38 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 business activities for consumers and business customers, including separate sales entities in Germany to allow a customer-centric sales approach. Furthermore, the security business in Germany, Austria, Switzerland, Hungary, and Slovakia has been merged in this segment since the reporting year. Another focus is on the wholesale business to provide telecommunications services for other carriers. Build-out of the mobile and fixed networks is managed by the Technology business unit in this segment.

The United States operating segment combines all mobile activities in the U.S. market. T‑Mobile US offers services, terminal equipment, and accessories for consumers. In addition, the company sells devices to dealers and other third-party distributors for resale. In addition to wireless communications services, T‑Mobile US also provides complementary products, including high-speed internet, device protection, and wireline communication services.

The Europe operating segment comprises all fixed-network and mobile operations of the national companies in Greece, Hungary, Poland, the Czech Republic, Croatia, Slovakia, Austria, North Macedonia, and Montenegro. As of September 30, 2021, OTE consummated the sale of its 54 % stake in Telekom Romania Communications to Orange Romania. Since the transaction, Deutsche Telekom has been focusing on mobile operations in Romania. Besides traditional B2C fixed-network and mobile business, most of the national companies also offer ICT solutions for business customers.

The Systems Solutions operating segment offers business customers a focused product and solution portfolio under the T‑Systems brand. With its horizontal offerings for advisory services, cloud computing, and digitalization solutions, T‑Systems addresses the growth areas in the information technology market. Data sovereignty and security solutions are at the core of the product options, supplemented with strategic partnerships. Focused vertical offerings penetrate deep into the value chains of selected industries (automotive, healthcare, public sector, and transportation).

The goal of the Group Development operating segment is to actively manage entities and equity investments to grow their value. In this context, the subsidiary T‑Mobile Netherlands was sold on March 31, 2022. Within the segment, the GD Towers business entity comprises the German and Austrian cell tower businesses. On July 13, 2022, an agreement was signed for the sale of 51.0 % of the shares in this entity. The investment management group Deutsche Telekom Capital Partners; Comfort Charge, which is a provider of e-mobility charging infrastructure; and the Group functions of Mergers & Acquisitions and strategic Portfolio Management are also 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, and also reports on the Board of Management department for Technology and Innovation. Group Headquarters defines strategic aims for the Group, ensures they are met, and becomes directly involved in selected Group projects. Group Services provides services to the entire Group; in addition to typical services provided by Deutsche Telekom Services Europe, such as financial accounting, human resources services, and operational procurement, Group Services also includes the placement services of personnel services provider Vivento. 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.

Changes to the segment and organizational structure in 2022

Effective July 1, 2022, Deutsche Telekom Security GmbH and the security business in Germany, Austria, Switzerland, Hungary, and Slovakia were reassigned from the Systems Solutions operating segment to the Germany operating segment. As of the third quarter of 2022, the prior-year comparatives were adjusted retrospectively. As a result of the agreement concluded on July 13, 2022, the GD tower companies, which operate the cell tower business in Germany and Austria in the Group Development operating segment, were recognized for the first time in the interim consolidated financial statements as of September 30, 2022 as a discontinued operation. Likewise as of the third quarter of 2022, the prior-year comparatives were adjusted retrospectively. In light of the IFRS Interpretations Committee’s agenda decision published in May 2022 on transactions involving the commercial resale of software, Deutsche Telekom has implemented comprehensive changes to its accounting practices with respect to the recognition of gross vs. net revenues, effective the start of the third quarter of 2022. The prior-year comparatives for revenue and goods and services purchased were adjusted accordingly with retrospective effect.

For further information, please refer to the section “Summary of accounting policies” under “Changes in accounting policies and changes in the reporting structure.”

The business segments presented 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 based primarily on the IFRSs adopted in the consolidated financial statements. Deutsche Telekom evaluates the segments’ performance based on revenue and profit/ 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 are not charged, but capitalized at segment level in accordance with the internal control logic. In accordance with the segments’ control logic, intragroup leases are not capitalized by the lessee, but instead recognized as periodic expenses. In accordance with the Company’s own principles of segment management, when loans with embedded derivatives are granted internally to Group entities, the derivative component is recognized separately also in the creditor company’s financial statements and measured at fair value through profit or loss. 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, property, plant and equipment, and right-of-use assets. 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 that segment’s accounts. All of the performance indicators shown in the following tables are presented exclusively from the segments’ perspective: The effects of intersegment transactions are eliminated and presented in aggregate form in the reconciliation line.

The following table 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; right-of-use assets; capitalized contract costs; 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: