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Deutsche Telekom AG - Interim Group report - January 1 to March 31, 2011

31Interim Group management report Total. Customer development in the Europe operating segment was influenced by three key factors in the first quarter of 2011. The still tense macroeconomic situation, especially in Greece, and the effects of the intensely contested markets in all European countries had a negative impact on customer develop- ment in Europe. In addition, with effect from January 1, 2011, we reclassified our business customer base in Hungary, dividing it between the Europe and Systems Solutions operating segments. As part of this process, the mobile and fixed-network lines of corporate customers in Hungary were reassigned to T-Systems. Moreover, we were not able to expand our customer base in Greece as planned. The long approval lead times of the Greek regulator prevented us from including the proposed bundles (combined packages of mobile and fixed-network products) in our product portfolio in time. For these reasons, the number of fixed-network lines in our Europe operating segment declined in the first quarter of 2011 compared with the end of 2010. In part, we offset this decline by an increase in broadband lines and in the innovative IPTV business. In the mobile business, the total number of customers decreased only slightly in spite of the negative effect of the customer reclassification in Hungary. Fixed network. Connected worlds: telephone, Internet and television. As of the end of the first quarter of 2011, the number of fixed-network lines stood at 11.1 million, 1.8 percent fewer than at the end of 2010. This is mainly due to the development in Greece and Hungary. In Greece, the economic situation and the resulting intense competitive pressure led to a decline in the number of customers. Additionally, the attitude of the Greek regulator led to delays or cancellations of the market launch of fixed-network bundles we had proposed, meaning we were unable to increase the number of broadband lines marketed as planned. In Hungary, the number of fixed-network lines decreased as a result of the reclassification of the business customer base. All other countries assigned to the segment saw stable line numbers in the fixed-network business. In line with our strategic orientation, we focus on fast and efficient tele­communication networks. For this reason, we are consistently building out our broadband network. As a result, the number of retail broad- band lines marketed has increased steadily each quarter. In the first quarter of 2011, the number of retail lines and of bundled and unbundled wholesale lines rose to a total of 4.7 million as compared with the end of 2010. All countries of our Europe operating segment contributed to this result. In addition, the IPTV business grew considerably, by 8.9 percent, as compared with the end of 2010, driven above all by Hungary and Greece, which recorded the highest, double- digit growth rates. This positive development shows that marketing broadband and television products is the right way forward. Mobile communications. At the heart of life everywhere: mobile telephony and data applications. We had a total of 59.3 million mobile customers in our Europe segment in the first quarter of this year. That corresponds to a slight decrease of 1.3 percent. This decrease is primarily attributable to Hungary, Greece and Romania. It was offset by a growth in total customer numbers in the Netherlands and Croatia and stable customer development in all other countries in the segment. Almost two thirds of customers lost in the first quarter of 2011 came from the prepay segment, which accounted for 56.0 percent of the total customer base. The largest share of these losses was attributable to Greece and Romania. In Greece, we deregistered 0.7 million inactive prepay customers, because they had to date not met the legal registration requirements. The number of prepay customers also declined in Romania, firstly because inactive customers were deregistered and secondly due to the difficult economic situation. The development of the high-value contract-customer business was sound in the first quarter of 2011 in spite of the significant decline in customer numbers as a result of reclassifying the business customer base in Hungary. Strong growth, for example in the Netherlands, Croatia, the Czech Republic, and Albania, partially offset the reclassification-driven decline in Hungary. Overall, we maintained the number of contract customers as a proportion of the total number of customers in the Europe operating segment at 44.0 percent, similar to the level as at the end of 2010. This positive development was the result of our focus on our strategic aim of winning and retaining high-value customers. The marketing of attractive rates, with inclusive minutes, flat rates, and new hardware offers in conjunction with a long-term contract, helped us achieve this aim. As part of our connected life and work strategy, we successfully targeted new groups of customers with innovative data and content services for the mobile Internet and innovative mobile devices. Smartphones played a central role, accounting for a significantly increased proportion of handsets sold in the Europe operating segment.