Deutsche Telekom Ag S/Adr

Good afternoon, everyone, and welcome to Deutsche Telekom's first quarter 2026 conference call. Joining me today are our CEO, Tim Mertges, and our CFO, Christian Illich. As usual, Tim will begin by sharing the key highlights of the quarter, followed by Christian, who will take you through our quarterly performance in more detail and group financials as well. After this, we have time for Q&A. Before handing over to Tim, please take note of the usual disclaimer included in our presentation. Also, please be aware that this conference will be recorded and uploaded to the Internet. And now it's my pleasure to hand over to Tim.

Thank you, Johannes, and welcome, everybody, to today's call. As you have seen, our numbers, we are off to a good start in 2026. on all areas on both sides of the Atlantic. In this world of uncertainty, Deutsche Telekom is resilient and we are keeping delivering the strong growth as promised. As I called in the press this morning, the headline for this quarter is Deutsche Telekom is robust. Group organic service revenues were up 4.6% year on year. Organic EBITDA accelerated to 7.5% growth. We raise our group guidance today to reflect T-Mobile's guidance increase and we remain on good track with regard to all capital markets targets. This is very, very sufficient. We demonstrate our innovation leadership at the Mobile Work Congress. Some of you have seen that. This included the announcement of the first in-call AI assistant and an industry-leading autonomous network agent Just two examples where we are the trailblazer of our industry. Our T-Mobile stake reached almost 54% at the end of April. This is up 2% points from one year ago. We used the time here for increasing our shareholding at T-Mobile. As you can see on the next page, our growth remains broad-based. Most notable this quarter is the acceleration in T-Mobile's EBITDA growth, stunning 12% on US GAAP and 10% on IFRS basis. And this is, you know, almost doubling with regard to the growth from last year, which was 5.3%. Our ex-US segments all grew in line with our plans. We keep investing in our market network leadership. In the last 12 months, we parked 3.6 million additional European homes with FTTH. We now reach 13 million homes in Germany. Both in Germany and Europe, we see accelerating fiber customer growth. And by the way, we are very close to be market leader number one with regard to our numbers in Germany and in Europe on the fiber side, which is our aspiration. In the US, we agreed to create two additional fiber joint ventures, which are expected to pass 1.8 million homes by end of this year. Our mobile networks remain leading across the footprint and T-Mobile, by the way, just an example, had the highest ever proportion of switchers who cited network quality as the primary reason to join us. As you can see on the next page, our growth remains broad-based. Most notable was the – I'm sorry, that was already the page before. Let's go to the AI and the digital world. On page 7 here. you can see our regular update on AI and on digitization. On October 5th, we will host our promised investor event that is dedicated to AI and will last the whole day. I will invite all, let's say my board colleagues, but more important, you know, we will go through all the cases with the respective leaders of our organization and we'll show the broad variety of AI applications and their implications for our financials in a separate Capital Markets Day event. I don't know whether other companies have done that so far, Even here, I think, you know, we are the first one, at least in our industry, who is going that deep and showing what we are achieving here and what we aspire for. So for today, I cannot go into all the details. I'm spending my number one priority in the company is implementing AI and working in AI. So, that said, I'll give you a few snippets here. At Mobile Work Congress, we made various industry leader announcements. We unveiled the first AI call assistant that is native to our voice network and that provides live translation, call summaries, and contextual assistance in the call. Hello, Magenta, and then the AI agent is supporting the discussion. We will launch this service commercially very soon, and then you can test it out. We also presented Minder. This is a multi-agent network solution that predicts, detects, and resolves network issues before they impact the customers. So anomaly detection and autonomous repair, there's always a human interface still in the place, but prospectively it might be full autonomous. In Germany, our AI-enabled chatbot deflected one million calls in the first quarter, and we plan to double the number of deflected calls in 2026. And AI is heavily used in our German fiber deployment for planning, quantity, control, and documentation. And it's one of the contributors why our built-out cost for fiber came down now quarter over quarter. Coding, another very important example. With AI support, it's three times faster. In some cases, we even are 95% faster than previous ones. And in April, we turned our annual extended leadership team into an AI base camp in Munich. where everyone, the top 250 people of this company, you know, were working, it was like a hackathon, you know, we were all sitting there with our laptops and working on it, learning not only TREP-CPT and prompting, but, you know, we were, for instance, installing our own skills. We were developing our own GPTs and AI agents. We were working on prototyping and MVPs with Lovable. And we were even working on agents with Happy Robots and other partners. So we were deeply in the implementation of AI. We believe that only if the leaders can use the tools personally the rest of the organization will follow. So therefore it is on us leading the pack here and showing our own competence. Let's go to the business. Our customer growth. We had a good market leading customer growth on both sides of the Atlantic. You have seen them T-Mobile US numbers. We delivered a 6% year on year increase in postpaid account net additions. And outside of the U.S., our customers was a bit lower this quarter due to Germany, but nevertheless still a stunning 327,000 mobile net ads which we were able to deliver. In broadband, the growth remains driven by Europe, and in Germany, subscribers were stable for a second quarter. successive quarter, despite recently communicated price increases. I think this is the art of marketing. If you are, on the one side, growing your customer base, growing your net promoter score, and at the same time being able to pass through some of the inflation which we were facing in the past to your customers. Good on its way. Growth in the TV triple play remains healthy. In addition, in Germany, we continue to see strong growth with over-the-top TV subscription. And I can promise you one thing, you will see a significant increase coming now soon for Germany because the World Championship is coming. And as you know, Deutsche Telekom has all the 144 games on their Magenta TV platform. Society and environment. We continue our steady progress towards our societal environmental targets. We further reduce our energy consumption on this side of the Atlantic, and we are successfully leveraging AI to drive these efficiencies. Elsewhere, we have developed an end-to-end scope three solution for the automotive value chain. And by the way, we are working on a target setting for all our leaders, including us here as board members, that is our incentive schemes related not only to one, to scope one and two, but as well to scope three. I think even here we have a kind of unique position. On May 19th, we will publish our corporate responsibility report, which contains various examples how AI applications can contribute positively to society. And you know that we are very proud that we are already carbon neutral with regard to Scope 1 and 2. Let's go to the guidance of 2026. T-Mobile U.S. raised its 2026 guidance for EBITDA and precursor by 50 million at the midpoint on April 28th. And we are passing on this guidance and increase our guidance today. We are well on track for our unchanged DT ex-U.S. guidance. And with that, we will now continue for a constant currency group EBITDA growth of around 6% for this year to $47.5 billion. Our guidance for the free cash flow is now more than $19.8 billion. Our guidance remains based on last year's average dollar exchange of $1.13. As usual, we have a page in the appendix in which we compare our guidance with the consensus using foreign exchange of $1.70. Ladies and gentlemen, those are the key facts, and as I said, of a very robust start into the year with a good prospect going forward. Some of you may expect me to comment on recent press speculations. I'm afraid I will have to disappoint you. As a matter of principle, we do not comment on market rumors or speculations from the press regarding potential transactions. I trust you will understand that, and I hope you will not take it the wrong way if I do not provide for Christian you with further details or comments in response to related questions later on. And with that, over to Christian for his usual deep dive.

Thanks, Tim. And let me first quickly recap T-Mobile's strong first quarter results. And I will basically compare everything based on US GAAP. So you know they've grown service revenue by 11.3%, and that is coming from an acceleration on organic growth. but heavily supported also by the acquisitions from last year, especially driven by youth sellers. Core adjusted EBITDA also accelerated from 6.8% in the fourth quarter to 11.9% in the first quarter. And as Tim said earlier on, also the organic EBITDA growth accelerated. Despite a competitive environment, T-Mobile achieved a higher post-ban account growth than it had last year. It was a 6% increase. And what it looks like, it's the strongest in the industry. At the same time, they were able to increase the ARPA by nearly 4%, well ahead of the industry peers. The broadband subscriptions, which we don't show on the chart here, were over 500K this quarter, with fixed wireless access additions being higher than they were a year ago. Based on all these positive results, T-Mobile raised its customer guidance on account growth, by 50,000 to a midpoint of 1 million or a range of 950K to 1,050,000. Moving on to Germany and I would say Germany actually had a solid quarter. Total revenues grew by 2.1% in the first quarter of this year and the growth was roughly driven 50% coming from service revenue, 50% coming from non-service revenue. This quarter's adjusted EBITDA performance was 2.5%, pretty much the same. It's the same like we had in the previous quarter, and it's actually along our expectations. The mobile service revenue slowed down a little bit sequentially to 2.1%, but it remained in the guidance corridor, and we are absolutely comfortable to achieve our guidance when it comes to mobile service revenue. Big service revenue slowed down sequentially. It was slightly better in the last two quarters, but you know that in Q4 and in Q3, we had strongly, we had phasing impacts, negative phasing impacts from B2B. As you also can see in the next page, the broadband revenue remains subdued. This is mainly an effect of the customer losses we were facing in 2025. The upper still remains strong in the consumer side with a growth of roughly 3%. With our back book prices, we're seeing a slightly elevated churn. It's kicking in starting from February, so we expect that this Impact will last over the course of the second and third quarter with a peak in the second quarter. Wholesale revenue growth remained in positive territory. Upper growth continues to offset the volume losses. But please keep in mind the annual price increases for the lower DSL tariffs, as agreed upon with the commitment contracts back in 2021, will roll over starting from the next quarter. Still we expect that the wholesale access output will continue to grow in the upcoming quarters. So let's look at the broadband base and the subscriber base. What you've seen is we were able to maintain a stable subscriber base in the first quarter and we're also intending to basically stabilize the broadband subscriber base in the second quarter. In any case, given that we have introduced the back book price increases in April, and we're seeing this, that we expect a higher churn in the next upcoming two quarters. So that means if we intend to have a stable broadband base for the remainder of the year and we have the peak churn in the second quarter, the second half should give us better broadband revenue growth figures than we've seen it right now. We launched multiple initiatives on broadband performance, and one of the biggest ones with the biggest impact is obviously the fiber penetration. What you can see on fiber is we have a 16% increase in fiber net additions to 148K, and you see also that despite our continuous rollout of 2.5 million households passed, we've seen an increase in the fiber penetration by 10%. On the TV side, you see steady growth on the triple play. Additionally, we're continuing to add a significant number of OTT contracts. It was 90,000 in the first quarter. So that adds up to close to 120K. And that compares to a complete increase in 2025 for the full year of 344. And we expect, obviously, the OTT performance, but also the triple play performance in front of the World Championship to actually increase. Moving to the German mobile KPIs, customer growth remained solid, but it was a little bit slower than on a quarter-by-quarter basis, especially if you compare it to the previous years. This is partly due to the price increase which we introduced back in February on the multi-cards, on the third and fourth card. But it may also be an effect of the market growth in this given quarter. We have seen Vodafone. We have seen one-on-one. Obviously, Telefonica is coming tomorrow. We will see how this pans out in terms of total growth. The growth in data usage obviously reflects our unlimited propositions, which we feel comfortable with given that we're expanding the capacity of our mobile network. Moving over to Europe. You see another strong quarter, 33 consecutive quarters of organic EBITDA growth. Service revenue grew by 2.1% on an organic basis, very strongly supported by service revenue growth all up. And here we had an extraordinary strong performance of IT service revenue coming from Greece. The organic EBITDA grew by 3.5%, and if you extract EBITDA, the relief of the Hungarian telco tax from last year. That is pretty much the same run rate as we had last year. Underpinning our financial results, you see our European commercial momentum remains very resilient and positive. You can take a look on the chart on page 20. Moving over to T-Systems, also T-Systems remains on a positive track according to all relevant parameters. As we communicated, we will have a slower EBITDA growth than last year. That reflects our investments into future growth opportunities like sovereign cloud and artificial intelligence. But in any case, I think we're feeling really comfortable with their performance. So that is basically my operational review. Let's look at the reported financials. Obviously, what you see is that the reported financials were impacted by a weaker dollar. And that's been highlighted on this chart here. Despite a weaker dollar, you see that our adjusted earnings per share grew at 8%. So we feel comfortable with the guidance of 10% over the course of the full year. Moving over to the free cash flow bridge, we see that the free cash flow was supported by a lower CapEx spend, predominantly driven by Germany. And we had kind of a drag on the cash flow and from operations. And this is due to Forex, a weaker dollar and 300 million of higher restructuring expenses, which are all related to the US. The adjusted net profit is obviously driven by high EBIT. If you combine EBITDA and depreciations, partly offset by the financial results in taxes. Moving over to net debt, what you can see is the net debt has increased by, without leases, by 1.4 billion. The very strong shareholder remuneration of in total 5.1 billion euros basically could be offset by a strong free cash flow momentum. And I think the increase is purely due to the dollar. And if we take a look at our leverage ratios, including leases, we're well below the comfort zone of 275 and 264. And I think this continuous performance on the net leverage also led to the decision of Standard & Poor's to increase our rating after 18 years to A-. That makes me happy, as you can imagine. So that is my review, operationally and financially, and I think you, Tim, are going to summarize the quarter.

No, it was robust, Christian, and I'm very happy that after 18 years we are now A-, so what are we doing with the money? That should be the discussion, and our investors have definitely great ideas, so let them question us.

Okay, with that we swiftly move on to the Q&A section, and I'm sure that's a good topic to debate. So we now have the Q&A session. I think you're pretty much on top of the technicals. But again, just a reminder, if you'd like to ask a question via WebEx, please use the raise hand function. Should you wish to restore your question, simply click the raise hand button again. If you're joining by phone, please press star 3 and to unmute your line, star 6. To restore your question, please press star 3 once again. So don't forget to unmute yourself. In case, I will announce your name when it's your turn. As usual, we would appreciate it if you could limit yourself to two questions. And please also note, and I said this already, that you need to unmute yourself. With that, let's begin. So I think the first question will be from Akhil Dhani at J.P. Morgan.

Hi, good afternoon. Thanks for taking the questions. Tim, maybe I'll take up your offer of starting on the comment about the balance sheet and what you could do with it and maybe reference the reports that I'm sure you saw last month in regards to the possibility of DT considering a transaction with T-Mobile. I'm not sure to what extent you're able or willing to comment on the specifics of that, but at least conceptually maybe you could give us some thoughts around the pros and cons of why such a transaction might be of interest. And maybe with that, I'm sure you've heard T-Mobile CEO's comments around the dealer requiring minority approvals. So, if you have any comments on that, too, would be helpful. And then the second one, sticking big picture, is on satellites. I'm sure you, like ourselves, have been fielding more and more questions around satellites in the context of the SpaceX IPO process now kicking off. The question I guess is just understanding how you think about the value chain that satellites presents within telcos and the juxtaposition between it being a complement with direct-to-device to potentially risk that at some point could it become a threat within mobile. So if you could sort of talk us through how you think about the opportunities and threats in satellites. Thanks a lot.

Good. Thanks for the questions. Look, I said it in my speech. I will not comment on market speculation or hypothetical transactions. Look, what I can say is that our capital allocation framework, which we have, is unchanged. And there is nothing, you know, which we have, you know, beyond that. And there is, I'm not known for being always, you know, very careful in what I'm saying. I'm always speaking up my mind, but, you know, I don't want to, let's say, having any kind of speculation around this company and any kind of transactions only because, you know, there's a Bloomberg report which is, you know, talking about something. If I start with that, you know, it will never end. So, therefore, I've never done that in the past with regard to spin transactions or whatever, you know, or other rumors, and please respect that not as a kind of, you know, hostile attitude. It's just, you know, I want to protect the company and protect, let's say, the value of this company going forward. When we have something to say, you know, on anything, you know, we will do that. But please give us as well some credit, you know. I'm now here 2009, you know, I started as the head of M&A, later in finance CFO. I've done a lot of, let's say, transactions in the past, and please, look in the past and look, you know, how creative things were for our shareholders, always what we have done. There was nothing which was destroying value, the opposite. And therefore, please give us some credit. And when we have something to say and when there's something coming, then we will do this. But not at that point in time. With regard to the satellites, to be honest, I'm very proud and very happy to have a partner like SpaceX I admire Elon Musk and his team in every regard. And in the past, I learned a lot about, let's say, how you play off with this kind of disruptive entrepreneurs in the world. By the way, I'm sitting even the Mercedes board and I can tell you if these guys are looking on Tesla, sometimes I feel that they are sitting in the same situation as our Telcos. The Telcos are very fragmented small players with low market caps, while Tesla is, you know, I think, cumulative the value of the whole car industry in Europe or so, something like this. So it's an amazing, and it's a little bit like our industry. I'm looking into SpaceX and seeing that there's maybe a $2 trillion IPO standing in front of the door. I'm very impressed about that one. I see the disruption of that company when it comes to the launching capacity and their strong, almost monopolistic position here. I see the AI capability which is inbuilt into the telco. I see the disruptive ideas when it comes to the way of approaching customers going forward. So I see all, let's say, the strengths and I'm very impressed about that one. So the first thing is having these guys as a partner is always a good thing to have. Because if you can't fight the dragon, you know, ride the dragon. Is it a dragon? That's the big question, which is in the market. And look, I can tell you we spend a lot of time on this one. I see that 99% of the traffic is terrestrial traffic and will not be substituted, nor it will be even able to handle this from a satellite service. Impossible. So, therefore, this is an adjacent service which we need and which we have and which is 100% fitting into the proposition of our company that we always want to have the best network and that we always, you know, want to be best connected for our customers. Now, we have extended our Gen 1 product in the US now from consumers to B2B. You saw the announcement. And we have a Gen 2 deal for Starlink here for Europe. I like it. I like the idea of connecting my customers wherever they are in areas where I can't do it. And that is helping me. But it will be an adjacent service and complementary option for us. And we will make it as easy as possible to use that for our services. So looking forward. I really want to partner with that customer, but, you know, I do not want to throw my destiny into one hand, nor I want to have, let's say, a Starlink, which is the kingmaker of the destiny of our businesses. So, therefore, you know, we will be open to other satellite companies as well, because that makes sense in the logic. And if you recall my Capital Markets Day presentation about the long-term strategic view, I was talking about network of networks. And that is exactly where this industry is heading to, and therefore we have to build adjacencies here into our functionals, and that is what we're working on. I'm really seeing that as an upside for Deutsche Telekom than rather, you know, as a cannibalization or a killer, as somebody has written recently.

Thank you, Tim. Great. Thank you very much. And thanks, Akhil. And the next question is from Mathieu Robillard at Barclays, please. Mathieu?

Good afternoon. Can you hear me?

For sure.

Very well. Thank you. Thank you for the presentation. So probably I'll come back to the capital allocation from a different angle. We've seen during the first quarter of the year some push on convergent products from your competitors. And of course, we know that in terms of fixed-line infrastructure, you have less choice or less assets than the others. I know you've been saying that you don't think convergence is a big threat for you, but is your thinking evolving? And in that context, again, keeping in mind the question we can't ask, is cable something that could help you close that gap? I know you've been asked about that, and things can change. Now, a second question was about Germany closer to home. So we've seen, of course, in the press that Negotiation with the unions in Germany has started for the next few years. I wouldn't expect you to give us your expectation of where it lands, but obviously they're pushing for quite a big increase. Maybe if you could give us a bit of color in terms of, you know, the dynamics of the personal costs. I realize you reduce personnel every year. It's not a firm guidance or target, but certainly you're delivering on that. How should we think about wage pressure on the German business? It's quite a big part. I estimate around $4 billion per year. Maybe I'm off the ball, but any clarification would be great.

Okay, Matthew, let me start with your convergence question and capital allocation. So, look, if you just take a look, let's start with the U.S. On their performance in the first quarter, I think both fiber and fixed wireless access were strong. I think the management team reconfirmed the 18 to 19 million subscribers by the year 2030. You've seen that we have expanded our share buyback program to up to another 3.6 billion, which totals then into 18.2 billion U.S. dollars. I think the U.S. team has announced two Fiverr joint ventures, and I think that's their strategy. And I think Srini was pretty clear about whether he's interested in cable, yes or no, and I think he said in the Q1 call, no. So from a capital allocation strategy, In the US, I don't see any kind of changes. And when it comes to the ex-US business, you know that we have expanded our envelope for fiber in Germany by 800 million over the next three years. I think we're progressing well along the adjusted strategy, having a stronger focus on full build out of NDUs, but also a stronger build out of SDUs. So from this perspective, I think all what we said when it comes to capital allocation is primary purposes is as we're doing it right now, and we had made a very clear statement, increasing the shareholding in the U.S., conducting our share buyback program in Germany here on the DT side. So there's no change. When it comes to the tariff agreement, I think it has become public now. We have handed in the first offer towards the social partner. And I think we will have to see how they respond to this. The next negotiation round is end of May, where they're sitting together for two consecutive days. Look, I have the expectation, my personal expectation is that we get a balanced agreement on this one. And we have been very clear that we felt the last agreement was too generous. So from this perspective, I think we hope for a better agreement on this one. But it's in the making and it's hard to basically make comments here from the outside when it comes to the tariff agreement.

Thanks, guys. And with that, we move on to David Wright at Bank of America. David, please.

I hope you can hear me and apologies for the lack of video or maybe not. So, two questions. I kind of detailed one, first of all, just in Germany, or I detailed one, I should say. Your fiber ads have stepped up and obviously your broadband performance has significantly outperformed your number one pair, Vodafone, this quarter and, well, for some quarters. Is fiber versus cable starting to become a thing, right? Is it starting? Are you seeing the green shoots of fiber versus cable becoming a thing? And then my next question for yourself, Tim, for Christian, and I almost want to sort of take Mathieu's question and kind of double down, which is you talk about the best network, the best connectivity, and that was your Starlink reference to it. I guess if I look at Germany and think about capital allocation, you are lagging on Fiverr. And okay, I accept the customer demand curve is not there, but there are multiple other reasons to build. And you have allowed alternative capital into Germany, which has caused some pain. And in the U.S., you don't have scale, let's say, yet in Fiverr. And there are major chess pieces moving across the board. in U.S. cyber right now, does it concern you that you don't have the scale in German fixed? And how much of a worry is that if this market does move to convergence a little more quickly? So that would help. Thank you so much.

Sorry. Let me start with the first question, David. I think it is interesting. Too early to tell, but if you tear down the customer, the broadband losses from Vodafone, given what they have presented yesterday, if I'm not mistaken, two-thirds are coming from the cable infrastructure, and one-third is coming from the DSL infrastructure, which they're obviously relying on our infrastructure. So I think it is too early to tell whether this becomes a trend, but there was always our belief that fiber is superior relative to cable. and at least you can interpret the numbers from Vodafone in that direction. So we clearly believe that this is ultimately the superior infrastructure and we're building out in rural areas. So we are facing cable competition other than the alternates. And so from this perspective, I think it is an early indication, but we have to watch out whether this trend continues.

And Christian, I'd like to add one sentence. Look, I was criticizing Vodafone in one of the last, you know, quarter calls here because they have reduced their prices so that they were not, you know, trying to keep the discipline in this market for a longer time and then really, let's say, trying to connect their customers to the base. And despite this price reductions, They were not able to keep the customer base. And that has something to do with the quality. The only answer for long-term fiber or broadband success in Germany is quality and investment. That's the simple answer. And therefore, if you ask me, is fiber superior to cable? Yes, it is. Definitely. And big time. And where we deploy it, we have an advantage. And on top of that, we come with our brand. we come with our credibility, we come with our good reputation, we come with a good service, which we just got awarded all, let's say, tests here in Germany, and this all together is then creating an advantage which we are playing out. Now, on top of that, as we have laid out in the last call, Rodrigo and his team, they have done a lot of activities around churn management, Proactive, you know, using data to anticipate potential churners. They have laid out a new portfolio with fixed mobile convergence. So with kind of mobile substitution here. And on top of that, you know, we have changed our rollout in areas where we are anticipating high churn, and even this is paying off. So this is why our numbers are better than the numbers in the whole industry. But it's hard work, and it's a lot of changes which we have done. And, by the way, we are even more optimistic with regard to the next quarter than we are today because don't forget, guys, we are in the middle of a price increase for the whole customer base of telecoms. So this is something which we are managing at the same time with this . Coming to the next question, look, are you spending enough on German fiber was the question. I think Christian said it, we have an additional 800 million investments over the next three years. We have now made progress on the build out and the productivity here and the industrialization of it. This morning I said maybe a 15% improvement on the costs per line. We have committed rolling out 2.5 million home spas per year in the coming years, which is the highest rate of all players here in the German market. we have a lot of, let's say, companies who are working for us. It's a high complex rollout plan, including, let's say, all the approval processes. To be honest, even if we would have more money, I'm not sure whether we can easily accelerate this number beyond our aspiration here. So, therefore, when we have more possibilities and see more possibilities, we will definitely consider this and come back to you on this. The MDU build-out is for us the most important thing, and the SDU rollout in rural areas where we have lost against the altnets in the past. These two kind of priorities are super relevant right now, and we want to see the benefit from that.

Okay. MDU is a good word to, you know, call our next question from James, but maybe he has another topic today. James Watson, News Feed, please.

Yeah, thank you, Hannes. And yeah, don't worry, I'll stick to being a staff record. So I will open up with a question on MDUs then, because that was where I was going to go with the first question. And specifically on the issue of the whole Ausbau rule, you know, with the new TKG law draft, I mean, it looks pretty clear that the government wants to do everything it can to accelerate fiber bills in Germany. And given your strong balance sheet, I mean, it looks like you have a potentially a huge opportunity here to kind of really strengthen your infrastructure position in Germany at a time when the other challenges can't afford to do this. So is this an opportunity you would like to take advantage of, you know, over the next few years to accelerate that building in MDUs, you know, even if it might mean slightly higher capex in Germany? And then the second question is, you know, if I look across your group structure, and you might not like me asking this question, but I see minorities in your assets in Eastern Europe. I see obviously minorities in your asset in the US. Do you think having minorities in your asset lead to any inefficiencies in the cost structure of running Deutsche Telekom Group, and you could be running the business more efficiently without minorities in any of those assets. Thank you.

Let me start with the second question, James. I think you know that we both in all three assets you're alluding to, Magna Telekom Croatia and Greece, we're basically pursuing a combined share buyback and dividend approach. So by not selling into a share buyback, we're automatically increasing our shareholding. The second piece is these are not the most liquid assets right now. So right now it is accretive from a net income point of view, but they're not super liquid assets. and has some advantages if you have joint, let's say, ownership on a given asset, also when it comes to regulation. So from this perspective, I think we're taking the long haul shot by basically creating our shareholding in all of these three assets by not selling into the share buyback, but we have no intent to actually squeeze out the minorities in either of these three assets.

And is that the same for the US as well then where there's also kind of alternative cost structure as well with minorities?

I just commented on the three European assets, my dear.

By the way, we have said that we are considering, you know, always, you know, to step up. And what we're doing right now is increasing our shareholding in the U.S. And we mentioned 54% already. So the answer is, in principle, yes, it always depends on our assumption about what is the value of the U.S. and what is the growth prospect and the value. We are investors like you are in this regard. and looking to opportunities here as well. I mentioned that already in, I think, two quarters ago. Let me come to your question, James. You're right. The direction from our policymakers is very clear. Germany wants to accelerate fiber rollout and particularly improve the economics and the execution speed in the multi-dwelling units. And from our perspective, this is fundamentally positive. Germany needs faster digital infrastructure deployment and we need a regulation which is supporting the investment and not slowing them down. Now, regarding your question whether this creates an opportunity for us, Clearly scale, operational capability, financial strength matters in this environment. And I haven't answered the question maybe from David in all detail, but you know the reason that we do not have the same ambition to build a fiber network in the U.S. as we have it in Germany has to do with our infrastructure logic. We want to replace our copper infrastructure share by a fiber share in Germany or in the markets where we have already an existing broadband business. In the U.S., it's an add-on business. in Europe in most of the markets is a replacing business of an existing. And we do not want to end up in a shrinking revenue or EBITDA business on a long term if our infrastructure share in fiber is significantly lower than our infrastructure and copper was. That is always the fundamental strategic imperative. And that is what we are driving here. And that is why we are fully deploying fiber at that point in time. Look, it's interesting that you asked me to invest more into Fiverr. The market looks for me quite dead. If I see the refinancing of some of my competitors, if I see, you know, the withdrawal from commitments of the smaller outlets, if I see, you know, that Deutsche Telekom is now stemming more than 50% of the whole build-out of Germany, you know, you can even ask, why the hell are you spending so much money in this kind of damp market? I do this because we believe in the net present value and we believe that on the long term, this infrastructure will have a significant payout for us. So if we get the opportunity or if we have, let's say, beyond the 800 million, the opportunity to convince you. And by the way, I will first consult my market and say, is this a wise decision? Would you support that idea? Then we are always open if we have the capabilities and the financial resources which we have, you know, to deploy even more. But at that point in time, we are happy with the net build-out share which we're currently creating and the speed we're having and all our hands on deck. We have to digest first what our ambitions are, but yes, I'm open to consider this. In Europe, where we have the proof of the concept already, we are doing it. We are investing more in fibre, we are investing more in households, and we are accelerating our build-up, for instance in Greece, already today, as you've seen in the numbers. So therefore, we are always open to these opportunities.

And, James, just a detailed point on the TKG draft. The biggest change we're advocating for is right now the draft foresees that a landowner or an owner can refuse an in-house rollout over the course of 24 months. And we want to bring this down significantly to nine months because then we can get into faster action.

Very clear.

Thank you. Thanks, everyone. And I think next is Andrew Lee at Goldman Sachs, please.

Good afternoon, everyone. I just wanted to follow in from a lot of comments around investment, just in the last answer from Tim and Christian. Could you just talk about whether you feel like your balance sheet restricts your strategic flexibility from DT Europe X US? And if you want to comment on US as well, great. But just specifically on DT X US, you've talked a lot about, you mentioned just on this call, that even if you had more money to invest in Fiverr, you wouldn't necessarily be able to deploy it. You're obviously already building up your stake in Pimas. So it's... Is there any sense in which you feel restricted in what you can do strategically by the balance sheet as it stands today? And then just second question was on U.S. competition. So I think if we think about the three areas that are making investors nervous at the moment are on DT Group. We've touched on two, the combination, the satellite risk factor that people are trying to understand and I think your answer is very clear on that in terms of your view at least. And then the third is probably current U.S. levels of competition. appreciate that we've heard from Timus a couple of weeks ago but it'd be great to get your take on what you're seeing from or any kind of impact or structural change in the competitive intensity in that market with Verizon's shift or tilt or any other change in behavior that you can see. Thank you.

So, Andrew, let me ask you, let me give you an answer on the balance sheet potential restrictions. I don't see them. I think we have been very prudent in the way how we're managing down leverage. Remember, 21, we were at 3.1. Now we're at 2.6, and obviously I think this is a continuous trend. I'm actually happy that we get this upgrade because you see now not only Moody sees that we have a very strong balance sheet but also standard improvers. and what we said is we create over the course of the full capital market state period a surplus on the DT side of $15 billion, and we said the primary purposes are the U.S. shareholding, and the second one is share buybacks on the DT side, but we have never ruled out if there's an attractive target in Europe that we will consider this and basically get engaged on this one, but we have to see the targets first, and they have to be accretive also in a way that they either have a strong strategic value or strong financial accretion. But I have absolutely no restriction because we now move to A1, we felt comfortable with triple D plus. So I think there's a lot of wiggle room on the balance sheet and it does definitely not impact the XUS business.

Thank you. Look, going further into your question, with regards to the market. I talked about satellite already. I don't see that in the threat. I see them as a kind of add on and even a business opportunity, which is helping our clear strategic proposition. And we will balance the power in this world. But on the second question, you know, you're talking about my mobile competitors and the concerns at least you had at the beginning of the year. I would say, you know, this has not, you know, at all altered our confidence in T-Mobile US. Why should we otherwise, you know, not participate in the share buyback? That's the same decision we took because we see a big opportunity. Now, this is our portfolio assessment. You might have another one, but, you know, we believe in the U.S. stock in this environment going forward, and we believe in the growth and in the value. And, by the way, the first quarter confirmed exactly our aspirations. showing a company with 10% EBITDA growth and, let's say, a clear way forward, you know, I think that is very impressive and it was worthwhile, you know, spending money into this area. Second, I see even some kind of cooling off of the heat of the competition in the U.S. these days. Now, this is coming and going. There have been maybe at the beginning of the year, you know, more aggressiveness. Now more there is a bigger value focus in this regard. We are not putting oil in the fire here in the U.S., and therefore I see some better improvements even from that angle. And so therefore, you know, we have a moderated competition, I would say, going forward. But never know what's happening during the course of the year. We are focusing and we will not change. And the advantage of having, you know, me and Christian Dinosaur sitting in the company, we stay focused on a very clear strategy. Unique value proposition by always the best network. Good value in the U.S., the best value, and the best customer experience. And this pays off. We're doing all these new things around that, supporting with AI, putting network of networks into place, extending our footprint, being attractive with partner cards and the like. But the core proposition of our brand stays very, very intact. And that, I think, is the value in itself. So therefore, you know, I'm very confident that we have a good position on how we're doing it today, and therefore I'm not concerned. And we have even seen that the growth rates of the cable costs have not been that strong, so we have a big opportunity to improve. at additional growth from our fiber net ads, which is not as in Europe a compensation or a kind of placement for the old broadband world, but it's an add-on opportunity for growth and for EBITDA. So that's how I'm looking at T-Mobile, and that is why we're saying it's an attractive investment.

Thank you.

Great, thank you. And I think next is Josh Mills at BNP Paribas. Josh?

Thanks, guys. Two questions from my side. One about where you see the benefits of scale in your business. And then the second, I wanted to come back to the German broadband market. So I start with the first one. Tim, I think in the past, you've highlighted a few reasons why you think BT should be considered separately to other European telcos. And you refer to the scale you have, the potassium generation you get as a result of the team's ownership. So I'd be interested to Maybe it's a bit more colour whether you think that scale is more relevant to your telco business or whether it's more important for unlocking some of these AI opportunities that you're starting to talk about more. The reason is that I know you'll be giving an update later in the year, but we've heard a lot of telcos in Europe, even some of the smaller ones, talk about AI partnerships. So it'd be great to hear why you think T-MOS is a route into getting relationships or partnerships that others may not have, would be the first question. And then the second question, I know you talked about the reports of the German alternates being dead in terms of new build strategy and rollout, but there's a lag effect between them being dead on the rollout and then pushing penetration in the existing infrastructure. So have you seen any change in the rate of retail penetration on the alternates which have been built today? And have you seen any in the growth in the overall German broadband market, which I think on the last conference call you said it slowed down to maybe a couple of hundred thousand net ads a year, which obviously if the alt net is growing means that some of the existing operators will need to lose. Thanks very much.

So on the second question, the answer is yes and yes. We see, you know, that the penetration is going down. We see even that their growth is slowing down for different reasons. And we see even, you know, that the amount of homespots is slowing down significantly, so there are future prospects for higher penetration. So we see our infrastructure share rising in the German market, being it through our own retail business or being it, let's say, with our wholesale partners. I think our wholesale partners could do more. That is something which we discussed internally, but you know, our market share is growing. And one of the reasons is as well, the slowdown of our competition. With regard to the first question, look, I don't want to repeat what we have said on the Capital Markets Day in all details, but if you ask me a trade off, the AI opportunities is the biggest opportunity we have in the business. And this is significantly higher than doing everything in a common standardized way. So therefore, and this is true for the whole organization for the US and for our own European activities. Now, as long as we use AI as a tool, we will get only a fraction of the benefits. The moment where we understand AI as a kind of opportunity which is changing the workflow of the way how we are organizing ourselves, how the government is looking like, that moment, you know, we take the full benefits of it. We see that in our customer service areas where we are already benefiting 30% to 35% cost reductions by just, you know, changing the way how the workflow is organized. and using the data and the automation here. And that is something which we have to do everywhere. So I cannot tell you how important I think how telco business is looking like in the future. It will be significantly, in all areas, significantly different to the world how we are acting today. We are highly headcount and people intensive. We are highly manual in a lot of areas still. We have mass market process which we can standardize and digitize. both in the customer detection, but even in the internal workflows. And that is, let's say, the biggest task. Now, we can learn from each other and we should always, you know, use the same data model. We should use the same APIs that we can deploy software, which we are, or algorithms, which we're using here in other areas. And that is what we're doing. Minder, which I like the anomaly detection and the autonomous network initiative is something which we are playing out in all countries and not only in Germany or in in one respective one, so we are standardizing it and then we're deploying it across the countries, but this is one of the benefits. Now, when it comes to scale, there is a scale element and we are committing to it. We had some discussion about scale in the organization, how we organize it, whether you do that in a centralization mode or whether you do that in a decentral project, project by project approach. And by the way, there is no right or wrong on this one. The only question is whether people committed to implement it. We are committing $400 million within the capital markets envelope just on the scale side already today. And I can now repeat it, but I don't want to eat the time here from everybody. This is network at scale in the main area. where we are standardizing certain functions in our operations. And if you have maybe the time later on, I can give you the details of it.

Let me give you three practical Horizon 1 examples for scale. One is obviously procurement. We're rolling out a common procurement approach across European NASCOs. so that we treat and consolidate demand in a similar or same fashion. And we're going to lock this into the IT systems in a way that you really have standardization being built into the machine. The second one is, look, we have three international traffic networks. There's scope for consolidation across the European focus. Obviously, there's network modernization to come, so there's a big effort underway to standardize this when it comes to how do we basically do multi-carrier aggregation across the different net goals, but also how do we consolidate vendor demand and standardize this in a certain direction that not only gives you procurement opportunities, but also supply chain opportunities. So that's the, I would say, very hands-on scale opportunities which we have to standardize across the organization. The key point is We have to standardize the process. That doesn't mean that we have to centralize the organization.

Thanks, guys. And with that, we now move on to Carl Murdoch-Smith at Citi.

That's great. Thanks very much. Two questions on Germany, please. One on ARPU and one on CapEx and FTTA rollout. So in its results yesterday, Vodafone reported that its broadband inflow ARPU is now up 30% year on year and is now above back book ARPU. I was wondering if having a competitor making that level of change to its front book pricing, that creates an opportunity for similar increases across the sector. So I was wondering what is happening to your inflow ARPU. And then secondly, on CapEx and FTTH rollouts, I know you've said it's just phasing and will normalize through the year, but the lower capex in Germany in Q1 was quite stark. And then also looking at the FTTH penetration ramp up on slide 17 of the results by 70 basis points in the quarter to 17.1%. That's despite FTTH net ads being within the range of previous quarters. So it therefore looks like it's something to do with the denominator and that fibre build has slowed in Q1. Is that the case explaining the lower capex in Q1? Obviously Q1 is typically quite cold so is this simply a weather related slowdown that you'll catch up on going through the rest of the year?

Okay, maybe I start with the inflow ARPU. I mean, so you see our B2C ARPU up 3.1% year-on-year, right? So clearly, you know, we have a positive momentum on the front book versus the back book. Otherwise, this wouldn't happen, and it comes from upselling. rather than price increases. There have been some price moves last year. We have a cut promotion period from six months to three months. We had a front book price increase by one Euro in October. And of course now we have a back book increase. So the math gets a bit more blurred in those terms. But we don't have a comparable number specifically to Vodafone, and I doubt it would be that dramatic because our development has been extremely consistent and steady over recent quarters. But, you know, the broadband price increase that we have put through for less than half of our customers is going to feed in from April, okay? On the second question, phasing is phasing. So this is cash capex, and, you know, I wouldn't read anything into it in terms of our full year prospects. I mean, we have talked about efficiencies. We are becoming more efficient. We are recycling the efficiencies into a better mix and more connections, and that's what's happening. But for the full year, we continue to see a capex increase. Anything to add? Okay. Okay. Is that? That's great. Thanks very much. Okay. So next up is actually Robert Grindle.

Just a quick question. Was there a question on free cash flow, why the free cash flow was impacted? I think we had a drag on the free cash flow. I'm not sure whether there was a question. of roughly $800 million coming from the U.S. dollar compared to the previous year and $300 million from restructuring costs. That basically was a drag on the operating free cash flow, if this was the question, because I was taking the questions and answering them right now, so I wasn't listening accordingly. Yeah, okay.

Thanks for that. Next up, I would like to take a question from Robert Gwynn who had connection problems, and I hope he hears me. He asked, ICT systems order book growth has slowed again in the first quarter and is at low levels. 1% versus double digits in the first half of the year. Anything to say here? Is this a sign of drag from the German economy? Uncertainty geopolitically, the economy weighing? Or should I, you know, or that's basically the question now.

The answer is pretty easy. It's seasonality. We have had some big deals in the first quarter last year, and this year they're absent. I think we're committed to our guidance when it comes to auto entry growth, but this is simply seasonality.

And with that, we move on to Polo at UBS. Polo, target UBS, please.

Hi. Thanks for taking the questions. I have two. The first one is on AI. So you already talked about the cost-saving opportunity from AI, but can you maybe talk about whether you see a revenue opportunity from AI? So specifically, do you think the hyperscalers will pay telecom operators for connectivity? Alternatively, is the revenue opportunity more in sovereign cloud? Are there any revenue opportunities from AI RAN? And if there are revenue opportunities Will this come at the cost of higher capex? My second question is really just about German fiscal stimulus and infrastructure stimulus. So now that we're one year in, what is your view on how this is affecting both ET but also the broader German market? Thank you.

Let me ask for the first question. By the way, you are asking a big question for a long-term perspective of our industry. And if you ask me, do you see that tomorrow, I would say less of it. If you ask me with regard to the opportunities long-term, and now we are talking to the connectivity-related AI volumes, I would say definitely yes. Now let me talk first about the area of connectivity. AI requires... super large data movements. It requires low latency. It requires resilience. It requires secure connectivity between users, enterprises, clouds, edge locations, data centers. We see this huge traffic. Every data center is, you know, empowered by a 400 gigabit data connection. And we have in Munich, we have two of them. So this is all fundamentally positive for telecom networks. So therefore, I would be careful with the idea that hyperscalers will simply pay telcos, you know, a new premium for connectivity in a very generic way. So therefore, we have a kind of arm twist here, you know, which we have to play out. But I believe that enterprise-grade quality and that the security latency, all these issues, their capabilities, maybe even on a token-based logic to be monetized in this new ecosystem. In the past we had voice, then we had video, and now we have as well AI in the networks. And this is a clear opportunity for our industry. Second, the area for me is around businesses in AI. Take sovereign cloud. super relevant for us here in Europe. I can tell you, I said it this morning, our Black Belt 200s are sold out in Munich in the data center. Our RTXs are something in the vicinity of 40%. Two to life after three months. We are considering expanding the data center already today, which requires... apart from the chipsets as well, you know, energy throughput. So we see that many enterprises, the public sector, wants the benefit of AI. But they want it with a clear requirement on data sovereignty, compliance, security, operational control, which we are offering today. So, yes, there's an opportunity for additional growth. And, by the way, we're seriously investing into this one. The third idea is, you know, the idea of AI for customers. If you go to a customer and show them, you know, a kind of most viable product or a prototyping of a solution which he can enable with AI on his network, with lovable and alike, I can tell you there's an opportunity for our B2B area to develop that. On the T-Systems, we are already monitoring it and monetizing it. Look, digital services. Digital service at T-Systems, which is the second leg, is mainly driven by this AI-driven applications. On the B2B side, for the SMEs and for the large enterprises which are not covered by T-Systems, I have to say we are at the beginning. We have to work on this one, but I see even here an opportunity for growth. To be honest, this is something where we have to get a commitment behind that. I hope that until the 5th of October, we can give you a clear guide on this one. I do not want to commit something here which I, at the end of the day, cannot deliver. But theoretically, we see just on these three angles a big opportunity going forward.

Okay, let me try to answer the second question on the fiscal stimulus. As you know, we have basically, we will use this stimulus of roughly half a billion over three years by increasing our fiber envelope, so we will utilize this. But if you take a look to the overall German market sentiment, I would say it's not really good. It has come down. So if you take a look at the forecast for the GDP growth in Germany, it's trailing somewhere in between stacking to 1%. I would say the midpoint is 0.5% growth. Consumer sentiment has not really increased. It's at maximum stable. And what we're going to see is that the number of insolvencies in Germany are on a multi-year high. So how does that impact DT? I think we're impacted on the insolvencies and on the bad debt figures. This is not detrimental to us, but you can see it in the numbers. What we have seen in the previous, let's say, crisis, whether it's been the financial crisis, Ukrainian crisis, we have seen that the total service revenue is not really correlated with the GDP growth. So I would expect that we have some impact on the B2B side. The outlook for Germany is not really good, but it's not that significant that we should change any kind of guidance figures which we put out for the year.

Okay, thank you. And next, we move to Ulrich Rate at Sockgen, please. Ulrich? Bernstein, sorry. Oh, my God.

That's all right. Just wanted to flag out because your Playmobil has escaped from the desk since the conference, since the press conference. I'm not sure where it ran away to. My first question is on Rheinmetall. You mentioned in the press conference that you see significant opportunity. You mentioned the drone defense as sort of the initial one. My question is about the scalability of this. Is this, could this become a proper vertical for DT? Can it be scaled outside of the footprint or is this really business for DT in Germany and therefore not necessarily something that can't scale in the context of you saying it could be a very significant opportunity for the group as I understood the comments. The second question is on German broadband. You highlighted several times that we should look at the net ads currently in the context of the price increase that's working itself to the base. My question is, are you putting significant resources into retention offers? And how do you deal with marketing the aggressive level of aggressiveness marketing for new customers during the time when the back book is seeing a price increase. The point being, if you want to gauge what happens once the price increases in the base, you know, what the normalized level is compared to what we're seeing at the moment during this period. Thank you.

a good observer, you know, the Playmobil guy is now standing in my office, so come visit me, you know, I liked it so much, you know, he's bold like me. Anyhow, that said, Rheinmetall, look, we are observing the growing importance of this defence sector and we recognise the critical role this industry is playing. And, by the way, the critical role telecommunication and data infrastructure is playing in this industry. So, therefore, you know, it is not always us pushing. It is even the industry which is approaching us and saying, how can you help us? being it on 5G SA, being it on combat 5G, being it on a campus solution, being it on sovereign cloud solutions, being it on our ROLA activities, which we are doing already with secure data analytics, being it our defense capabilities, which we have in our 500 million venture capital of VT Capital Partners. You know, our partnership, for instance, with Quantum Systems has opened up a lot of new doors in the defense sector for us, because they are working with us. And now we even, you know, have something to offer with the testing capabilities, which we have opened up in Munich. Because most of these defense companies, they're testing their AI functionalities in our data center here in Germany. So therefore, you know, I think this is an opportunity. Now the question is, what is for you a veritable vertical? We have organized it as a vertical into systems. That is why we are building it. Plus the 500 million defense fund, which is won by DT Capital Partners. We want to be symbiotic in this case so that we are combining the venture capital idea with the established two systems. as a trusted partner for security, national authorities, you know, and certified people. So therefore, yes, we want to drive that for the DACH region. I do not see that we are now becoming in T-Mobile US suddenly a defense supplier. I see that for the DACH region, definitely. And I want to drive it from where the money sits. today, and that sits in Germany. So driving it from the German side, and that is why we are now going for this partnership with Rheinmetall. Now, do we have any revenue expectations? Yes, for sure. But it's a little bit too early now to give you a clear revenue projections on this one. Let me see how we are developing it. But we want to develop this into a veritable business model here. With regard to the German broadband situation, yeah, go ahead.

Yeah, maybe I take this one because I think you're referring to, let's say, elevated retention offers that we have done. But I think retention is a general – I would call it churn management. This is something that we are working on as a matter of good practice and where we see improvements. And generally we have seen less churn than we anticipated. So our customers are more loyal and more willing to tolerate these price increases maybe than we would have potentially feared. So I think we are quite happy with the market response so far. The price increases have landed well. Nevertheless, we are seeing some incremental churn as you would expect. But again, it's less than we were anticipating.

But, Hannes, you're downplaying that a little bit, what Rodrigo and his team changed over the last months. And since we have called it mission critical that we are coming back to growth in the broadband market, which was, I think, in August, this team has really intensively worked on the churn prediction. And the churn management here. So the data models, you know, they show us already today, potential churners, which we approached earlier. Yes, there are some benefits which we're giving to the customers, like some price adjustments for loyal customers, you know, who have been with us for years. Yes, in areas where we see that we do not have an immediate answer on Fiverr, we are offering a mobile substitute as an alternative. Yes, in areas where we see customers are churning, we are trying to convince them to stay with us So there are Winbeck teams who are specialized on this one. Yes, for these customers, you know, we have always a personal interaction, so less, you know, bot interaction. So they are flexed as customers. So, yes, there is a big initiative which is going on around that. We spent even some money in the envelope which we have laid out here to this one. In a world where you see that Germany's broadband market is slowing down, and you see that all the numbers from the, you have to focus on your customer base and your customer relationships. And that is what we are doing these days. So therefore, this is an area of focus and I'm very happy how the team is approaching it.

Excellent. Thank you, Tim. And I think There are no further questions. So that brings us to the end of today's call. Thank you very much, everyone, for your participation. And should you have any further questions, please do not hesitate to contact the investor relations team. We wish you all a very pleasant day and look forward to speaking with you again soon.

Bye-bye. Bye-bye, guys.