Europe

Customer development

Total

In the Europe operating segment, we achieved slight growth in the customer base again as of the end of the first three quarters of 2021. We recorded modest growth in the number of fixed-network customers in the first nine months of the year. Our MagentaOne convergent product portfolio, in particular, generated growth compared with year-end 2020 of 8.7 % in FMC customers thanks to ongoing demand. We are working flat out to build out our fixed-network infrastructure with state-of-the-art optical fiber. The number of broadband customers has increased by 2.5 %. The mobile business also recorded a slight rise in customer numbers once again, with increases in both the number of high-value contract customers and the number of prepaid customers. Our build-out of the 5G network is making good progress: most of our national companies have already launched the commercial sale of 5G products and services.

Mobile communications

In the Europe operating segment, we had 46.4 million mobile customers at the end of the first nine months of 2021, a modest increase compared with the end of 2020. The number of high-value contract customers increased by 2.2 %. The contract customer base grew in all national companies, especially in Poland, the Czech Republic, and Austria. Overall, the share of our total customer base accounted for by contract customers remained more or less stable at 59.1 %. In parallel with pure customer development, we have successfully pursued the more-for-more principle in our product portfolio, so as to sustainably increase value per customer. In addition, thanks to our integrated network strategy our customers benefited from greater coverage with fast mobile broadband. As of September 30, 2021, we covered 97.9 % of the population in the countries of our operating segment with LTE, reaching around 109 million people in total. The footprint countries of our operating segment are also making excellent headway with 5G. Broad swaths of the populations of Greece, Croatia, Austria, and other countries have already been connected to Deutsche Telekom’s 5G network.

The prepaid customer base also recorded slight growth of 1.0 % compared with the end of 2020. Growth in countries including Poland and Hungary more than offset the declines reported especially in Romania. In addition, we offer our prepaid customers high-value contract plans with the resulting number of contract conversions also contributing positively to contract customer business.

Fixed network

The broadband business recorded growth of 2.5 % as of September 30, 2021 compared with the end of the prior year to a total of 7.1 million customers. The customer bases of almost all national companies, especially in Greece, Hungary, Poland, Austria, the Czech Republic, and Slovakia saw substantial growth. Romania was the exception. By continuing to invest in innovative fiber-optic technologies, we are systematically building out our fixed-network infrastructure. At the end of the third quarter of 2021, a total of around 6.7 million households in our national companies had the option to subscribe to a direct connection to our high-speed fiber-optic network with speeds reaching up to 1 Gbit/s. The number of IP-based lines increased to account for 94.0 % of all fixed-network lines in the same period. The total number of fixed-network lines in our Europe operating segment edged up on the prior-year level to 9.1 million.

The TV and entertainment business had a total of 5.1 million customers as of September 30, 2021, up by a marginal 1.7 % compared with the end of the prior year. With both telecommunications providers and OTT players offering TV services, the TV market is already saturated in many countries of our segment.

FMC – fixed-mobile convergence

Our portfolio of convergent products, MagentaOne, was highly popular with consumers across all of our national companies. At the end of the first nine months of 2021, we had 6.3 million FMC customers; this corresponds to growth of 8.7 % compared with the end of the prior year. Our national companies in Greece, Hungary, Austria, and the Czech Republic in particular contributed to this growth. We have also seen accelerated growth in the marketing of our MagentaOne Business product to business customers.

Development of operations

Total revenue

Our Europe operating segment generated total revenue of EUR 8.5 billion in the first nine months of 2021, a year-on-year increase of 1.3 %. In organic terms, i.e., assuming constant exchange rates, revenue increased by 1.9 % year-on-year.

Organic growth was mainly driven by the strong performance of the mobile business, especially the increase in service revenues with higher margins, slight increases in roaming and visitor revenues, and higher revenues from terminal equipment sales. By contrast, the fixed-network business recorded stable revenues, with significantly higher broadband revenues in particular offsetting the losses in wholesale business and the expected decline in voice telephony revenues. Systems solutions business declined overall.

Looking at the development by country, our national companies in Greece, Hungary, and Austria recorded the best organic development of revenue as of September 30, 2021. This offset the decline in revenue in Romania and Poland.

Revenue from Consumers increased in organic terms by 2.3 % year-on-year, due mainly to higher mobile revenue: both service revenues and sales of mobile terminal equipment increased. In the fixed network, revenue from broadband/TV business increased thanks to our innovative TV and entertainment offerings as well as the continuous rollout of fiber-optic technology. This more than offset the decline in revenue from voice telephony. In addition, the higher number of FMC customers had a positive impact on revenue.

Revenue from Business Customers remained stable at the prior-year level in organic terms. The first three quarters of 2021 were dominated by rising revenues in mobile communications. This was driven by increases in roaming revenues once again after the coronavirus-related lockdown, and by higher demand for mobile data as a result of hybrid working. These trends have led to stagnation in fixed-network business. Although our fiber-optic-based broadband services are thriving and, in Romania and Croatia, we offer fixed network-based security features for online surfing; there is a noticeable trend towards mobile working. ICT business declined slightly year-on-year. In our cloud, smart cities, and security growth areas, sales of our solutions to corporate customers and the public sector remain consistently successful.

Adjusted EBITDA AL, EBITDA AL

Our Europe operating segment generated adjusted EBITDA AL of EUR 3.0 billion in the first nine months of 2021, up 3.1 % against the level in the prior-year period. In organic terms, i.e., assuming constant exchange rates and adjusted for the reassignment of the Austrian cell tower business to the Group Development operating segment, adjusted EBITDA AL increased by 5.0 %, thus continuing to make a positive contribution to earnings. In addition to the positive revenue effects, savings in indirect costs, including due to lower personnel costs, contributed to this development.

Looking at the development by country, the increase in adjusted organic EBITDA AL was largely attributable to the positive trend at all of our national companies, but in particular in Greece, Austria, and Hungary.

EBITDA AL increased by 7.2 % year-on-year to EUR 3.1 billion. Net income from special factors totaled EUR 55 million, compared with a net expense from special factors in the prior-year period of EUR 60 million. The reason for these changes was the reversal of other provisions for personnel costs recognized by OTE in 2010 and 2011 in connection with an additional payment of EUR 134 million to the Greek social insurance fund IKA-ETAM. In September 2021, proceedings related to this were concluded. In organic terms, EBITDA AL grew by 9.1 %.

Development of operations in selected countries

Greece. In Greece, revenue increased by 4.8 % against the first nine months in the prior year to EUR 2.3 billion. The encouraging development in mobile business is mainly attributable to the addition of new contract customers, with associated increases in both terminal equipment sales and service revenues. As travel activity increasingly returns to more normal levels, there was also a positive trend in visitor revenues. The intensive fiber-optic and vectoring build-out, together with the resulting higher numbers of customers, had an increasingly positive impact on the fixed-network business. The revenues generated here in the first nine months of 2021 were higher, driven mainly by the broadband business. The systems solutions business also contributed to revenue growth.

In the first nine months of 2021, adjusted EBITDA AL in Greece stood at EUR 944 million, which was up 5.0 % against the prior-year period. This is attributable to a revenue-related increase in the net margin. Indirect costs remained on a par with the prior-year period overall.

Hungary. Revenue in Hungary totaled EUR 1.3 billion as of September 30, 2021, a modest increase despite negative exchange rate effects. In organic terms, revenue was up 4.3 % against the prior-year level. The mobile business is the main driver here. Service revenues developed particularly positively. In addition, growth in the number of contract customers had positive effects on terminal equipment business. Fixed-network operations also increased slightly, with rising TV and broadband revenues, both driven by larger customer bases. Systems solutions also contributed to the increase in revenue. Our MagentaOne convergence products continued to perform well, with further customer additions and corresponding revenue.

Adjusted EBITDA AL stood at EUR 392 million, up 4.0 % year-on-year. In organic terms, adjusted EBITDA AL grew by 6.4 %. This growth is attributable in particular to higher revenues, which more than offset the rise in costs.

Poland. Our revenue in Poland decreased by 3.9 % in the first nine months of 2021 to EUR 1.0 billion. This decline was due to negative exchange rate effects. In organic terms, revenues decreased by just 1.2 %, with the mobile business recording slight losses as a result of reduced revenue from national roaming. In the fixed-network business, we increased the number of FTTH customers substantially, thereby creating the basis for further broadband growth.

Adjusted EBITDA AL stood at EUR 295 million as of September 30, 2021, up 1.7 % year-on-year. In organic terms, adjusted EBITDA AL increased by 4.6 %, mainly on the back of lower costs.

Czech Republic. In the first nine months of 2021, revenue in the Czech Republic stood at EUR 832 million, up 5.4 % on the prior-year level. In organic terms, revenue increased by 2.9 %. Mobile revenues were up on the prior-year level, mainly on the back of service revenues (excluding visitors) with higher margins, and higher terminal equipment revenues. Furthermore, the fixed-network business with its broadband and TV business also drove revenues once again. The number of broadband customers increased substantially compared with the prior-year period. We also generated additional revenue in the area of systems solutions.

Adjusted EBITDA AL increased by 7.4 % year-on-year to EUR 348 million in the first nine months of 2021. In organic terms, earnings grew by 5.1 % year-on-year, driven mainly by revenue.

Austria. Revenue generated in Austria totaled EUR 996 million in the first nine months of 2021. This increase of 3.8 % was mainly attributable to growth in service revenues with higher margins. The sale of mobile terminal equipment also made a positive contribution to revenue. Visitor revenues were still subject to a slightly negative effect. Revenue in the fixed-network business also increased. The broadband business generated substantial growth rates, due among other factors to a larger customer base and higher-value rate plans.

Adjusted EBITDA AL decreased as of September 30, 2021 by 1.3 % year-on-year to EUR 378 million. In organic terms, i.e., excluding the reassignment of the Austrian cell tower business to the Group Development operating segment, adjusted EBITDA AL increased substantially by 9.8 % due to the positive revenue effect. A key contribution comes from the realization of synergies and from the expansion of convergent product offerings.

EBIT

Our Europe operating segment recorded an increase in EBIT of EUR 368 million in the first nine months of 2021. In addition to an increase in EBITDA of EUR 161 million, depreciation, amortization and impairment losses fell by EUR 208 million, with depreciation and amortization down slightly on the prior-year period. This was mainly due to depreciation and amortization being suspended as a result of the sale of the fixed-network business in Romania, which was consummated on September 30, 2021. In the third quarter of the prior year, ad hoc impairment losses totaling EUR 160 million were recognized on non-current assets of the Romanian mobile business, which remains in the Group, in connection with the at that time planned sale of the Romanian fixed-network business. This impairment was the result of the discontinuance of the previously existing MVNO agreements.

Cash capex

As of September 30, 2021, the Europe operating segment reported cash capex of EUR 1.3 billion, down 7.5 % year-on-year. This decline is due to a decline in cash outflows for the acquisition of spectrum licenses, primarily in Hungary. We continue to invest in the provision of broadband and fiber-optic technology and in 5G as part of our integrated network strategy.