35 Segment reporting

Deutsche Telekom reports on five operating segments, as well as on the Group Headquarters & Group Services segment. Three operating segments are distinguished by region (Germany, United States, Europe), one by customers and products (Systems Solutions), and another by tasks (Group Development). For three operating segments, business activities are assigned by customer and product (Germany, Systems Solutions, United States), while one operating segment allocates its activities on a regional basis (Europe) and another allocates them by equity investment (Group Development).

The Germany operating segment comprises all fixed-network and mobile activities for consumers and business customers in Germany. It also focuses on the wholesale business to provide telecommunications services for carriers and the Group’s other operating segments. The United States operating segment comprises all mobile activities in the U.S. market. The Europe operating segment comprises all fixed-network and mobile operations of the national companies in Greece, Romania, Hungary, Poland, the Czech Republic, Croatia, Slovakia, Austria, Albania, Macedonia, and Montenegro. In addition to consumer business, most of the national companies also offer ICT solutions for business customers. On January 1, 2017, management of the Netherlands subsidiary was transferred to the Group Development operating segment. The new Technology and Innovation Board department, which was established as of January 1, 2017 as part of the Group Headquarters & Group Services segment, assumed responsibility for the GNF (Global Network Factory) and Group Technology units, and the Pan-Net companies. As part of the international wholesale business, Deutsche Telekom Global Carrier (TGC), which is assigned to the Europe operating segment, sells wholesale telecommunications services to the operating segments as well as to third parties. The Systems Solutions operating segment offers business customers a convergent product and solution portfolio. With offerings for fixed and mobile communications, IT infrastructure, digitalization, and security, in addition to global partnerships, customers receive help and guidance to implement digital business models. Since January 1, 2017, Deutsche Telekom has reported on the Group Development operating segment: This includes T-Mobile Netherlands (previously in the Europe operating segment), Deutsche Funkturm (DFMG, previously in the Germany operating segment), Deutsche Telekom Capital Partners (DTCP), and the equity investment Ströer SE & Co. KGaA, as well as Strato AG, which was sold in March 2017, and the stake in Scout24 AG, which was sold in June 2017 (all previously in the Group Headquarters & Group Services segment). It also included the 12-percent financial stake in BT until March 23, 2018, when it was transferred to Deutsche Telekom Trust e.V. as plan assets. The Group functions of Mergers & Acquisitions and Strategic Portfolio Management have also been assigned to Group Development. The Group Headquarters & Group Services segment comprises all Group units that cannot be allocated directly to one of the operating segments. Since January 1, 2017, the segment also reports on the Technology and Innovation Board department, which unites the cross-segment network, innovation, and IT activities of our Germany, Europe, and Systems Solutions operating segments. Group Services provides services to the entire Group; in addition to typical services such as financial accounting, human resources services, and operational procurement, Group Services also includes agency services provided by the Group’s personnel service provider, Vivento. Vivento Customer Services GmbH, a provider of call center services, was integrated into our Germany operating segment as of January 1, 2018. Further units are Group Supply Services (GSUS) for real estate management and strategic procurement, and MobilitySolutions, which is a full-service provider for fleet management and mobility services.

Comparative figures have been adjusted retrospectively in segment reporting.

The business segments shown are reviewed at regular intervals by the Deutsche Telekom Board of Management in terms of the allocation of resources and their earnings performance.

The measurement principles for Deutsche Telekom’s segment reporting structure are primarily based on the IFRSs adopted in the consolidated financial statements. Deutsche Telekom evaluates the segments’ performance based on revenue and profit or loss from operations (EBIT), among other factors. Revenue generated and goods and -services exchanged between segments are calculated on the basis of market prices. Services provided by Deutsche Telekom IT are generally charged at cost. Development services commissioned after January 1, 2016 are not charged but capitalized at segment level in accordance with the internal control logic. Segment assets and liabilities include all assets and liabilities that are carried in the financial statements prepared by the segments and included in the consolidated financial statements. Segment investments include additions to intangible assets and property, plant and equipment. Where entities accounted for using the equity method are directly allocable to a segment, their shares of profit or loss after income taxes and their carrying amounts are reported in this segment’s accounts. The performance indicators are exclusively presented from the segments’ perspective: The effects of intersegment transactions are eliminated and presented in aggregate form in the reconciliation line. The table on the next page shows the performance indicators used by Deutsche Telekom to evaluate the operating segments’ performance as well as additional segment-related indicators:

Information on geographic areas. The Group’s non-current assets and net revenue are shown by region: Germany, Europe (excluding Germany), North America, and other countries. The North America region comprises the United States and Canada. The Europe (excluding Germany) region covers the entire European Union (excluding Germany) and the other countries in Europe. Other countries include all countries that are not Germany or in Europe (excluding Germany) or North America. Non-current assets are allocated to the regions according to the location of the assets in question. Non-current assets encompass intangible assets; property, plant and equipment; investments accounted for using the equity method; as well as other non-current assets. Net revenue is allocated according to the location of the respective customers’ operations.

Information on products and services. Revenue generated with external customers for groups of comparable products and services developed as follows: