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Deutsche Telekom AG - Interim Group report - January 1 to September 30, 2011

34 In the first nine months of 2011, adjusted EBITDA was down 14.8 percent year- on-year to EUR 432 million. This result was driven in particular by the introduc- tion at the end of 2010 of a new special tax which affected revenue. In addition, the reclassification of the business customer base had a negative effect on earnings. Adjusted for these two factors and the slightly positive exchange rate effects from the translation of Hungarian forints into euros, EBITDA declined slightly by 1.1 percent. Savings in overheads and in customer acquisition costs cushioned the negative effects of the decline in revenue from operations. Poland. In Poland, we recorded a slight decrease in revenue of 2.4 percent to EUR 1.3 billion in the first nine months of 2011, driven by lower service revenues as a result of intense competition. Substantial increases in data revenue had an offsetting effect. We increased equipment revenue by successfully marketing smartphones, which had a positive impact on total revenue. Adjusted EBITDA decreased by 5.6 percent to EUR 476 million, mainly due to the costs of rebranding Era to T-Mobile in June 2011. As a result of this initiative, not only did marketing expenditure rise substantially, selling and customer service expenses also increased. We also invested in targeted marketing aimed at high-value customers, mainly increasing customer retention costs year-on- year. Positive one-time factors partially compensated for the negative effects of the higher costs. Netherlands. In the Netherlands, revenue declined by 4.3 percent year-on- year to EUR 1.3 billion in the first nine months of 2011, mainly due to repeated reductions in termination rates by the Dutch regulatory authority. This resulted in lower service revenues. It was partially possible to offset the negative revenue effects of the termination rates, thanks to substantially increased data revenues. Higher proceeds from the sale of terminal devices, driven by very high customer demand for smartphones, also had a positive effect on revenue. Fixed-network business remained stable. Adjusted EBITDA in the Netherlands decreased by 2.4 percent to EUR 331million as a result of the year-on-year decline in revenue. By targeting specific customer groups, we made savings in customer acquisition and retention costs in the Dutch mobile market, which has a high degree of smartphone penetration. Savings in overheads also helped to stabilize EBITDA and these measures even produced a slight year-on-year improvement in our adjusted EBITDA margin. EBIT. In our Europe operating segment, EBIT declined year-on-year to EUR 1.4 billion in the first nine months of 2011. This 5.6-percent decrease was primarily attrib- utable to the decline in EBITDA. By contrast, lower depreciation, amortization and impairment losses at segment level, especially in Greece, had a positive effect on EBIT, which partially offset the negative effects of the decline in adjusted EBITDA. Cash capex. In the first nine months of 2011, our Europe operating segment reported total cash capex of EUR 1.3 billion. This corresponds to a year-on-year decline of 8.0 percent, most of which is attributable to the deconsolidation of T-Mobile UK. In addition, the difficult market situation, decisions by regulatory authorities and charges such as the special tax in Hungary, resulted in restrained invest- ment activity in most countries in our segment. In some countries, however, cash capex increased: in Slovakia, for example, due to the extension of the mobile communications license and, in Albania, due to a new UMTS license. Employees. In the first nine months of 2011, we had an average headcount of 60,701 in the Europe operating segment. Headcount decreased by 8.1 percent year-on-year, largely due to the deconsolidation of T-Mobile UK. Downsizing programs as part of efficiency enhancement measures in almost all countries also reduced the average headcount.