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

49Interim Group management report Expectations for the operating segments. Germany. In the next few years, we will focus our strategy on areas that form the basis of our successful German operations: −− First-class product and service quality for our customers −− LTE and fiber-optic roll-out – investment in broadband in Germany −− Entertain – innovative television and entertainment platform of the future −− Save for Service – we are making our Company fit for the future. We expect revenue in the Germany operating segment to decrease in 2011, mainly as a consequence of regulatory intervention and our focus on high-value business. We intend to counter this decrease in the coming years by continuing the broadband roll-out, developing our mobile data business further, investing in intelligent and innovative network structures, developing our product portfolio further, and continually improving our service. All these activities are intended to contribute to stabilizing revenue in 2012, too. We expect adjusted EBITDA on a like-for-like basis to remain almost stable year-on-year in 2011 and 2012; and we expect the EBITDA margin to develop positively. The fixed-network and broadband markets are almost saturated, however, and will be characterized by line losses. Nevertheless we will be able to maintain our market leadership. We intend to further establish our television service Entertain in the mass market, for example, by offering an extended range of 3D and HD programs. We are well prepared for intense competition in the German mobile communications market with our attractive calling plan structure. Our broad range of handsets includes innovative, high-class smartphones running all operating systems as well as the Apple iPhone with exclusive applications for our customers. The Federal Network Agency has decided to reduce mobile call termination rates by almost 50 percent to 3.38 eurocents per minute. In addition, the Agency has lowered fixed-network interconnection rates by around 16 percent from July 1, 2011. These decisions will have a negative impact both on our fixed- network revenue and on our mobile service revenues. We plan to invest more than EUR 10 billion in the Germany operating segment between 2010 and 2012, concentrating on our strategic growth and innovation areas, such as our fixed-network and mobile network infrastructures, to re- spond to our customers’ increasing need for bandwidth. We have been rolling out our LTE sites in rural areas since 2010. The roll-out of optical fiber will also play an ever increasing role in the next few years, following a number of successful pilot projects. Europe. In the Europe operating segment, we intend to continue to defend our strong market position and expand our market shares in some countries. In line with our strategy of connected life, we aim to win over our consumers and business customers with new, intelligent handsets and attractive rate plans. Moreover, we intend to improve our range of innovative data and content services for smartphones and laptops. In countries where we offer both fixed-network and mobile services, we will push our product portfolio by increasing the number of innovative bundled offers. IPTV and satellite TV will be important elements of this strategy. Intelligent ICT solutions will also become more important in the Europe operating segment as part of our “connected work” strategy. In order to strengthen our competitiveness, we will focus our capital expendi- ture on upgrading the network infrastructure. In mobile communications, we will concentrate our efforts on introducing LTE as the fourth-generation mobile technology in Austria and various other countries in our Europe segment. In Croatia, for example, selected customers have been given the opportunity to test the LTE network under real-life conditions. At the same time, capital ex- penditures are planned to build out the UMTS networks and modernize them with high-speed HSPA+-technology and to upgrade the GSM networks. More investments are to be made in the fixed network to increase broadband cover- age. Further investments are planned to improve customer service and make processes more efficient. The overall economic situation in the Europe operating segment remains tense. In Greece and Romania in particular, we expect the economic situation to remain critical this year. We expect a highly volatile future development in the overall macroeconomic environment in Greece in particular. On top of that, we continue to fight intense competition and the associated price erosion. Regula- tory measures and changes in legislation (e.g., as part of government austerity programs) could have a negative impact on revenue and earnings. In Hungary, for example, the special tax for large corporations in the trade, energy, and telecommunications sector passed in October 2010 will continue to reduce revenue and earnings and limit investment potential in the country this year, too. In addition, exchange rate effects could adversely affect earnings on a euro basis. On the other hand, cost-cutting measures and strategic initiatives, some of them part of the Save for Service program, should partially offset any nega- tive effects. We will continue to increase productivity by cutting costs, which will entail further headcount reductions in some of the countries in our seg- ment. We also intend to look into the possibility of more network cooperations with competitors in the countries of our Europe operating segment. Following Poland with PTK Centertel, we now also have an agreement with Telefónica O2 in the Czech Republic for shared use of the 3G network. Based on these general parameters, we expect revenue and adjusted EBITDA in the Europe operating segment – adjusted for the effect from the establish- ment of the Everything Everywhere joint venture in the United Kingdom – to decline year-on-year in 2011. In 2012, we expect the decline in revenue and adjusted EBITDA to slow compared with 2011.