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40 Lessor relationships

Finance leases. Deutsche Telekom is a lessor in connection with finance leases. Essentially, these relate to the leasing of routers and other hardware, which Deutsche Telekom provides to its customers for data and telephone network solutions.

The following table shows how the amount of the net investment in a finance lease is determined:

millions of €

 

 

 

Dec. 31, 2022

Dec. 31, 2021

Lease payments

215

240

Unguaranteed residual value

1

2

Gross investment

215

242

Unearned finance income

(10)

(13)

Net investment (present value of the lease payments)

205

228

The following table presents the gross investment amounts and the present value of payable lease payments:

millions of €

 

 

 

 

 

Dec. 31, 2022

Dec. 31, 2021

 

 

 

 

 

Maturity

Gross investment

Present value of lease payments

Gross investment

Present value of lease payments

Within 1 year

94

90

93

88

In 1 to 2 years

77

73

78

72

In 2 to 3 years

24

23

45

44

In 3 to 4 years

10

10

15

15

In 4 to 5 years

5

4

6

5

After 5 years

6

6

5

5

 

215

205

242

228

Operating leases. Deutsche Telekom is a lessor in connection with operating leases. The underlying leases mainly relate to mobile terminal equipment in the United States operating segment, cell sites, building and co-location space, and unbundled local loop lines. By contrast, contracts on the provision of the latest generation of modems/routers to consumers in the fixed-network mass market do not satisfy the definition of a lease, where modem and router features are incorporated in one device.

Where terminal equipment is leased in the United States operating segment, customers are entitled to receive a new device once per month during the term of the lease. On receipt of the new device or at the end of the contract, the customer either returns or purchases the equipment. The purchase price at the end of the lease is set at the commencement of the lease and is equal to the estimated residual value of the equipment. The purchase price is based on the type of equipment and the advance payment. The contracts do not contain any residual value guarantees or variable lease payments, nor do they contain any restrictions or covenants. Terminal equipment returned by customers is prepared for sale in the secondary market or for use as a replacement for defective devices. This reduces the residual value risk of the returned equipment.

The leasing of local loop lines and space to wholesale fixed-network customers (e.g., co-location space) is also classified as a lease. The regulator requires Deutsche Telekom to make co-location space and unbundled local loop lines available to competitors. In contrast to unregulated products, the residual value risk for these assets is rather low because competitors are economically dependent on the use of these assets. In the unlikely event that co-location space and unbundled local loop lines are not leased, Deutsche Telekom will try to find new tenants for the vacant space or unleased lines. In the case of its own cell sites, Deutsche Telekom will also strive to continue leasing – where possible – all of the free space that it does not itself occupy. The aim here is to reduce the vacancy rate of unused space as far as possible by re-letting and to spread the cost.

Operating leases exist for the following items of property, plant and equipment:

millions of €

 

 

 

 

 

Land and buildings

Technical equipment and machinery

Other equipment, operating and office equipment

Total

Cost

 

 

 

 

At December 31, 2020

2

6,318

2

6,322

Currency translation

0

352

0

352

Changes in the composition of the Group

0

0

0

0

Additions

0

1,134

0

1,134

Disposals

0

(3,733)

0

(3,733)

Change from non-current assets and disposal groups held for sale

0

0

0

0

Reclassifications

20

167

2

189

At December 31, 2021

22

4,239

3

4,264

Currency translation

0

202

0

202

Changes in the composition of the Group

0

0

0

0

Additions

0

467

1

468

Disposals

0

(2,477)

0

(2,477)

Change from non-current assets and disposal groups held for sale

0

(4)

0

(4)

Reclassifications

0

9

1

10

At December 31, 2022

22

2,437

6

2,465

Accumulated depreciation and impairment losses

 

 

 

 

At December 31, 2020

(1)

(2,156)

(1)

(2,157)

Currency translation

0

(157)

0

(157)

Changes in the composition of the Group

0

0

0

0

Additions (depreciation)

(1)

(2,716)

(1)

(2,718)

Additions (impairment)

0

0

0

0

Disposals

0

2,521

0

2,521

Change from non-current assets and disposal groups held for sale

0

0

0

0

Reclassifications

(18)

(92)

0

(109)

Reversal of impairment losses

0

0

0

0

At December 31, 2021

(20)

(2,599)

(2)

(2,621)

Currency translation

0

(133)

0

(133)

Changes in the composition of the Group

0

0

0

0

Additions (depreciation)

(1)

(1,201)

(1)

(1,203)

Additions (impairment)

0

0

0

0

Disposals

0

2,106

0

2,106

Change from non-current assets and disposal groups held for sale

0

4

0

4

Reclassifications

0

3

0

3

Reversal of impairment losses

0

0

0

0

At December 31, 2022

(21)

(1,819)

(3)

(1,843)

Net carrying amounts

 

 

 

 

At December 31, 2021

2

1,640

2

1,644

At December 31, 2022

2

618

3

622

millions of €

 

 

 

 

 

 

Land and buildings

Technical equipment and machinery

Other equipment, operating and office equipment

Total

 

Cost

 

 

 

 

 

At December 31, 2020

2

6,318

2

6,322

 

Currency translation

0

352

0

352

 

Changes in the composition of the Group

0

0

0

0

 

Additions

0

1,134

0

1,134

 

Disposals

0

(3,733)

0

(3,733)

 

Change from non-current assets and disposal groups held for sale

0

0

0

0

 

Reclassifications

20

167

2

189

 

At December 31, 2021

22

4,239

3

4,264

 

Currency translation

0

202

0

202

 

Changes in the composition of the Group

0

0

0

0

 

Additions

0

467

1

468

 

Disposals

0

(2,477)

0

(2,477)

 

Change from non-current assets and disposal groups held for sale

0

(4)

0

(4)

 

Reclassifications

0

9

1

10

 

At December 31, 2022

22

2,437

6

2,465

 

Accumulated depreciation and impairment losses

 

 

 

 

 

At December 31, 2020

(1)

(2,156)

(1)

(2,157)

 

Currency translation

0

(157)

0

(157)

 

Changes in the composition of the Group

0

0

0

0

 

Additions (depreciation)

(1)

(2,716)

(1)

(2,718)

 

Additions (impairment)

0

0

0

0

 

Disposals

0

2,521

0

2,521

 

Change from non-current assets and disposal groups held for sale

0

0

0

0

 

Reclassifications

(18)

(92)

0

(109)

 

Reversal of impairment losses

0

0

0

0

 

At December 31, 2021

(20)

(2,599)

(2)

(2,621)

 

Currency translation

0

(133)

0

(133)

 

Changes in the composition of the Group

0

0

0

0

 

Additions (depreciation)

(1)

(1,201)

(1)

(1,203)

 

Additions (impairment)

0

0

0

0

 

Disposals

0

2,106

0

2,106

 

Change from non-current assets and disposal groups held for sale

0

4

0

4

 

Reclassifications

0

3

0

3

 

Reversal of impairment losses

0

0

0

0

 

At December 31, 2022

(21)

(1,819)

(3)

(1,843)

 

Net carrying amounts

 

 

 

 

 

At December 31, 2021

2

1,640

2

1,644

 

At December 31, 2022

2

618

3

622

 

The maturity analysis of the lease payments arising from operating leases is as follows:

millions of €

 

 

Maturity

Dec. 31, 2022

Dec. 31, 2021

Within 1 year

549

771

In 1 to 2 years

357

371

In 2 to 3 years

259

255

In 3 to 4 years

271

268

In 4 to 5 years

218

219

After 5 years

845

861

 

2,500

2,745

The reduction in lease payments of EUR 0.2 billion is mainly the result of the strategic withdrawal from the terminal equipment lease business in the United States operating segment. Of the EUR 2.5 billion of lease payments, as of December 31, 2022, EUR 1.9 billion related to DFMG Deutsche Funkturm GmbH, which is part of the GD tower companies held for sale. This entity leases cell sites to third parties.

For further information on the aforementioned business transaction, please refer to the section “Changes in the composition of the Group and other transactions” under “Summary of accounting policies.”

Router
A coupling element that connects two or more sub-networks. Routers can also extend the boundaries of a network, monitor data traffic, and block any faulty data packets.
Glossary
ULL – Unbundled Local Loop
Competitors whose own networks do not reach into customers’ premises can rent unbundled local loop lines from Deutsche Telekom. Their networks end at the local exchanges. The ULL bridges the distance between the local exchange and the termination point on the customer’s premises or in their home, so it is also known as the “last mile.”
Glossary
Wholesale
Refers to the business of selling services to third parties who sell them to their own retail customers either directly or after further processing.
Glossary