7 Property, plant and equipment

The carrying amount of property, plant and equipment decreased by EUR 1.1 billion compared to December 31, 2018 to EUR 49.5 billion. The first-time application of IFRS 16 as of January 1, 2019 accounted for a reduction of EUR 2.5 billion. Assets arising from finance leases that were reported under property, plant and equipment until December 31, 2018, for which Deutsche Telekom as the lessee bore substantially all the risks and rewards associated with the lease, are now recognized as rights to use the underlying leased assets. Depreciation and impairment losses of EUR 9.2 billion reduced the carrying amount. This included impairment losses of EUR 0.3 billion primarily relating to technical equipment and machinery in the Romania cash-generating unit in the Europe operating segment. Disposals of EUR 0.6 billion also reduced the carrying amount. Additions of EUR 10.6 billion – especially to upgrade and build out the network in our United States operating segment and in connection with the broadband/fiber-optic build-out, the IP transformation, and mobile infrastructure in the Germany and Europe operating segments – increased the carrying amount. Effects of changes in the composition of the Group resulting from the acquisition of Tele2 Netherlands increased the carrying amount by EUR 0.3 billion. Positive exchange rate effects, primarily from the translation of U.S. dollars into euros, increased the carrying amount by EUR 0.2 billion.

For further information on the first-time application of IFRS 16, please refer to the section “Initial application of standards, interpretations, and amendments in the financial year.”

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

For further information on depreciation, amortization and impairment losses, please refer to Note 27 “Depreciation, amortization and impairment losses” and Note 6 “Intangible assets.”

For further information on assets for which there is an operating lease (broken down by class of underlying asset), please refer to Note 38 “Lessor relationships.”

A potential need to impair the assets was reviewed in an ad hoc impairment test at the Romania – Fixed-network and Romania – Mobile communications cash-generating units in the Europe operating segment as of December 31, 2019. These impairment tests were triggered by the units’ earnings from operations falling short of expectations as well as more pessimistic assessments of business development for the coming years. No goodwill was allocated to the Romania – Fixed-network and Romania – Mobile communications cash-generating units as of December 31, 2019.

The measurement of the Romania – Fixed network and Romania – Mobile communications cash-generating units as of December 31, 2019 was founded on projections for a ten-year projection period that is based on the financial plan that has been approved by management and is 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 entities’ 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. Growth rates of 2.0 percent were set for the cash-generating units Romania – Fixed network and Romania – Mobile communications and were based on the real growth and inflation expected in the long term. 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. The discount rates were 7.71 percent for the Romania – Fixed network cash-generating unit and 7.96 percent for the Romania – Mobile communications cash-generating unit.

The recoverable amount determined internally, which was calculated in accordance with IFRS 13 using unobservable input parameters (Level 3) amounted (before deduction of net debt) to EUR 176 million for the Romania – Fixed network cash-generating unit and to EUR 299 million for the Romania – Mobile communications cash-generating unit. The resulting need for impairment in 2019 was EUR 298 million for Romania – Fixed network and EUR 22 million for Romania – Mobile communi­cations and, as a rule, had to be allocated to non-current assets. Taking into account existing lower value limits (fair value less costs of disposal of the relevant assets), impairment losses of EUR 296 million were recognized on property, plant and equipment in the area of technical equipment and machinery and EUR 24 million on intangible assets.

Deutsche Telekom had commitments for the acquisition of property, plant and equipment in the amount of EUR 4.4 billion as of the reporting date (December 31, 2018: EUR 3.8 billion). Restoration obligations of EUR 0.2 billion were recognized as of December 31, 2019 (December 31, 2018: EUR 0.2 billion), mainly attributable to restoration obligations of T‑Mobile US.