6 Intangible assets

Intangible assets increased by EUR 3.3 billion to EUR 68.2 billion. Additions totaling EUR 6.6 billion increased the carrying amount and mainly relate to capital expenditures in the Germany, United States, Europe, and Group Development operating segments. In the Germany operating segment, additions of EUR 2.2 billion relate to the 5G licenses acquired in Germany. In the United States operating segment, capital expenditures included a total of EUR 1.0 billion for the acquisition of FCC mobile licenses. In the Europe operating segment, 5G licenses acquired in Austria increased the carrying amount by EUR 0.1 billion. The carrying amount was also increased by changes in the composition of the Group amounting to EUR 0.6 billion, mainly in connection with the acquisition of Tele2 Netherlands. Positive exchange rate effects, primarily from the translation of U.S. dollars into euros, increased the carrying amount by EUR 0.8 billion. Amortization and impairment losses reduced the net carrying amount by EUR 4.8 billion. This included impairment losses of EUR 0.1 billion, mainly relating to the Europe operating Segment – due in particular to the impairment loss recognized on non-current assets arising from the ad hoc impairment test at the Romania cash-generating unit – and the Systems Solutions operating segment.

For further information on the ad hoc impairment test, please refer to Note 7 “Property, plant and equipment.”

In the 2019 financial year, the following factors affected changes in the carrying amounts of goodwill at cash-generating units in the operating segments:

Germany. The increase in goodwill of EUR 10 million compared with December 31, 2018 relates to the acquisition of companies that overall are immaterial for the operating segment.

United States. The increase in goodwill of EUR 51 million compared with December 31, 2018 relates to the acquisition of companies that overall are immaterial for the operating segment, and to exchange rate effects from the translation of U.S. dollars into euros.

Europe. Changes in goodwill in the cash-generating units Poland, Hungary, Croatia, and the Czech Republic result from exchange rate effects.

Group Development. The acquisition of Tele2 Netherlands resulted in identifiable intangible assets totaling EUR 455 million at the acquisition date (including customer base and spectrum licenses) in addition to goodwill of EUR 109 million. Following the acquisition of Tele2 Netherlands Holding N.V. and the business combination with T‑Mobile Netherlands Holding B.V., T‑Mobile Netherlands’ cell towers and roof-top sites were spun off into the newly created cash-generating unit T‑Mobile Infra B.V. Prorated goodwill of EUR 259 million was also transferred to this unit at the same time.

For further information, please refer to the section “Changes in the composition of the Group and other transactions.”

Disclosures on annual impairment tests. As of December 31, 2019, Deutsche Telekom carried out its annual impairment tests on the goodwill and intangible assets with an indefinite useful life (in particular, FCC licenses in the United States) assigned to the cash-generating units. No need for impairment of goodwill was identified at any of the cash-generating units as of December 31, 2019 on the basis of information available at the reporting date and expectations with respect to the future development of the market and competitive environment. The impairment test as of December 31, 2018 resulted in a need for impairment of goodwill totaling EUR 639 million at the cash-generating units Poland and Romania in the Europe operating segment.

The recoverable amounts to be identified for the impairment test were largely determined on the basis of the fair values less costs of disposal. With the exception of the United States cash-generating unit, these figures were calculated using a net present value approach. The main parameters are discount rate, net cash flow, and sustainable growth rate.

The recoverable amounts at the cash-generating units Netherlands, T‑Mobile Infra B.V., Croatia, Montenegro, and North Macedonia were determined using the value in use. The market price of an active and liquid market (share price) of T‑Mobile US was used to determine the fair value less costs of disposal in the case of the United States cash-generating unit. The measurements of all other cash-generating units are founded on projections for a ten-year projection period that are based on financial plans that have been approved by management and are also used for internal purposes. The planning horizon selected reflects the assumptions for short- to medium-term market developments and is selected to achieve a steady state in the business outlook that is necessary for calculating the perpetual annuity. This steady state can only be established based on this planning horizon, in particular due to the sometimes long investment cycles in the telecommunications industry and the investments planned and expected in the long run to acquire and extend the rights of spectrum use. Cash flows beyond the internal mid-term planning are extrapolated using appropriate growth rates defined separately for each cash-generating unit. These growth rates are based on real growth and inflation expected in the long term for the countries in which the respective unit operates. To achieve the sustainable growth rates set for the period of the perpetual annuity, additional sustainable investments derived specifically for each cash-generating unit are taken into account. The key assumptions on which management has based its determination of the recoverable amount include the following assumptions that were primarily derived from internal sources and are based on past experience and extended to include internal expectations, and that are underscored by external market data and estimates: development of revenue, customer acquisition and retention costs, churn rates, capital expenditure, market share, and growth rates. Discount rates are determined on the basis of external figures derived from the market, taking account of the market and country risks associated with the cash-generating unit. Any significant future changes in the aforementioned assumptions would have an impact on the fair values of the cash-generating units. Changes in the assumptions may have a negative impact, as a result of future macroeconomic trends, continued intense competition, further possible legislation changes (e.g., as part of national austerity programs), and regulatory intervention.

First-time application of IFRS 16 “Leases.” The first-time application of IFRS 16 had no effect on the results of the impairment tests for the cash-generating units that had to be tested for impairment in accordance with IAS 36.

The following table provides an overview of the main factors affecting the measurement and the classification of the input parameters (levels) used to determine the recoverable amounts in accordance with IFRS 13.

The sensitivity analyses for the need for impairment resulting from a change in the main parameters affecting measurement did not result in any need for impairment for any cash-generating unit to which goodwill is allocated. Changes of plus or minus 50 basis points in the discount rate and in the sustainable growth rate, and of 5 percentage points in net cash flows were each analyzed separately.

Deutsche Telekom had commitments for the acquisition of intangible assets in the amount of EUR 0.4 billion (December 31, 2018: EUR 0.5 billion) as of the reporting date. The majority of this related to commitments entered into by T‑Mobile US.