. And as mentioned, organic group growth, EBITDA, increased by 6.9% in Q1, which is the same as it was one year ago. The foundation of our growth is our network leadership. In the last quarter, we passed another 500 million additional European homes with FTTH and now reach 17.5 million. This is up 3.6 billion year over year. 3.6 million, sorry. And in Germany, we now pass 8.2 million homes with fiber. In Europe, 9.3 million. In the U.S., our 5G leadership is confirmed by all tests. And in Europe, our 5G coverage stands at 68%. And in German mobile, our network leadership remains beyond any doubt. Our strong customer growth continues both in the U.S. and in Europe. T-Mobile added nearly as many postpaid customers as last year. Over in Europe, we managed an acceleration in mobile net ads, and TV net ads also accelerated, but the broadband net ads were slower than last year. Christian will talk about that one later on in a bit more detail. Moving on to ESG, despite strong growth in data usage, we further reduced our energy consumption for the group. We recently became the first telco in the world to use large-scale battery storage systems for renewable energies. And our latest campaigns against hate speech received further acclaim. At the Capital Markets Day, we will provide you with a more detailed update on our sustainability ambitions. With this, let me move to our guidance update. With the Q1 results, T-Mobile had narrowed its guidance range, accounting a mid-point $50 million increase for EBITDA and free cash flow. Today, we are reflecting this in our group guidance. We remain comfortable with our ex-US guidance for EBITDA and free cash flow, which remains unchanged. Our overall group guidance for 2024 also remains unchanged. And with that, I hand it over to Christian for a deeper dive into the quarter.

Thanks, Tim, and hello from my side. As usual, I'm going to start with T-Mobile U.S., and let me start with service revenues, which were growing at 3.5 percent, which is very similar to the last two quarters. The core EBITDA growth remained very strong at 8 percent, but actually now forced ranking came in second after our European segment, which grew at 1 percent, which you're going to see later on. Total revenues are still impacted by lower equipment revenues, so this is going to be a pattern which we also expect for the future. Tumuba's customer growth is super strong. The postpaid phone growth was basically on the level of last year and is absolutely industry-leading. The high-speed internet customers came down by more than 100K, but that was guided because we have ended our promotional activities on HSI. With its Q1 results, T-Mobile also raised its customer guidance by $150K to $5.2 to $5.6 million. Moving on to Germany, organic revenue growth was plus 2.6%. Organic EBITDA growth was at a stable 3%, very consistent with the previous quarters. So we are all well on track in the German segment with regard to what we want to achieve for the full year guidance this year. Total service revenues were consistent with last year's performance. In the mix, mobile was very strong with 3.4% year-over-year, and that was driven by customer growth as well as by upselling. The fixed service revenue grew by 1.2% year-over-year, which was at the lower end of the range, and it's very much due to phasing in public sector projects. So we expect a stronger performance for the remainder of the year. As you can see on page number 15, broadband revenue growth remains strong at 4.2%, and that is driven by both upper growth as well as volume growth. Wholesale excess revenues growth is slightly weaker sequentially, but it remained in a positive territory. We also expect positive wholesale excess revenue growth for the remainder of the year. Page 16, our broadband customer performance was lower this quarter. To be honest, nobody is happy about this. It is not surprising because we said it also in the last quarter. There was a very weak competitive performance, and we're seeing that competitors are moving in a better territory. You've seen that with one-on-one. You also see it with Vodafone. And if you basically add all numbers up, we're still above the long-term target of 40%, but it's below what we have achieved in the previous quarters, and we're working to reverse that trend. We're also seeing an impact on the increased focus on FTTH because you know that there's a lagging effect between signing to a contract and getting the access line on FTTH. As mentioned, On FTTH, we have an increase of 93,000 customers, and we expect this acceleration to continue. So if you compare 23 versus 24 and 23, we have 300,000 FTTH customers signing up to that service. We expect 450,000 in the vicinity, 450,000 in 24. Also on the TV net ads, we improved. We have 73K new IPTV customers. And on top of that, we have 53 over-the-top TV customers. So in total, it's 126. We have now 4.4 million IPTV customers and 350 on top, 350 OTT customers on TV. We're also pleased to announce a partnership with the Association of German Real Estate Managers, which help us to support our services in promoting their services. And that is a very nice complement to the partnership which we crafted last year with the Housing Association Organization, JDW. Our mobile commercials remain strong, as you can see. We had 280,000 net ads. This is very much consistent with last year. And I think if you add all the numbers up, it's more than 50% of the total market net ads in the first quarter. With that, I move to our European segment, which is actually the star in Q1. The organic revenue growth reached 5.7% on a year-on-year basis, and it was very much supported by service revenue growth. In Greece, we had a benefit from a contract which was related to the European recovery program. The organic EBITDA growth was 8.1%, as I said earlier on, slightly higher than the U.S. But note that the EBITDA growth is very much driven by net margin growth, but also we had a tailwind from lower energy costs, which actually led to that result. And I wouldn't extrapolate this into the outer quarters, because we're not sure whether this basically maintains on this level. And you know that in 23, the performance of the European segments when it comes to EBITDA growth was continuously growing, as you can see on the chart. Our customer growth in the European segment remains strong, very strong, 80% growth in mobile. Solid numbers on broadband, TV net ads were about the same. And we had a reduction on the converged customers, but it's very much related to a change in Slovakia on how to count those customers. And they're now being treated as mobile-only customers, and therefore we had to deduct our installed base per 100K. Moving over to T-Systems, what you see here, we had a pretty good start in the year. We're growing revenues on a reported level by almost 5%. You see there's a slight increase in order entry, but to be clear, order entry is going to be the main challenge also for the remainder of the year. And we have... an okay EBITDA growth on a year-on-year basis, on an organic basis, 1.5%. So that basically concludes my operational review, and let's look at the group financials. What I said earlier on, our reported financials were impacted by, obviously, the tower transaction, which we conducted, and by FX. The headline revenue growth was negatively impacted by handset revenues, which came in lower relative to last year and was very much driven by the U.S., On the organic service revenue, actually, our growth is higher than what's been reported. It's 4.1 versus 2.9. And the reported net profit was growing by around 15%. This is a rounding issue. The precise number is following on the next page. Taking a look at the free cash flow, on the next page you see that the free cash flow was growing by a good 100 million or 3.6% year-over-year. That was driven by an increase in cash flow from operations, a reduction of CapEx, very much driven by the U.S. The U.S. came down year-over-year by 400 million, whereas the ex-U.S. business, predominantly Germany, was higher relatively to 23 by 300 million. But this will basically phase adequately into our guidance over the course of the year. Our adjusted net profit was up by 14% on an annual basis, on a year-on-year basis. And the good thing is it was very much driven by adjusted EBITDA. So everything is pretty much coming from the operational business. Moving to our leverage, despite some headwinds, which you can see on that chart, that's the net debt X lease chart of $2 billion coming from the U.S. dollar. You see only an increase of $0.7 billion on a quarterly basis, end of Q4. up until end of Q1. And that leads very much to a very stable leverage of 2.3 X leases or 2.81 including leases. So therefore, I'm going to complete my review and hand it over to Tim.

Thank you. Let's go to the Q&A.

Okay, so with that, we start the Q&A. And if you'd like to ask a question via WebEx, please press the raise hand function. If you require to cancel your question, please press the raise hand function again. If you're calling on your telephone, please press star three. And if you want to cancel your question, press star three again. I'll announce your name when it's your turn to ask a question. And we would be grateful if you could restrict yourself to two questions. And just remember, you must mute and unmute yourself. So let's start. And I think the first question we have is from Adam Fox-Romley at HSBC. Adam.

Thank you very much, Hannes. I hope you can hear me. I'd like to ask you, please, for your thoughts on BNSA's recent consultation document on Spectrum. Can you explain what you think is required of you when it comes to making an offer, if at all, to irons and irons? And can you also put your mobile network coverage plans into context of what the regulator is asking for by 2030?

Okay, thank you. First, we welcome the proposal for the spectrum extension, even if it's only for five years at this stage. However, the inclusion of an area coverage of 99.5 with 50 megabit per second appears misguided. This is, I think, you know, we don't know which kind of numbers the Bundesnetzagentur is referring to. The initial aim should be to achieve as much coverage as possible for German consumers. And you know that 30% of Germany is forest and 6.5% are natural reserves. And it's already very hard for us, you know, to get access or to get sites in this. And we do not have an understanding yet, you know, how this should be implemented. Independent from the additional money which is required, it is as well very difficult to get approval for these areas. So I think, you know, with regard to spectrum handed over to Einstein at all, I do not see why this is happening. I do not see that he needs that spectrum. The company has so far only connected 227 sites instead of 1,000 sites that were required by end of 2022. There is no reason to reward this misconduct at the expense of others that have invested in coverage and have invested to the benefit of our consumers here in Germany. So, therefore, we will do everything here on our side to defend our position on this low-band spectrum. It's very clear. because our customers are using it, and our leadership, both on capacity and speed, is as well based on this low-band spectrum, which is part of the whole story which we are making. So I would say in sum, first, positive note, extension is coming. Second, I think the area coverage is something we have now to use the – The next weeks where we have this consultation phase to understand better what they mean and how this can be achieved, because the Bundesnetze made that statement that we're already almost there. I don't get that. You know, for us, we see ourselves at 91%. area coverage, and not 99.5, and that is additional money needed if we would have to fulfill this target. But let's go into this consultation phase, which is six weeks from now. I think the, again, asymmetric benefit to eins und eins, I do not see any kind of reason nor I understand the background of this so let's see where this is coming from and we will do everything to defend our position thank you thank you Adam and thank you Tim and next we have a question from George at CT please

Good afternoon. Thank you for taking my questions. And Hannes, thank you for the pronunciation. It was put on. So my first question is around the KPIs in Germany. And for broadband, I think, Christian, you made a comment that you're not happy with the performance and that it's going to improve in the coming quarters. Is it an operational issue? Is there a fiber backlog or something that you are fixing? Or is it a commercial issue, like you need to be a bit more active in the market? And. On the commercial side, if you can also update us around the TV side, I guess the next six to eight weeks could be quite critical on the KPIs there. And then my second question is, again, on the next six to eight weeks, hopefully, and it's around the union negotiation. As you know, it's been a major issue since the start of the year. We read a lot of different things from our side, and it would be great to get your perspective as to whether you think you are closing in on an agreement with the unions. Thank you.

Let me start with the commercial performance. I think it's a mixture of three things. First, competitors are performing better. And we said in Q4 it was a particularly weak quarter, especially from Vodafone. And you see that their losses have been reduced. And also, one-on-one has improved its game, coming from negative net ads to basically zero net ads. So we're seeing some competitive movement, and also the alternates are grabbing some of those broadband customers. The second one is we're seeing that the market is maturing to a certain degree, and we have to figure out whether there is a sustainable, slower market growth in the market. We don't have the final answer right now. But we're seeing that the market is maturing. And the third one is there are some operational issues which we did in Q1, which we have to basically, which we figured, and which we will reverse in Q2. So I'm hopeful that whether it's going to be Q2 or the near-term future after Q2, that we're going to reverse those trends. But bear in mind, our net-at-market share is still around 50%. On TV, look, first of all, we're happy with the 126,000 TV customers if you combine IPTV and OTT. But if you add up all those numbers, also if you add up the Freenet numbers, obviously that doesn't explain the TV losses which you've seen on the cable operator side. So what we're not clear about yet is how much cable card cutting is happening in the German market. This is the one piece which is not known to us. And the second piece is to what degree Vodafone is actually converting TV-only customers into triple-play customers so that they basically combine this in their broadband numbers. I think these are the two unknowns for us, but at least strong hypothesis that both of those effects happen and impact the market.

So with regard to the negotiations with the unions, look, we have now three rounds. We are in the fourth round with our partners here in Germany. This is a tough environment. We had some agreements in other industries which were very high. We always have to reflect our industry. We always have to reflect the current structure of our salaries already. And we have to consider as well the competitiveness of our market. The negotiations started in March. We had until now nine days of strike within the company. It had an impact less on the service side, more on the delivery side when it comes to FTTH connectivity and outdoor services. So, in principle, under control. We made an offer, which was a €2,000 one-off payment. and an average increase in the base salary of 7.1% through mid-27. This consists of a 4.2% increase from January 25, plus an additional 150 euros from October 25. So it's quite a complex offer which we made, and it's over 27 months. Now, we now increase this a little bit from 4.2% to 5.2% in principle. The unions, again, rejected this offer, and the negotiations will continue. So that's where we currently stand. While we are sitting here, the parties are discussing it. Look, we remain comfortable that we find a solution with them on a fair basis. To my expectation, it should be soon. because, you know, every argument was now exchanged from the two sides. And we remain comfortable as well that the final agreement will fit into the financial guidance, which we reiterated today.

Thank you, Tim. With that, we are moving to Josh Mills at Exxon Paribas, please.

Thank you, everyone. And two questions from my side. The first was just going to be on the mobile trends in Germany. And if I look at your numbers, it doesn't look like you've seen any real pressure from the family plan push by Telefonica Deutsche and Vodafone. But keen to hear your thoughts on how you think that may be impacting the markets and whether you are considering a tariff refresh or any moves on your side to further strengthen your position. And then the second question was just on the broader European business ex-Germany. Maybe a simplistic way of looking at this, but when I bring up charts 18 and 19, net ads are slightly lighter, but we're still seeing an acceleration in organic revenue and EBITDA growth. So are you putting through price increases in some of these markets? And maybe if you could give a bit of color around how those are landing and how you're actually communicating it to customers would be helpful. Thanks.

I start with the first one. Look, German market has been intensively promotional in the recent months. And I think this was catalyzed by some really aggressive moves from Telefonica Deutschland since mid-January, you know. You know the campaign which they do, you know. And one for two or whatever the name of the campaign is. Telefonica Deutschland essentially reversed its early 20 through price increases on a promotional basis. And they have extended this promotion until the beginning of July. And there have been some promotional responses in the market as well. That said, as you can see again in our Q1 results, our commercial and financial problems remain consistently strong, both in absolute and in relative terms. And you mentioned that. And look, why is that? The answer is, first, the market is quite segmented, and these conflicts are taking place outside of, let's say, our sweet spot of the market. Second, this undisputed network leadership, which we have achieved here in the German environment, is the best protection against churn. And on top of that, the family plans are highly appreciated from the customer base. So this is supporting our growth as well. So to be honest, I think if we would only differentiate by price, it would be more difficult. But with our brand, with our positioning on the network side, and with the innovative offers which we currently have in the market, it looks quite encouraging how we are succeeding in this market. I still think that there's a lot of upselling opportunity in this market. There's a big market for no frills. which our offer is looking for. There's a lot of, let's say, prepaid market, which we want to bring into the Magenta brand. And therefore, I'm not so irritated by the battle, which is between eins und eins, Vodafone and Telefonica going on these days. They should do their shit.

Let me answer the question on the European segment. I think it's – let me – sorry. Let me flesh out the three most important items. First, there's still solid volume growth. Despite the fact that broadband has come down, we saw a significant impact in growth in mobile. The second one, obviously, price increases, which have been conducted in many markets in the European segment, are coming through and obviously leading to an increased net margin. And the third one is we have slightly better energy costs relative to last year, and that helps us. That's accounting for about two points of the EBITDA growth. Obviously, it's hard to predict how it's playing out. But again, as I said early on, don't replicate this or continue this in the next three quarters. There is a baseline effect coming from 23, and we don't know to what extent this will carry through. But it will be a very good result on EBITDA, what we're seeing right now internally.

And it's also a portfolio performance. So it's many countries contributing. It's quite spread. One country is pacing a little bit faster. Others are maybe pacing a bit slower at any given point in time. But broadly, if you add it all up, it's a very solid performance. We very much expect it to continue very strongly as well. So with that, we move on to the next question. And that's from Polo at Polo Tang at UB.

Yeah, hi, thanks for taking the questions. I have two. So the first one is just a follow-up on competitive dynamics in Germany. So have you seen any changes in terms of how Vodafone is behaving post the change of management of Vodafone Germany? My second question is just on your German fiber rollout. How easy is it for Deutsche Telekom to access MDUs and housing associations in order to upgrade your existing network to FTTH?

Polo, I think, you know, I answered the first question on the competitive dynamics in Germany with regard to the mobile space. I think, you know, Telefonica was quite aggressive or is quite aggressive with their promotions these days. Very visible on this one. Vodafone, to be honest, you know, the normal, you know, reactions, but...

No, I think, Polo, you know, what you highlighted in your research, which is increased upfront discount, I would consider this, you know, a normal promotional measure. And also, I think, you know, I know that is a common practice in price comparisons to focus on the first 24 months. But I think that is a bit misleading because, you know, you have to look at the rate. The rate plan overall and most broadband customers don't leave after two years, right? So these are promotional structures that change and vary, but we don't see a fundamental directional change from anyone in the German broadband market. And in mobile, I think it's not Vodafone that is driving it right now.

We have seen from Vodafone, you know, 200 gigabyte on top of the Gigamobile M&L. We have seen family cards with a discount. We have seen, you know, 200 gig for additional young segment. And we have seen the unlimited for all, you know, which is, you know, two family cards, unlimited data on all cards of the whole duration of the contract, which, you know, was there, but they were limited to two. period of time, you know, to attract the market was not something which was new. So that is what we say. It's promotional. But from a Vodafone angle, I would say, you know, they are positioning themselves with the new management now. And Telefonica, I read the way that they are doing everything, you know, to take customers away from eins and eins to keep them in their grid. So that is how we read it here. But as you can see, both on the service revenue side, we were growing by 3.4 percent. And as well from the customer net ad number, we were quite strong. And additionally, Kongstar. you know, was very strong as well. So it is not that, you know, it looks like, you know, this whole, you know, movements, you know, were taking place in another market. But we are well positioned.

On the fiber lock question, Paolo, two answers. Let me start with the privately owned MDUs. Obviously, that's the process bottleneck to get the owner's approval to actually connect to the house. And that is an industry challenge. That's not a telecom challenge. Everyone facing the same challenge. On the Housing Association, I think what we have now basically done is we have entered agreements with 4.6 million German homes. And the retirement of the rental privilege will also allow us to get access to the in-house cabling in whatever direction, whether it's being built by the owner. or whether it's being built by us. So therefore, I think it's super important that we agreed on this GDW frame contract because it helps especially the more smaller housing associations to craft a contract with us because they're not as well equipped as a Bonovia or something like this. So you know that we're basically addressing all market segments. So the GDW contract will help us. The retirement of the rental privilege will help us. And again, we are covering already 4.6 million German homes with agreements to get access for fiber.

So we are working on it. And as mentioned before, connecting fiber takes longer, has longer lead times, and that also impacts to some extent the broadband performance on the margin. So Robert Grindle is next at Deutsche Bank. Thanks, Polo. Robert, can we have your question? I think you are on the audio link. Robert, can you hear us? Have you unmuted yourself?

It's the bad coverage from BT on the world course.

It's more the basement. Robert, so maybe we take Andre Dragolici at Kepler instead, also on audio.

Thank you for the opportunity to ask a question. On Germany in capex, you had a higher capex in Q1. I was wondering, is it purely phasing or is it more expensive to build? Do you see some headwinds from pricing there? You mentioned slight increase in capex in 2024. How should we estimate the following quarters during the year? And also in the U.S., since you're moving a bit into fiber, do you see the market going more towards convergence in the midterm and are you trying to position yourself on that segment? Thank you.

I'm starting with the U.S. and with the convergence question here. And look, if you look to Europe, if you look to the world, every market is different when it comes to catching up on the convergence game here. And therefore, the quote for the U.S. market, for this big market, is out. So it's too early to say either or. We believe... there is an upside for us, a revenue upside for us, you know, and a profitability upside for us, you know, because we have seen that with our distribution, with our brand, we can attract the customer segments in the broadband market. And we're doing this already in the high-speed Internet, and we do that already with some of the partners here. And therefore, you know, we are now testing whether we can do this as well, you know, with fiber from Lumos over the next years. Looking to the business case, the market build-out costs are almost the same like in Germany. But, you know, the APO is significantly higher. And therefore, the profitability of this whole thing looks quite attractive using our infrastructure and using, let's say, the distribution network and other things which we have already. Now, is this now getting a full-fledged fixed mobile converged market? I don't know. To be honest, you know, let's see. Let's test it out where we are going. Lumos is attracting or aiming for 3.5 million households prospectively. Your next question might be, is that the first of a few transactions? If the business and the deal is good, yes, I would be open to consider. But it's too early to say, you know, when and who might be the next target. There are a lot of opportunities in this environment, which we are looking into this one. So, therefore, this is a growth optionality for us. And I said earlier already, you know, it is not must-have that, you know, that we own the infrastructure because we have no infrastructure yet. And we're looking to a partner who is co-investing with us in the infrastructure. And we are then the preferred or partially exclusive distribution network for this product. It helps us to keep our growth engine running.

So on the question on CapEx, let me first of all, and you see it on page 29 where you have the comparison on XUS free cash flow, where we have an increase of CapEx by 200 million. This is very much due to front loading and phasing, and it will wash out over the course of the year. By the way, same holds true for the working capital figure. So we're sticking to our $3.5 billion guidance. But I think what we have to acknowledge is there is inflation impact. And I think the biggest impact will come in the future on contracts which we have concluded on at the peak of the inflation period. and where the build-out is happening in the future. So I think there's something which we have to do on our side to increase the efficiency, to basically increase the shallow digging share, to have a process improvement within our build-out, to create competition among the different build-out areas to counterfeit these inflation effects. But the outlook for the following quarter is that the peak of the inflation impact hasn't hit us yet. It's yet to come.

That said, you know our guidance for the German CAPEX, and the guidance for the German CAPEX is a slight increase this year, and that is unchanged. So the first quarter number should surely not be multiplied by four. It is a phasing effect relative to the full year expectation. So the next question is from Steve Markham at Redburn. Steve?

Yeah, thanks. Thanks, Hannes. Afternoon all. And Tim, I enjoyed your views on what Vodafone and Telefonica Deutschland should do. A couple of questions on Germany. I want to come back to Adam's question on the sort of the BNA proposals. You know, would you rather have an auction than comply with the proposals that BNA has come out with so far and kind of force one-on-one to put his hand in the pocket and invest in Spectrum and go against you? And then secondly, just coming back to the comments that Christian made on sort of broadband net ads, I'm a little bit confused. I mean, You're doing 50% share of net ads. Do you think you can do better than that? And what are the moving parts to taking that number up? Because I presume the competitors are going to remain maybe operating better than they were last year. What are the operational improvements you can make? And if growth is just lower, why do you think growth is going to improve from this point? We've seen BT talking about a shrinking broadband market today in the UK. So just sort of extra color on where you can kind of get back to from the number you printed on Q1 would be great. Thanks a lot.

Okay, let me start with the broadband question. First of all, historically, we had a higher net edge share than 50%. And we said it very clearly also in the Q4 figures, and we're trying to basically improve our performance. And I'm not saying we're getting to the same levels as in the previous quarters, but I think we want to improve our net edge share. what we can influence. And what I mentioned is obviously the natural growth in the broadband market. And I think we have to figure out whether we see a kind of a slower growth in the overall market, which will also impact our net ads on an absolute basis. But there were also some operational issues, which I will not basically be transparent about in Q1, which we can revert. And therefore, we're hopeful that we are basically improving our performance on broadband.

Just maybe to add just before you start, Tim, you know, we said 50% share of net ads. So at 39,000, we think the market is about 80,000 this quarter. It's not very different from the run rate last year, right? So we're just saying the market is fairly mature. We are not talking about a declining broadband market or anything like that in Germany.

I think the one who is building the network will gain the customers as well and defining the share of net ads. So we are building quite consistently and moving on. So I see opportunities for us here. Now, going to your second part of the question, look, the discussion about going to an auction at that point in time, I think it is now less of the way forward. I think it is more the way forward now to make a proper consultation of that paper and find a pragmatic approach towards the aim of the political leadership behind this plan. I would expect that they amend some of the targets. I expect that we find a solution, you know, in this discussion about how the 2.5 megahertz of low band spectrum, you know, is going to be handled. And I expect the build out of the error coverage is something which should be realistically, you know, adjusted here. And then not expecting an auction. That is my expectation or my forecast going forward. That said, we always have to look whether the price we are paying for the extension is still appropriate compared to an auction. And as I mentioned, it looks quite expensive now. rights which we have to pay over this time plus the build-out obligations plus somebody has to give up you know spectrum plus plus that doesn't look that fair at that point in time but it's too early to call it a deal let's negotiate that within the next weeks until I think end of June and then mid of July and then we can give you a clearer perspective

Look, on the area coverage, the 99.5%, which we are clearly saying that number is insane. Look, we have 35,000 towers. Vodafone has 25,000 towers. So how can they comply with this? So I would encourage you to ask the same question also to Telefonica and Vodafone and put in some, I would say, realism into that ask. And hopefully we will be successful until the end of the consultation.

And by the way, I was... I was very outspoken this morning as well in the press call because, you know, somebody has built 227 towers. By the way, we even don't know how many of them are active. You know, somebody who had to invest up to 1,000 towers by end of 22 and now is staying at 227. Somebody, you know, who has not, you know, been proven at all, you know, that he's interested to build out a network, who is deeply sitting on a national roaming deal with one or two parties. Why should he get? on top of this non-existing network, you know, low-band spectrum. I don't get it. My customers, my customers are using the spectrum every minute while we are sitting here. And I can tell you it is our duty to defend, let's say, the quality, and it's our duty to defend, let's say, the service obligation which we have towards our customers. And that is, let's say, going to be a very tough discussion which is coming over the next week.

Okay. With that, thanks, Tim. We move on to David. David Wright at Bank of America on audio.

Okay, guys. I hope you can hear me. A couple of questions. The first is on U.S. Fiber. And, Tim, you gave a lot of granularity that was appreciated. But just maybe a little more on just how these deals are handled. basically come around, as in how are you identifying the areas where you might want to build fiber? How are you identifying partners? Are you literally opening to tender and infrastructure investors are invited? I'm just interested in the process here and how we can think about that. Actually, it may be for yourself as well, Christian. And then I guess my second question is just on the back to the wage negotiations. What is your What is your bargaining power in this? For instance, if the unions want a higher wage, a higher wage, it seems like you might be going back with higher offers, higher offers. But I'm wondering, what can you offer the unions beyond pure financial gain that they could settle upon? Thank you.

Good questions. By the way, David, I start with the wage negotiations. To be honest, look, that is our operational role, which we have to solve. Unfortunately, you know, I'm not sharing, you know, how we're going to settle that. The only thing is, you know, so far we have been good partners with the other side. And let's give us a little more days on trying to find a solution here, which makes sense from both angles. If, you know, everybody knows that to keep our competitiveness in the market, you know, we cannot digest significantly higher costs here. So if we would have to make, you know, a deal here which is unfavorable from our competitive positioning, you know, we have to go into the costs. Yeah. And that is, let's say, then the mitigation plan, which we have to do. Therefore, you know, we are working on different plans here. Give us a few more days and then you will get the clarity on this one. With regard to U.S. fiber and how we are coming around with the deals, look, this is an exercise which we are doing already for, I would say, one and a half or two years. So it's nothing, you know, where we are just jumping into cold water here. We have an in-depth discussion. We have looked to a lot of, let's say, players in this market. And what we like is a market where the eligibility for high speed is very high due to the poor fixed line infrastructure. Second, what we like are companies which are not coming with high legacy or with, let's say, big, you know, old legacy systems. So clean entrepreneurial business which are fitting to our uncarrier DNA. The third one is, you know, it's better to pay a little bit more for a business which has really outstanding performance and a clear plan than going to companies where you have to do, in addition to the new market, restructuring. So therefore, you know, we were very much focusing on this kind of – smaller business in the U.S., and then we focus always about, let's say, the market potential in the light of how strong is T-Mobile. Is there as well a kind of combination with our mobile services and as well with the high-speed Internet possible. So it is coming a little bit, let's say, as well from an approach of good substitution here. And Lumos is very much fitting to this focus here. And we have other companies already identified. please always keep in mind we are not making bad deals. So we are not in a hurry. We don't in a strategic, you know, threat or whatsoever. You know, this is a nice, you know, growing business. I think it's a great opportunity for us. But it is not, you know, that we are committing suicide because of a strategic threat or something like this.

Thank you, guys.

Okay, and I think with that we move on to James. James Ratz at New Street, please.

Yes, thank you, Anna. Good afternoon, Tim and Christian. So two questions, please, both on capital allocation. So the first one, Tim, I think at the last conference call, you talked about setting up a two billion euro venture capital fund within Deutsche Telekom. So if possible, would be great just to get an update on on, you know, further developments there? Have you made any investments so far? What type of investments are you now more focused on looking at? And then the second question is regarding SoftBank, because I think the kind of next time you speak to the market, we will have gone through 30th of June when all those options expire. Yeah. So I'd just love to get your thoughts if you can share them on any intentions there. You know, the fact you haven't issued or exercised the floating option yet, does that mean you plan really to increase your stake in T-Mobile through lower than pro rata participation in the buyback? Or could we expect to see you exercise those options over the next six weeks? Thank you.

Okay, let me start with – we're just chit-chatting who's starting. So let me go on SoftBank first. You know we have 7 million fixed price options, which we will for sure exercise. I think there's a $60 value, $65 value, intrinsic value in that option. And we have another 28 million floating options. which I would say we haven't taken a decision, it's unlikely that we're going to execute them because we don't need them, right? We're above 50%. Obviously, if we're adding another $7 million fixed price option to this, we're well above the 54%. And I think the easier way would be stopping selling into the share buyback rather than to float the market with T-Mobile shares and then basically let the market absorb that because we have executed on the 28 million floating shares. Haven't taken a decision on the board, but I think that's the indication how we're thinking about this right now.

Can I ask a follow-up on that, Christian? Do you then expect SoftBank to sell those shares into the market if you don't exercise the option?

Look, I will not comment on anything which SoftBank is doing. We've never done that. We didn't do this also after the true-up. So, therefore, I can't give you an answer on that one.

But I think it's fair to say that James SoftBank has not sold T-Mobile shares that they have received, right? And they could have sold some of those shares. So, of course, we can't comment on their behavior, but that's to be kept in mind. Just to make clear the background to Christian's answer is that we are likely to want to have a bit more of T-Mobile than just over 50% by the end of this year. So just to be clear, we will not participate fully in the T-Mobile share buyback until the end of the year this year. We will want to be more above 50% than we currently are.

I think we have a great partnership with SoftBank and their guys, and we find the best solution for all of us. So with regard to your question on the $2 billion venture capital fund, you know, and You know, it's not that we are not that quick, you know, that we can already call, you know, the internal rate of return or the – but we have made good progress of setting it up. The idea of this growth fund is we want to have first significant influence on the participants and the participation. And in even some cases, we might even consider to acquire the majority and consolidate the assets which we are acquiring. But that depends on the business itself. It depends on how much independency does the business need to develop. I want to keep it as entrepreneurial as possible, but benefit in our core business as much as possible. So this is the art. And I have seen so many corporates killing new ideas, venture businesses by putting them into the court. And then you suddenly, you know, never see something out. It's like a black hole. You know, the business disappear. And therefore, we want to keep them aside. We need a kind of mentor from the operational business who is bringing their services into the core, but we want to let this business independent as well. It should be really tailored to our businesses and really tailored to a more entrepreneurial culture. The areas we want to invest into is network security, IoT, Gen AI, and some opportunities for beyond growth activities in the core business. The business fund will be managed by group development, which is in board membership, Thorsten Langheim. He has a fantastic leader, you know, he's supporting, it's called André Ameda. He was former the consumer head in Germany, and he will run it and optimise Operationally, it will be managed by the DT Capital Partners team. You know that it's an independent team which has a big track record. We have with these guys up to $5 billion under fire already in these areas, great talents in this organization, and they will do the operational selection of the partners. The growth fund currently is set up, but we haven't made investment at this stage, but it will happen soon.

Very good. And with that, we have another attempt with Robert. I think he had some technical issue with unmuting before. So apologies for that on our side. And Robert, can we have your question, please?

indeed. I hope you can hear me now. Sorry for that. I do have fiber to the basement, by the way. I could hear what you were saying. My question is, at the full-year results stage, you were cautious around commercial real estate within GHS. That was reflected in the guidance, and I think it was due to the economy. So my question is, are you seeing any further worsening of any parts of your German business due to the late cycle of impact of the economy on either B2B or B2C, or conversely, are you seeing an economic pickup in any form? Thank you.

Okay. So first of all, on the real estate side, Robert, we don't see any kind of change of what we indicated in the past quarterly call. It's a difficult market right now to get a fair value, and we don't sell under price when it's coming to selling real estate. Okay. The second one is on B2B and on B2C, we don't see a lot of changes right now. We see a very slight increase on bad debt, but not to a degree that I would say it's concerning. So, therefore, we're seeing a pretty robust demand. And you can also see it in the T-Systems numbers that their order entry has come up again. So, I would say I expect that this continues also for the remainder of the year. I don't see a... kind of an increase. I don't see a decrease. I think I see a continuation of what we're seeing today.

I would use the word robust. Robust.

It's also true for the European business, by the way. Robert, is that good? So then we move on to Usman Ghazi at Bernberg, please.

Thank you, Anas. I just had a question with regards to the collaboration with SoftBank that you had hoped for. I remember when SoftBank acquired some of these DT shares in that swap, there was a hope that Deutsche Telekom would collaborate a bit more with the SoftBank-owned companies to develop a differentiation on the services side. Not much seems to have happened. Now, obviously, SoftBank is devoting a lot of capital to AI and things. And I was just wondering if there's a way to kind of refresh that partnership or position DT to take advantage of some of these investments that SoftBank is making through your collaboration. And then kind of somewhat in the same direction, same line of kind of question was that, you know, I mean, if we look out now beyond this year, obviously capital allocation kind of becomes the biggest, you know, decision for U.S. management, given the amount of cash flow that's going to be coming out. So, you know, I mean, how are you thinking potentially about maybe increasing the size of DT Capital Partners, given obviously there's so much opportunity here in terms of, you know, data center investments or AI or what have you? So any views on that would be interesting. Thank you.

Okay. Look, Osman, collaboration with SoftBank are very honest. We have some partnerships with these guys on our Magenta moments. I remember that we have even then small investments in some of the growth funds of TT Capital Partners from their side. I have a personal strong exchange with Masa-san and his team about technologies and where they're aiming for on AI and other things. Have we monetized that? Have we really made some big strategic moves in this regard? The answer is no. And that is a little bit less than I was expecting. Now, it's not hurting us commercially, but nevertheless, I would say it could have been more going forward. We have a strong partnership, but we haven't really found the right angle where we can collaborate and how to work together. I think on the venture capital side, Vicente Vento and his team, they are in deep exchange on this kind of things, and therefore... that is more fitting to the business need. SoftBank has a little bit, let's say, changed their shape and their focus out of the telco sector, and they are on much other topics now, on chipsets with ARM and other things. So I would always say we are preferred, and I have immediate access, but it's not yet changing the way how our business is developing.

Look, on the capital allocation, especially when it comes to a stronger engagement of DD Capital partners, I think partly those questions will be answered with the tech fund. This is the one piece. And the second piece, I think we are well advised if we're staying close to our core business, because if you just take a look how many announcements we have seen over the past weeks online, on data center build-outs like Microsoft, more than $3 billion in Germany and France, Amazon investing multi-billion here in Germany on data centers. I think they will out-invest us on this category, and I think we need the money for our infrastructure because we want to have undisputed leadership both on mobile as well as on broadband. But can it be a financial investment in the tech fund? Absolutely, yes.

It is. They have mind cubes.

I know that they have already six data centers, and they're considering even extending that. And there was as well a discussion, but that is just, you know, maybe food for thought, that they are considering a fund which is specializing on sovereign cloud infrastructure and data center infrastructure here in Europe. But it's more kind of planning.

Excellent. With that, we move on to Andrew Lee at Goldman Sachs. Andrew, can we have your question, please?

Yeah, sure. Good afternoon, everyone. I just wanted to come back to the Lumos questions that you've already answered. Can you just come back to one of your answers, which was that you don't think it's a must-have that you own infrastructure in the U.S.? Is that not a key returns generator in terms of – the Fiber opportunity. And could you just talk, it's a follow-on from David's question. Why are you happy for Teamus to have financing partners for Fiber, apart from the ability to do off-balance sheets? So not the companies who are buying themselves, just the finance partners. Is it because they bring local engineering expertise or anything strategic like that? Any kind of more colour opportunities? On your thinking, that would be really helpful. And then just a quick last question on Germany. There's been lots of questions already on this call around German competitive dynamics. But just at a high level, you've all seen German broadband benefited from having a donor in terms of volumes over the last year or so. Do you now see a bit of a rebalance in terms of how you grow German fixed line from volume to more pricing efforts? Thank you.

look um... let me share From a CEO perspective, the view on the fixed mobile and on the fiber market in the U.S. and where we are standing. In Europe, we have in all the markets, almost every market, we have a very strong copper infrastructure coming with customers, coming with revenues, and coming with EBITDA. Now, this infrastructure gets substituted by a fiber infrastructure prospectively. Now, if we are not investing into fiber, and by the way, into the full value chain of fiber, we would lose revenues. We would lose, let's say, the profitability out of the old profit pool. That is why we always say the amount which we invest or which we own in the copper infrastructure is the amount of what we need in the fiber infrastructure as well to protect our revenue and our profitability going forward. That's a little bit, let's say, the thumb rule which we have. So if you have 50%, you know, copper infrastructure, it's good to have 50%. You can always have more, but at least this is protecting you that you don't have a shrinking business for a long period of time, both on revenues and even profitability. Now, in the U.S., the situation is different. We don't have any kind of fixed-line infrastructure, of copper-based or whatsoever. So everything what we do is an opportunity to grow our business in this environment. So first thing, it should be profitable. The second thing is no proof of concept. that this market is going full convergence at one point in time. So going now all in on the fiber investments for this market, this is quite a risk and quite an exposure for our company. So let's learn how we do that. The third one is, you know, we have to build capabilities and skill to run a fixed line company. So doing this with professional guys, and I can tell you, I'm convinced that having partners, professional infrastructure partners or PE companies who build that company, the processes, the mindset of this organization is very business oriented. So doing this with them is a guarantee that we are not wasting time and wasting money in developing an own business model. Can we own or is there prospectively a possibility to own infrastructure? Yes, for sure. It's not that I'm excluding this, but But to have this symbiosis now in this early phase where we are growing up our skills in this end phase with a partner is good. And on top of that, if you look to the deals, to be honest, the returns which we get on selling and distributing the fiber services is more attractive from a commercial perspective than owning the whole thing and having a classical, I call it, let's say, infrastructure economics. So that is why we're doing it. And I think we should move on like this, scale it, learn it. And then at one point in time after this phase one, we then make, you know, another attempt to this market and say, OK, now we might go all in or a bigger into this equation. But this is for us, all of us to do it right now.

And around the broadband market, I would say we're sticking to our beyond 4% growth ambition. And you've seen also quarters where we had a 4% broadband growth with having significant higher net ads on an absolute basis. I think what we're doing here for many years is always a combination of more for more. and a volume growth. And I think we're adding roughly one euro APA every year to the broadband customer base because of our APA-focused strategy. And therefore, I think we're still in line with our assumptions, which we have given despite the fact that we had a weaker quarter than expected, but it will be a combination of volume growth and upper growth. And you see the upper growth happening on page 16 with that increase of customers beyond 100 megabit. So it's almost a straight line, which you see in there, the 800K increase.

Thank you.

Great. With that, we come to the last question today. And it's from Ottavio Adorizio at Bernstein, I guess, right?

Thank you. Thank you for taking the questions. And one follow-up and a couple of questions relatively broad. The follow-up is basically on the coverage. You effectively said that the 99% is insane. If I catch the right number, you have around 91% to 93% in your plans. Could you just tell us what, in terms of capex, would it require to go from your current plans to the 99% to get a bit of a flavor of how much the privilege is asking from you? Then I'll go to the broad questions. You talked a lot about FDTH in the US, and it's relatively rational. It's an option, it's not a must. And we invest in Lumos because we want to know a bit of the economics. The problem about Fiber is that it's a five, six years buyback. It's pretty unlikely you will know about the profitability and economics probably one or two years or more down the line. Now you've got a CMD coming up in the next six months, whereby potentially you're going to give us a bit more flavor about how the allocation of capital within the group. So therefore, my question is, in the past, it was pretty clear the picking order. You always thought that the best returns was to invest in Timos and you want to keep control. Then the gearing was another key important priority. And the rest, of course, keeping the fiber in Germany and then making the shareholder happy by dividends and so on and so forth. Now, how this changed? I don't think that FDTH, my question is, this will be FDTH in the U.S. part of the questions, or you reckon the next three years you will still be just assessing if you want to tip the toe a bit deeper or not? And what about all the other, let's say, potential use of your capital? We're talking about mobile networks in Germany, FDTH in Germany, more share in DT or more share in TIMOS? Because, respectfully, the next six months will be quite important for us to hear what next will be on Deutsche. And I guess, aside from FDTH in Germany, you know pretty well the economics of all the other projects.

Ottavio, we try to be fast, but we're not as fast as you're asking us to be. So I think objective number one is to get rid of this 99.5%, because I think this is an industry challenge, which we don't see how this can ever happen, especially also you don't have coverage. If you don't get approvals, if there's no technology, you will not get to 99%. We're talking about area coverage, and we have kind of areas... which are protected, which is 6% of the German space here, where you hardly get into. So I'm not sure whether this is actually theoretically achievable. So therefore, I think the teams will work on the consultation feedback up until July 8 and explain where this number is simply too high. So let's work on that one first before we're talking about the CAPEX implications. And the second one, I think you basically described the portfolio of questions which you're going to answer in October, but not today.

But, Christian, let me – I think the – look, the question is how are we allocating money in the group? And there is no simple yes or no or black and white U.S. or Europe or Germany. We are looking on it – by the way, we're not making bad deals. It sounds clear, but, you know, we're looking very much on the profitability of every kind of things. In Europe, we come to the conclusion that investment into fiber is one of the most important things which we have to do with regard to the long-term NPV development of our group. And that is why we are committed to this. Are we considering, you know, at that point in time, M&A or whatever consideration or whatsoever? No, we don't have big M&A or any kind of M&A happening in Europe. In the U.S., we have now made the Lumos transaction. I can tell you the deal flow is quite active in the U.S. There is, you know, the discussion about 800 megahertz spectrum. There is the discussion about other things. We have seen Mint, you know, getting approved at 1st of May. So we are doing, you know, kind of intra-market consultation in some areas. So the portfolio allocation is happening between all this. This is our job. to sit there and to consider how we best allocate the money. And this all in a framework that our leverage, that our financial framework is operating in a proper way. And which we are doing and you have seen us, you know, deleveraging the business on and on and staying to the capital markets targets which we have. Now, your question, you know, should be better answered in a few months from now. We are working on a clear perspective and a fair point. How much fiber do we want to have in the U.S.? You know, how big should that business get? How much money is requested? You know, is this an opportunity? But this is our, let's say, duty to find an answer on that one. We are working on this one. And the Capital Markets Day of T-Mobile and our Capital Markets Day as well should give answers exactly on this capital allocations for the upcoming four years.

Thank you, Tim. I mean, I'm sure given our track record and also the pieces of the puzzle you've already seen, there's a lot to go with. And I think that now brings us to the end of our Q&A. Sorry. Thank you, Ottavio. But I think, Tim, you wanted to wrap it up.

Look, thank you for all the questions. Look, I think we are leaving the call in this quarter very optimistic in all markets where we are operating, including, by the way, to systems, which have shown a very good order entry, double digit, and as well some good growth. I think very good commercial momentum in all of the markets. Our best business was, by the way, Europe this time and based on a lot of countries who are performing very well. And we have a lot of investments going on in the group. So we continue at high pace here to protect and expand our leadership in all the markets. And in the US, I think we have set up a vehicle to tap into a new growth environment with the FIBA opportunity. We are now preparing Capital Markets Day for October. And This will be preceded by a Team US Analyst Day soon before that. The main topic will be how we deliver on long-term sustainable growth. I think that's one input. What is the customer growth? How is the revenue growth? And, you know, one of our theses might be around B2B and the way how we are improving the growth right there. It's positive, but I think we can do more. It's about growth in return on capital employees and growth in adjusted earnings, which is the precondition for sustainable long-term dividend growth, what we are aiming for. And then the question about allocation of capital, we discussed that already, should be a core focus of what we're doing. Best network, best customer experience, and as well the best brand. This is definitely a prerequisite, and it will not change in our perspective going forward. That's part of our strategy. But we have invested into a balance sheet with more than 300 billion of deployed assets. And the monetization of this infrastructure is definitely at our focus. And on top of that, the discussion is going to be very much about, okay, what's the benefit of serving 300 million customers in the European footprint? So the question about the transatlantic scale is, And the synergies within this group, this should be another topic of focus. So a good agenda to work on. A very intensive discussion already taking place over the weekend with the board here. Looking forward to that one. And I'm looking forward to exchange all of this with you. I hope during the European Championships, the Deutsche makes it as well. At least we are the main sponsor. And you can watch all our games at UHDQuality at Magenta TV. Please join us. All the best and goodbye.

Okay, ladies and gentlemen, dear analysts, the conference and investors, conference is about to end. We'd like to thank you for participating. And should you have further questions, please contact the Investor Relations Department at Deutsche Telekom. And speak soon. Goodbye.