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Executives

Stephan Eger – Head, IR

René Obermann – CEO

Tim Höttges – CFO

Niek Jan van Damme – CEO, German Operations

Analysts

Hannes Wittig – JPMorgan

Robin Bienenstock – Sanford Bernstein

Simon Weeden – Citigroup

Justin Funnell – Credit Suisse

Matthew Bloxham – Deutsche Bank

Ulrich Rathe – Jefferies

Lawrence Sugarman – RBS

Hugh McCaffrey – Goldman Sachs

Jonathan Dann – Barclays

Thomas Friedrich – UniCredit

Mathieu Robilliard – BNP Paribas

Emmet Kelly – Merrill Lynch

Nick Delfas – Morgan Stanley

Deutsche Telekom AG ADS (OTCQX:DTEGY) Q3 2011 Earnings Call November 10, 2011 8:00 AM ET

Unidentified Company Representative

This presentation contains forward-looking statements that reflect the current views of Deutsche Telekom management with respect to future events. These forward-looking statements include statements with regard to the expected development of revenue, earnings, profits from operations, depreciation and amortization, cash flows, and personnel related measures. You should consider them with caution.

Such statements are subject to risks and uncertainties, most of which are difficult to predict and are generally beyond Deutsche Telekom’s control. Among the factors that might influence our ability to achieve our objectives are the progress of our workforce reduction initiative and other cost saving measures and the impact of other significant strategic, labor, or business initiatives, including acquisitions, dispositions, and business combinations, and our network upgrade and expansion initiatives.

In addition, stronger than expected competition, technological change, legal proceedings, and regulatory developments, among other factors, may have a material adverse effect on our cost and revenue development. Further, the economic downturn in our markets and changes in interest and currency exchange rates may also have an impact on our business development and the availability of financing on favorable conditions.

Changes to our expectations concerning future cash flows may lead to impairment write-downs of assets carried at historical cost, which may materially affect our results at the Group and operating segment levels. If these or other risks and uncertainties materialize or if the assumptions underlying any of these statements prove incorrect, our actual performance may materially differ from the performance expressed or implied by forward-looking statements.

We can offer no assurance that our estimates or expectations will be achieved. Without prejudice to existing obligations under capital market law, we do not assume any obligation to update forward-looking statements to take new information or future events into account or otherwise.

In addition to figures prepared in accordance with IFRS, Deutsche Telekom also presents non-GAAP financial performance measures, including, among others, EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, adjusted EBIT, adjusted net income, free cash flow, gross debt, and net debt. These non-GAAP measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Non-GAAP financial performance measures are not subject to IFRS or any other Generally Accepted Accounting Principles. Other companies may define these terms in different ways.

Operator

Good afternoon and welcome to Deutsche Telekom’s conference call. On our customer’s request, this conference call will be recorded. Now please listen to the statements of René Obermann and Timotheus Höttges. Afterwards, you are welcome to ask your questions. Niek Jan van Damme, our CEO for Germany, is also joining in the Q&A session and is looking forward to your questions.

May I now hand you over to Mr. Stephan Eger?

Stephan Eger

Good afternoon and good morning to the U.S. Welcome to our third quarter results 2011. I’ve got with me René Obermann, our CEO; Tim Höttges, our CFO; and also Niek Jan van Damme, our CEO for the German operations for the Q&A session.

Without any further ado, I will hand over to René, our CEO, for the introductory statements.

René Obermann

Thanks, Stephan, and good afternoon or respectively good morning to all of you.

Overall, we had a good solid quarter, and we have already achieved three-quarters of our full-year EBITDA guidance. Group revenue from continuing operations amounted to €11 billion. That is a decrease of 4%. But adjusted EBITDA from continuing operations only was reduced by 2.7% to €3.9 billion. That’s an under-proportionate decrease with revenue. With free cash flow of €1.7 billion in Q3 and €4.5 billion in the first nine months, we are well on track to achieve our full-year targets. Recall, we already told you last quarter that we expect the strongest quarterly contribution to free cash flow to come in Q4.

Adjusted net income was very solid at €1.3 billion in the third quarter, up almost 50% from previous year. With regard to the cost efficiency program, Save for Service, we achieved a growth contribution of €1.5 billion in the first nine months of 2011. The main highlights for the divisions were as follows. In Germany with 41.5%; that was the highest adjusted EBITDA margin ever since we integrated fixed and mobile due to very good discipline on the OpEx side, adjusted reduction of €0.3 billion or almost 8% in the third quarter alone. So the guys are doing a very good job with regards to cost management.

Our newly launched Entertain via Satellite had a great start, with already 50,000 subscriptions sold in the first month, in September alone. And I can tell you that this trend is still impacted – still goes up. The trouble currently is we’re not having enough devices, but we’re still selling it very well.

Our measures taken to improve competitiveness in wireless is also showing good results, with 466,000 contract customer net adds in that very quarter. A good part of this comes through service providers, but I’ll refer to that in more detail later.

Contrary to the expectation of some, mobile service revenue trends did not weaken further in Q3. To the contrary, the year-on-year percentage decline in mobile service revenues improved slightly compared to the second quarter. And the underlying development, ex-mobile termination rate cuts, remained stable. We also continued to see no signs of meaningful SMS cannibalization via the respective apps. And line losses in fixed improved by almost 40% year on year. That’s also for us very important.

In the Europe division, outside of Germany the adjusted EBITDA margin improved further to close to 36%. At the country level, trends in this division were mixed. First for the good part, okay, revenue and EBITDA trends continued to improve in Greece despite the very difficult macroeconomic environment. Positively also, in the Netherlands the adjusted EBITDA increased by almost one-quarter.

On the other side to the down side, dissatisfying results in the Czech Republic where the adjusted EBITDA decreased by 19%, heavily impacted by regulation and one-off effects partially related to the bankruptcy of one service provider and also to the strong MTR (Mobile Termination Rate) effects in the Czech Republic. Regulators play still a big role. Adjusted for these effects, EBITDA declined by 7.6% due to a smartphone push aimed at defending the customer base.

Coming to the U.S., there together with our partner, AT&T, we are still working hard to make the deal a success. We continue to believe that the deal is not only the best solution for AT&T and us, but also for the market in the U.S., for the consumer in the U.S. by directly addressing in particular the data capacity constraints in this very market.

Operationally, the U.S. delivered a 9.2% year-on-year increase in adjusted EBITDA with a margin of almost 28% now, up three percentage points. That is a strong achievement of the U.S. management team under the leadership of Philipp Humm in the face of uncertainty and in light of the very strong competition there. These guys are doing a fine job.

This improvement was due to the ongoing cost cutting, with a net cost reduction of €0.8 billion in the first nine months, as well as aggressive campaigns and new value tariffs where the customer pays the full price for the handset in return for lower monthly charges. Accordingly, the SAC per contract gross add was down 20% year on year in Q3. Despite lower SACs, our net adds performance improved both in contract and in prepaid quarter over quarter. However, let’s be realistic in terms of net adds.

We expect a difficult fourth quarter due to the iPhone effect with the competitor launches of the iPhone 4S in October. Of course, we’re doing everything to mitigate that effect. We have a good range of 4G devices and so forth, but still we should be realistic and let’s be careful with regard to the fourth quarter. However, given our solid Q3 results, I’m happy to confirm our full-year guidance for 2011.

Let’s take a closer look at the financials, where the revenue from continuing operations declined by 4%. Compared to the second quarter, the revenue trend improved in Systems Solutions, while trends in Germany and Europe were slightly weaker. However, the weaker trend in Germany was due only to weaker wholesale and weaker equipment revenue trends. Mobile service revenue trends actually improved. In Europe, trends compared favorably to consensus expectations.

In terms of adjusted EBITDA from continuing operations, trends at group level were almost unchanged from last year. There were clear improvements in trends at the divisional level, especially in the Europe division, while Germany continued to generate a strong EBITDA. In the discontinued operations; that is the U.S., revenue and adjusted EBITDA trends improved compared to the second quarter, with adjusted EBITDA in euros being almost stable year on year and actually increasing in dollar terms. Actually, it increased in dollar terms. I think that’s very remarkable.

When looking at the results from continuing and discontinued operations; that is including the U.S., a strong improvement in adjusted EBITDA trends is particularly noticeable. This reflects the improved EBITDA in the U.S. Encouragingly, we also achieved a strong improvement in the bottom line results. Adjusted net profit improved by 49%, driven by the discontinued operations; that is the U.S., and a better financial result.

Free cash flow was strong at €1.7 billion. It declined from previous year due to higher cash CapEx. We invested more in the third quarter. And we also had somewhat higher net interest payments, and these were the two key reasons for the cash flow slight decline.

Let’s turn to the guidance. As I said we reiterate the 2011 guidance. After nine months, we have already achieved 76% of the adjusted EBITDA guidance excluding the U.S. and around 75% including the U.S., translating the U.S. EBITDA at the $1.33 guidance exchange rate, which was the average exchange rate which we had in 2010 on which our guidance is based.

For the discontinued operation; that is the U.S., we expect a stable EBITDA over full year 2010 – I’m sorry over full year 2011, I hope; 2010 is long behind us, of around €5.5 billion or around €4.2 billion based on the average exchange rate in 2010. Now here it’s important. Comparing it to the average exchange rate in 2010, this year we expect $5.5 billion or around €4.2 billion. In the first nine months, we lost €163 million due to currency translation. And as you see in the overall results, we managed that quite well. For the continuing operations, the adjusted EBITDA guidance remains around €14.9 billion. The free cash flow guidance is unchanged as well as at stable to slightly growing over the full-year 2010 amount of €6.5 billion. Sorry for the confusion.

Next slide, turning to the U.S., overall of course the results were mixed because on the one hand service revenue trends weakened somewhat further. It reflects the ongoing loss of high ARPU contract customers and also to a large extent the tariff optimization by customers. However, service revenue trends under U.S. GAAP stabilized when compared to the second quarter due to new fees which are not included in the IFRS service revenues.

Also as already mentioned, customer trends improved with sequentially lower contract customer losses and strong prepaid net adds. This reflects the success of the new value tariffs, which were launched at the end of July, and it reflects the ongoing success of the monthly 4G prepaid tariffs. The value tariffs were also instrumental in achieving a better adjusted EBITDA result, with absolute adjusted EBITDA up 9.2% and the margin reaching 27.8%, which is up three percentage points year on year.

In addition to the value tariffs, this strong result also reflects progress on cost cutting. Adjusted EBITDA also benefited from a one-timer, a $29 million benefit from the RadioShack settlement. Excluding this one-timer, the margin would have been 0.5% lower, still strong. Blended data ARPU grew to $14 while blended ARPU decreased by $1 year on year, primarily due to the loss of contract customers and the mix shift toward prepaid.

Let me turn over now to Tim for a more detailed look at the continuing operations and the group financials.

Tim Höttges

Yes, thank you René. Hello, everybody.

I am pleased with the financials of the German division, even though the headline revenue trend weakened compared to the previous quarter. However, this weakening was due only due to lower equipment revenues because last year we launched the iPhone 4 on June 24 with full impact in Q3. And this year the iPhone 4S was only launched in October. In addition, we had weaker wholesale revenue trends. Besides the iPhone effect, equipment revenues were also lower due to the focus on SIM-only promotional tariffs and service providers.

Despite the revenue decline of more than €300 million, adjusted EBITDA declined by just €33 million or 1.3%. This was due to strong adjusted OpEx cuts, cuts of more than €300 million, of which two-thirds were structural OpEx savings, with the remainder coming from regulatory price cuts, including the MTR cuts and the discontinuation of the profitless mobile prepaid card business. This resulted in a significant expansion of the adjusted EBITDA margin to 41.5%, up 1.6 percentage points year on year, our best margin ever since the integration of fixed and mobile, even though fixed network revenues declined at a slightly steeper rate than in Q2. This was primarily due to weaker wholesale revenue trends, as already mentioned.

Wholesale revenues declined by 8.6% year on year compared to a decline of 3.5% in the second quarter. This was driven by price and quantity and the new wholesale regulation of interconnection tariffs, which came into effect on July 1. In addition, wholesale revenues this year were impacted by structural changes, such as more direct interconnection among competitor networks and thus less termination volumes on our network. The retirement of the old less than two-megabit platform and the forced shift to lower price but more efficient Ethernet also contributed to the decline.

The number of double and triple-play customers grew by 3% year on year, the same growth rate as in Q2. As expected, our broadband net add share was seasonally lower at 22%, but actually slightly higher than in the third quarters of the two previous years.

In mobile, service revenues, including the MTR cuts, declined by 3.1%, a slight improvement over the trend in Q2. Excluding the MTR cuts, mobile service revenues were essentially stable in both quarters. Mobile data revenues continued to grow at a healthy rate of 26%. The slight slowdown compared to Q2 was to do with the already mentioned iPhone effect.

Looking at the German fixed broadband market as a whole, we successfully defended our market share in excess of 45%, despite the already mentioned lower net add share in Q3. Already, more than half of our domestic fixed customer base are broadband customers. Line losses continued to trend to a significantly lower level than last year. In the third quarter, line losses were just 323,000, an improvement of almost 40% year on year.

Our IPTV and VDSL promotions and the introduction of Entertain via Satellite resulted in a sequential acceleration of IPTV take-up in Q3, with 74,000 additional connections, reaching 1.4 million Entertain connections in total. VDSL net adds also accelerated to 66,000 in Q3.

Turning to mobile, our estimated mobile service revenue share remained stable in Q3. Our service revenues were supported by the continued strong ramp up of mobile data revenues, which grew by €85 million year on year or 26% to €410 million. Mobile contract net adds were very strong with 466,000, supported by our renewed focus on the service provider and the value segment.

The quality of our customer base is reflected by a stable low contract churn of 1.1%, which remains best in class.

In terms of handsets sold, 64% were smartphones in Q3, which is 11 percentage points higher than last year. IPhone sales, though still a respectable 221,000 in Q3, were clearly impacted by the pending iPhone 4S launch in October. Since the launch of the 4S, we have seen very strong iPhone sales, which reached close to 90,000 iPhones already within the first two weeks.

To summarize, our initiatives taken in mobile and fixed have already demonstrated strong achievements. Our Special Call & Surf Mobil tariff promotion was a striking success, capturing 31% our contract gross adds in consumers in the third quarter versus 18% in the quarter before.

In addition, we have also successfully executed on our promised initiatives geared toward addressing new customer segments via service providers. Consequently, contract net adds in Q3 amounted to 466,000 compared to just 25,000 net adds in the quarter before. The contribution from service providers to contract net adds improved from minus 59,000 in Q3 last year to plus 371,000 this quarter. In fixed, since September 1, we have already sold 50,000 Entertain via Satellite subscriptions in the first month only. This number is expected to double by year end.

Turning now to Europe, the growth in key market KPIs remained strong despite a slight slowdown compared to the previous quarter. Of note, the smartphone share in percent of dispatched devices is now at 50%. Economic trends across the Europe segment are quite diverse, ranging from robust in Poland to moderate in Slovakia, Czech Republic, and the Netherlands; difficult Hungary, Romania, and Croatia; and still weak in Greece.

Turning to our operations in integrated markets, both revenue and adjusted EBITDA trends in Greece improved in the third quarter when compared to Q1 and Q2. The operational performance in mobile was particularly impressive, with 42,000 contracts and 98,000 prepaid net adds. This reflects Cosmote’s strong position in the Greek wireless market. And by the way, we outperformed our competitors.

OTE also recently agreed with its unions on a reduction in the work week with corresponding wage reductions. This agreement is expected to have a positive EBITDA effect of approximately €160 million over the next three years.

In Croatia, trends were similar to the previous quarter, with a very impressive margin of 51%. Fixed broadband trends remained strong, with IPTV growing by almost 20% to 325,000. This trend is being supported by the acquisition of football rights for broadcasting the First Croatian Football League.

Looking at the Magyar Telekom Group in Hungary, adjusted for the special tax and the shift of business customers to the T-Systems segment, the underlying revenue trends were in line with the prior quarter; whereas adjusted EBITDA trends were weaker, partially due to higher mobile retention costs.

Slovakia remains a difficult market, partially due to very tough competition in mobile. Despite ongoing revenue pressures, Slovak Telekom was able to maintain a stable margin due to the implementation of their One Company approach. The number of employees decreased by 600 or 12% year on year.

Turning to our mobile-centric operations, starting with Poland, results in euros were impacted by regulation and foreign exchange. Adjusted for both effects, underlying revenues declined by just 1% while EBITDA grew by 5%. The rebranding since June has gone extremely well, with churn below expectation and strong brand awareness. T-Mobile outperformed Orange in terms of contract net adds for the first time in a year. In September, over 300 employees were transferred to the newly established joint venture for our network sharing with Orange.

In the Netherlands, underlying service revenue growth excluding regulation remained strong at 3.8% positive. Underlying total revenue growth was weaker due to the iPhone effect. That is the introduction of the iPhone 4 on June 30 with full impact in Q3 last year but the iPhone 4S only coming in Q4 this year. Underlying adjusted EBITDA also benefited from this iPhone effect and grew by 33% year on year.

Turning to the Czech Republic, the EBITDA development was already highlighted by René. Let me just add that revenues were also impacted by regulation, with underlying organic revenues still down 4.7%.

In Austria, the underlying revenue ex-regulation amounted to a minus 3.5%, while underlying EBITDA was stronger with a growth rate of 1.4%. As the last player in the Austrian market, T-Mobile has introduced an annual service fee.

In this context, let me say a few words about our UK joint venture, Everything Everywhere, which already reported results on October 26. Q3 was a period of good progress for Everything Everywhere. The UK team led by the new CEO, Olaf Swantee, is delivering on our strategic plan laid out in September 2010 and remains ahead of plan with regards to the synergies. In his short time as CEO, Olaf already reduced the leadership team from 26 to 10 and streamlined the senior management team across the business by 25%.

In terms of metrics, Everything Everywhere generated service revenue growth of 3.8% ex-regulation, good postpaid net adds of 185,000, while maintaining an industry leading postpaid churn of only 1.1%. Smartphones are now 65% of the postpaid base, up 20 percentage points year on year, with data excluding messaging accounting for 23% of the total ARPU, up from 60% one year ago. And all this growth was not sacrificing the margin. The margin is currently trending around 20%.

In Systems Solutions, we saw slightly better trends than in Q2. In particular, revenue growth accelerated to 2.3%. However, revenue growth was still partially impacted by renegotiations and quality assurance at some big deals. Order entry was quite strong, up 18.5%, due to deals such as Daimler.

In terms of margin, adjusted EBITDA and adjusted EBIT margins were below the previous year, which reflects the ongoing impact of higher OpEx related to big deal execution and quality assurance.

Notwithstanding, we see a positive trend over the first three quarters in 2011. We reduced CapEx by €65 million in order to protect cash flow. In terms of Save for Service, the assistance achieved an impressive contribution of €0.5 billion in the first nine months, almost double the contribution in the first half of 2011.

Turning to the key financial group metrics, free cash flow decreased slightly to €1.7 billion due to seasonally higher net interest payments and higher cash CapEx. CapEx increased in particular due to higher CapEx in Germany, which resulted from higher CapEx in fiber, VDSL, and copper rollout, in new housing estate areas in particular. We are confident of reaching our full-year free cash flow guidance. We expect the reversal of CapEx trends in Q4 which will support free cash flow generation.

Save for Service results were strong, with a group contribution of €1.5 billion in the first nine months of 2012, with strong contributions from all divisions. The total run rate of Save for Service program is now at €3.9 billion compared to the €4.2 billion target for our 2010 to 2012 program. We will accomplish, by the way, the targets of this program earlier than expected.

In terms of the cost base, we achieved a net cost reduction of €2.5 billion or 7.4%, aided also by the MTR reductions in multiple markets.

Our balance sheet ratios remain solid, with key ratios either unchanged or slightly improved. In particular, the equity ratio improved to 32.7%. Net debt was stable despite the strong free cash flow. The latter was offset in particular by the €400 million payment for the 10% OTE put option, €100 million higher dividends for minority shareholders at OTE and Slovak Telekom, and adverse foreign exchange effects.

Before René, Niek Jan, and myself expecting your questions, let me summarize: first, a good quarter with strong exposure to the healthiest market in Europe; second, strong business in Germany with record margins despite high contract growth; thirdly, well covered dividend commitment by low free cash flow payout ratio, good free cash flow contribution already until now, and improved net income; fourthly, U.S. despite deal uncertainty with better market performance and a good margin; and fifth, we stay committed to improve returns with Save for Service, return on capital employed focus, and no destructive M&A.

Stephan Eger

Ladies and gentlemen, I think we are now ready for the Q&A session. May I ask the operator to start? I think the first contributor will be Hannes Wittig from JPMorgan, if I see correctly.

Question-and-Answer Session

Operator

That’s correct. (Operator Instructions) Mr. Hannes Wittig from JPMorgan, may we have your question, please?

Hannes Wittig – JPMorgan

Yes, good afternoon. Thank you very much. I have two questions. I guess that’s the limit. The first one is related to the European performance. Generally, there should be at least the hope that things are trending better into next year. So I wonder what, from your point of view, would support such as a view in terms of the current environment that you are seeing in regard of regulation, macroeconomic backdrop, and competition. Is there any realistic expectation that your performance across the European footprint will improve next year?

The second question is in the third quarter, of course, the iPhone delay somewhat benefited your cost base. Can you maybe quantify the EBITDA impact this would have had on your year-on-year comparison, please? Thank you.

René Obermann

Yes, Hannes. This is René speaking. I don’t want to pour water into the wine, but I think we should be realistic and a little cautious with regards to the economic outlook in our European footprint. We all read it every day in the press now. Today there are further warnings from, I think, Mr. Rehn or whoever today contributed to the news.

We are cautious. And whilst we still have sound economies in Poland and somewhat stable economies currently in Slovakia with a small growth, a more difficult situation in Hungary and Romania and Croatia, Greece still being very weak, we should continue to be very hard on the cost side. We should continue to be, we must continue to be highly cost disciplined, continue our program, our Save for Service program.

We will save money at every level, beginning at the headquarters, where we have an ambitious program to reduce our costs going into the operations, everywhere where it’s not customer affected or where we don’t lose any market share or market performance. We will cut back as much as we can on the cost side in order to mitigate these economic uncertainties, which we are currently seeing and which you guys are currently seeing, I’m sure. But you also had a question on the iPhone delay?

Hannes Wittig – JPMorgan

Yes.

René Obermann

Tim, are you ready to answer that?

Tim Höttges

With regard to the iPhone, Hannes, I think it is very difficult to quantify exactly. Let’s say the seasonality of the iPhone 4 and the iPhone 4S, definitely the case that we have sold less iPhones across our European footprint in the third quarter. We will see now an acceleration of the 4S in the fourth quarter. So this is just quarterly seasonality, but we cannot quantify that. But nevertheless, I’d like to state that even without the iPhone 4S, in Germany we had a very strong contract net add growth with 466,000. And by the way, even all this cost which came with that provisioning and the SACs, they were digested in the good margins of the German business.

Operator

Ms. Robin Bienenstock from Sanford Bernstein, may we have your question, please?

Robin Bienenstock – Sanford Bernstein

Yes, two questions if I may. The first question is Neelie Kroes has recently talked about how copper returns should fall overall in Europe. And I’m wondering whether you think the EU has the same right to intervene in wireline as it does in wireless, where there are arguably fewer reasons for them to get involved, and how much really you think that is a threat given the relatively high unbundling fees in German.

And the second question is Vodafone gave us some information about their LTE uptake. I’m wondering if you can give us some information about your LTE uptake in Germany, and to what extent the ARPU is accretive or the same as the previous ARPUs you were getting from those customers? Thanks.

René Obermann

All right, Robin. We should see that the comments being made, we’re not sure they are reflecting the full context. Hence, maybe a couple of Mrs. Kroes’s remarks were taken out of context. As far as the industry reaction to it was, I can only quote colleagues such as Franco Bernabè, who said this is Kafkaesque. And a couple of other colleagues are arguing to the same direction. Clearly, what we need is some stimulating investments and not threatening to reduce profit pools even further because that would take away the willingness of the industry to keep or to invest even more into the fiber infrastructure. So I don’t actually think that it makes sense and I don’t think this will happen.

This has to be calculated on a local or on the country level anyway. Whether the costs for the local group are on the right level or not, I can only give you my personal view. I don’t expect any material push back here because I think the regulator sees the difficulties overall and understands the need for having a solid business basis to make those investments into the fiber. But I have no certainty, of course. We all are living with that uncertainty now for years. But Germany so far I think was fairly modest comparing it to other European countries. And I hope they will continue to be reasonable in their policy and in their approach.

And I think on the LTE uptake, principally our strategy is slightly different because we have DSL, which Vodafone does not push that much, but I would like to refer to Niek Jan to give you bit more background.

Niek Jan van Damme

Thank you René. Robin, on the install base we have at the end of Q3 26,000, which is 16,000 net adds in Q3, an increase of 160%, so it is strong growth. It’s a good thing also that there is hardly any cannibalization, which was taken into account in the business case. We see a lot of new customers not replacing their fixed line connection, as we had partly expected. We started selling the product a little bit more careful with regard to the speeds. We have increased our speed to 7.2 megabits as of 1st of September and increased volume included in the plan to 10 gigabits before we do a speed step-down.

We are massively investing in LTE. We started a little bit later than our competitors. At the moment, we have 775 sites out there. Also on 1800 MHz in Cologne we have started. And the effects on that are, of course, partly what you see reflected in CapEx where we heavily invest, but also in the results of different drive tests we have had recently in Germany. Very important for the German market, both the chip online test and the connect drive test, we have one with significant difference versus our competitors and especially versus Vodafone, which is after a few years and which we lost that shows all the efforts we are doing in here clearly recognized by our customers and which will especially have an impact in the business segment as well.

The ARPU finally, we’re selling the product for €39.95. The ARPU in that is in the range of the higher mobile tariffs, of course, and basically it doesn’t compare to fixed line. The revenue is still included in our fixed line revenue and not shown in mobile. That will be as of next quarter.

Operator

Mr. Simon Weeden from Citigroup, may we have your question, please?

Simon Weeden – Citigroup

Yes, thank you very much. I’d like to ask about the U.S. particularly, and whether or not you could elaborate a little bit on the impact of the value plan offerings. I don’t know if you can give us an indication of roughly what proportion of gross adds those made up, but I’d be particularly keen to hear about the extent to which switching to value plans has affected the SAC because I saw the SAC was down quite a bit year over year compared to other factors that may be affecting it. Thanks.

René Obermann

First of all, Simon, the new plans have been well accepted and have accounted for approximately 50% of postpaid gross adds versus the classic plans since launch. And equipment subsides for new customers did actually decrease from €260 million roughly in Q2 to €150 million in Q3, which directly affected positively the EBITDA. So I guess the answer is share of value is roughly 50:50 versus the classic plans, to your first point.

And still many or if not most customers do buy handsets. I don’t have the exact percentage, I’m afraid, but they do buy handsets, but they use or many of them use what we call EIP, which is the Equipment Installment Plan. Now the good thing about that plan is it is also to be paid monthly, and it’s strategically I think something we should consider in other markets too because it could be a means to change the paradigm that with a tariff that the tariff has to be very expensive and that with these tariffs devices have been subsidized. I actually like the model because customers start to realize there is value on the tariff side, but there is also the equipment and the terminals have a value. And if they can choose to pay it on a monthly basis, it really makes a lot of sense. And most customers do use these EIP plans.

Operator

Mr. Justin Funnell from Credit Suisse, may we have your question, please?

Justin Funnell – Credit Suisse

Thank you, yes. On the cost cutting end, Germany is very impressive. I guess you have five or six of Save for Service. And yet you’ve cut, I believe, €800 million of costs on a gross basis so far this year. So you’re running north of €1 billion, which is what you were achieving a few years ago over a higher cost base. I’m just wondering if you could describe a bit more how you’re doing that; also the business transformation that you’re achieving these days and to what degree it can carry on.

And secondly, just a small point; in the interim report you mentioned the “sale of quotas of SIM cards to resellers.” Could you just explain that wording? Maybe it’s just a translation thing, but just understand a bit more how your deal with the resellers works. So obviously, it was a major contribution in Q3.

Tim Höttges

Let me start with the question on our Save for Service program. We have promised a €1.5 billion cost saving in a three years’ period of time, 2010 to 2012. We are fully in line to meet that expectation and promise we made. For 2011, we expect at least a stable Save for Service contribution of €0.5 billion, of which €270 million was already achieved this year to date. Savings mainly come from fixed-line operations, which is a huge part of the cost, of course, but also from IT infrastructure and from overhead.

On top of that, I can state that basically no point in the organization is left untouched. To give you an example, in our sales organization, we are in the midst of talks also to reduce overhead in that organization to free up funds for investments in the market because that’s always the strategy behind our savings plan. It’s not just straight on saving. What we can reinvest in the market, we will reinvest in the market. But we are fully in line to meet that €1.5 billion for Germany until the end of 2012.

René Obermann

Justin, I’d like to spend a sentence on Save for Service initiatives. I mentioned in my speech that the 2010 to 2012 program is close to getting accomplished. Nevertheless, that is not the end of the story. The opposite is the case. We are working all business in all segments on new plans to come, and I’d like to give you an update. We have done benchmarks with A.T. Kearney and Oliver Wyman in all areas. And you know that we have still a gap to close with regards to the best-in-class players, and that is something which is driving our ambitions here. We have done much more than other competitors. We know that, but there is still a way to go. And therefore, there are new initiatives coming.

I’d like to mention one which is the Shape Headquarters initiative. We are currently in the planning and correction phase with every single headquarter department to define measures to reduce our central functions by 40% in the next four years, which means an additional 1,600 people to be laid off; and to streamline the way how the central headquarter is working.

On top of that, we have a big program which is called Erika, which is the continued centralization of our IT functions. Even here, we want to reduce the complexity, increase efficiencies, and this is something to be communicated next year in more detail. But this is as well reducing one of the biggest cost disadvantages compared to our peers, and we will centralize our IT function within the organization. And there is much more to come as well from the European organization. I mentioned the Greek initiatives, and the first steps here, the €160 million from the work time reduction and salary impact on that one. And I think that is something we’re going to follow up next year.

Stephan Eger

And Justin, with respect to the SIM card growth, I think you’re referring to page 26 of our interim report. We think it’s a bit lost in translation because all we wanted to say with that, in the German version at least, is that the contingents increased; i.e., the amount of SIM cards which go to the resellers. But to clarify it even in more detail, we will get back to you after the call.

Operator

Mr. Matthew Bloxham from Deutsche Bank, may we have your question, please?

Matthew Bloxham – Deutsche Bank

Hi, just a couple of quick follow-ups on the CapEx. I think you might have covered this anyway. But what was the main driver or drivers of the CapEx increase. In Germany, it sounds like LC was a big chunk of that. But I was just wondering if there was anything else. For example, maybe you can give us cell coverage and maybe you can give us an update on how much video cell coverage you’ve got today. Thanks.

Niek Jan van Damme

Let me try to answer this question. CapEx in Q3 was about €1 billion, €979 million to be precise. There was indeed a huge investment in the network, of course, an increase in fiber, €53 million year on year, which is mainly driven from the business segment. It’s high-speed connections and there was a lot of backhaul rollout we’ve done. We have further invested in our ADSL, €37 million more than last year, which increased the coverage to 33.1%. That’s 1.7% points up. We are now at 11.9 million homes where we can provide ADSL, so you see we continue to invest in there as well.

As Tim said in the opening remarks, €22 million also still copper rollout in new housing estate areas; there’s a lot of activity in that area in Germany. Rollout of 4G but especially on 3G coverage increased to 85%, which is a six percent point increase versus year ago, and an especially important upgrade to HSPA+ with 42-megabit per second which we will provide from all our 3G cell sites by the end of the year. We will then cover also 85% of those sites with fiber backhaul because that’s the only way to get that quality across 85% of the German population and 100% of the 3G sites, I’m sorry for that.

In broadband, in rural areas we have been increasing coverage as well and also in IPTV. LTE coverage is now at 9%. That’s a three percent point increase in this quarter with what I already said, 775 cell sites. IPTV coverage is now at almost 60%, which is seven percent points up and 2 million homes up versus year ago. And we have increased under a very successful cooperation (inaudible) We call that (inaudible) Deutschland, more broadband for Germany, 880 different corporations until year to date with an increase of 50,000 ADSL homes. And those are the key drivers for the CapEx.

On coverage, I’m doing a favor from my colleagues, 40 more LTE sites in Germany. I’m sorry. The LTE coverage is at the moment 9% of German homes. ADSL coverage is 33.1%. I gave that information but once more specifically.

Operator

Mr. Ulrich Rathe from Jefferies, may we have your question, please?

Ulrich Rathe – Jefferies

Thank you very much, two questions please. One is regarding regulation. Could you give us some sense what impacts, if any, do you think the new telecom law will have on the general thinking? I understand there are a lot of details to be clarified how this is going to be implemented. But what do you think it might change in the landscape; and related to that whether you see the potential change of the head of the regulatory agency also as a potential indicator of really a different approach or sea change in the assets use of regulation in Germany?

The second question is just a clarification on net service provider uptake in Germany. To what extent is service provider uptake and externality, and to what extent do you actually control that and how do you actually control that because there is obviously a third party? So what do you actually do to increase their share? To what extent is it just their better success in the market? Thank you.

René Obermann

Okay, we’ll do our job split here. I’ll talk about the regulations. It’s my favorite subject anyway. And Niek Jan is going to take the service provision strategy business. First of all, I think there is some good news in this new law, which has been passed by the Bundestag, which was good. But it goes into the Vermittlungsausschuss. What it that, the mediation committee now between Bundestag and Bundesrat, so it still has to pass the other chamber.

Many significant improvements are in this new law; i.e., corporate use of infrastructure; i.e., the information obligation and the obligation to share passive infrastructure. So there are a lot of new frame work conditions which seem much better than before. However, it is still open how the precise incentives for investments – sorry; they still depend – these incentives for investments still depend on the practical implementation by the Bundesnet again through by the initial regulatory authority in companionship with the EU.

So we might end up having a better legal framework, but then it needs to be translated into concrete action by the Bundesnet again, so that may take quite some more time. And I would very much appeal to all the policy makers and the regulatory responsible people that these new investment supportive rules that they must not be undermined by ongoing new EU recommendations. So honestly, we have to execute in the best spirit of this new law, and then I think we have made some good progress there. So we are not unhappy by the current situation.

Potential change of head of agency was the question, if this is an indicator of a change of attitudes in Germany. I would not read that much into it, actually. I think at least that’s not our interpretation. We don’t see a massive change in attitude. There is still the belief that many competitors should be around, and I don’t expect any massive change in attitude from the side of the network agency, the regulator.

Niek Jan van Damme

Okay, as to the service provider uptake in Germany, I think service providers are for us a means to serve the partner segments which we have not been able to address successfully so far, specifically in the ethnic segment. It has to do with branding. It has to do with pricing. It has to do with specific offers. Over the past six months, we’ve been extremely successfully with Lebara, basically a traditional model for the ethnic segment; and recently with Turkcell, which offers – just to give you the perspective of why it is so successful, a proposition to customers that makes them not having to worry about whether they are in Turkey or in Germany. They work on one price plan, and Turkcell can offer that because they are a big operator in Turkey as well. So it’s for us basically the means to get into segments and increase in potential of market we can address.

Operator

Mr. Lawrence Sugarman from RBS, may we have your question, please?

Lawrence Sugarman – RBS

Yes, thank you. I’ve got two questions, please. Firstly on T-Systems, I was just looking at the revenue progression and the costs. That’s the savings that have been made. In aggregate, it seems that you’ve given up in effect the best part of €750 million of margin to arrive at your end EBITDA result. Perhaps you could give a little bit of color as to the pressures that are going on. I assume quite a lot of that is around the fact that you’re having to renegotiate existing contracts. But is there also pressure from a competitive perspective there?

And secondly, this morning I understand that Sky Deutschland talked about the renewal process for the Bundesliga rights for next year, and expressed an interest in potentially expanding their own position there. Perhaps you can give some thoughts on what you might do going forward in that area.

Stephan Eger

Hi, Larry. It’s Stephan. I think Niek Jan will speak about Sky Deutschland and his view on the renewal of Bundesliga rights. But just to clarify what you mean if we are losing €750 million margin to achieve EBITDA at T-Systems, I was a bit puzzled because we only had €950 million of EBITDA in T-Systems.

Lawrence Sugarman – RBS

All I meant was that your revenues are up €270 million and you quote savings in that of €470 million. So the net, if you add those two together, you’re ending up being equal if it would have gone up by that amount, and clearly it hasn’t. I’m just looking for what other implications – what other things are going on in the business that caused the result to be as it is. It’s the year-on-year change, that’s where I’m looking at.

Stephan Eger

You absolutely right, Larry. At T-Systems, what we’re seeing is a classical example for really Save for Service. We were actually saving costs on the underlying structural cost side. But on the other hand, we were investing quite heavily into the business. As Tim has pointed out in his presentations, we had issues with the execution on some of our major deals. And we are safeguarding the execution quality, and we had to spend quite a lot on that issue.

René Obermann

And if I may add to Stephan’s statement, the customer perspective, the part which I find encouraging on the T-Systems side is that we had these massive big deals, a massive number of new big deals in 2009 and 2010. And we had to consolidate and really put emphasis on the quality and on the proper integration of the customer infrastructure into our infrastructure and so forth. And basically we mitigated the quality issues we had a year ago with huge additional headcounts and labor cost basically in order to get the customer satisfaction level up, and that actually worked. So customer satisfaction in T-Systems increased and order entry increased year on year. So I’m not too skeptical, but we’re still going through a difficult situation. I’m not too skeptical going forward.

Niek Jan van Damme

Okay. As to Bundesliga, the official start of negotiations for the season 2013 – 2014 is scheduled basically now at autumn 2011. And the idea is to have the tender completed at the latest in May 2012. Content will be advertised for sale for all three distribution channels; that is for broadcast linear TV, IPTV, and web TV. And you will appreciate that I cannot comment on specific Deutsche Telekom plans we have, but I can assure you we will examine all alternatives, including Bundesliga content, because we want to offer these significant benefits to our Entertain customers, of course.

Just to give you an idea, more than 11% of our Entertain customers at the moment are watching LIGA total! And at the end of last quarter, we had a total of 154,000 subscribers, which we consider as very successful.

Operator

Mr. Hugh McCaffrey from Goldman Sachs, may we have your question, please?

Hugh McCaffrey – Goldman Sachs

Thanks. I’ve got two questions, please. Firstly just on the new value adds in the U.S., can you tell us what the average ARPU is for each of those customers coming on?

And secondly, just in Germany the sequential trend in mobile data revenue was pretty flat following at least six quarters of very positive sequential growth. A quarter behind that sequential change in trend, is it just promotional activity, or is it more structural pricing activity?

René Obermann

Okay, let me begin with the U.S. point. The value plans are on average around $20 cheaper than comparable classic plans, so they’re very attractive in terms of the monthly recurring charge for these individual plans. So therefore, they are expected to impact revenues over time, of course, but there are several mitigating factors. Most of the plans include data, so we’re selling relatively fewer options without data, so that is a positive impact on the revenue. Presumably, the trend to smartphones will continue. So we can expect more customers will want data plans. And the value plans have also tiered data components. That also should support revenues if we assume that average data usage for smartphone will continue to increase, which we do. By definition, customers on these plans will have higher equipment revenues. So it may be actually more appropriate to look at the sum of service and equipment revenues rather than just the service revenues. I hope that answers your questions, Hugh.

On Germany, Niek, can you take over?

Niek Jan van Damme

Yes. On the long term, first to make clear I think for just Q2, our service revenue development was 0.3% points better than in Q2, in contrast to Vodafone that reported a slightly lower trend of 0.1% point. Of course, the long-term trend sees some effects which have been addressed already. MTR is a big one, €58 million in this quarter. And on total for 2011, we expect an effect of almost €250 million.

Of course, our competitors face it as well. In effect, we have seen over the past year and is leveling out now is our customers optimizing behind the new price trends we introduced in November, which have led to an optimization of customers with SMS bundles being included in the bundles and other tariffs which were normally seen as an add-on.

This optimization of customers has leveled out, has come faster than we expected, and has led to a slight decline in our planning of the revenue. Asset leveled out and we expect that to have fully leveled out in Q4. The churn René is pointing out is best in the industry at 1.1% and thereby the lowest. Also in effect, what we should not forget is that we lost exclusivity of iPhone last year around this period, which meant that our competitors have admittedly slightly relative to us improved in that respect. That’s also what we see in the numbers.

Operator

Mr. Jonathan Dann from Barclays, may we have your question, please?

Jonathan Dann – Barclays

Hi there, two questions. Could you just talk about how much of the reduction in SAC and acquisition costs is part of the Save for growth and how much is as a result of I guess selling fewer iPhones?

And then secondly, is there any update on the fiber strategy or the pricing environment for triple-play bundles, your own Entertain VDSL pricing? Any color you can provide there will be great.

Stephan Eger

Yes, Jonathan. Just to clarify with respect to the reduction in SAC, are you talking about Germany or the U.S. here?

Jonathan Dann – Barclays

Germany, Germany.

René Obermann

Maybe a few words on the overall fiber strategy, okay. We are really working hard to have a better parallelization between sales and marketing efforts on those new fiber-to-the-home or fiber-to-the-building connections. So therefore, we are going very targeted into smaller or midsize cities where we build fiber and in parallel we sell.

And in some of these cities, we have very good results. I think the best city where we currently work is we have more than 10%, almost 16% presales. And we have established some thresholds when we see a number of – a certain percentage in a city of customers accepting the fiber, then we’re building out. And if we have no chance to reach that threshold, we are delaying the rollout. Plus what we also do is in cooperation with local municipalities, we run cooperation programs.

Now I’m not going to give you a three-year plan on the fiber because we keep this very flexible. We seek cooperation. We seek sharing of passive infrastructure. We seek also cooperation with municipalities and so forth. And therefore, we keep this a bit – we’re a bit more opportunistic. Rather than sinking too much money in the ground and thereafter have an empty network, we try to be more smart in the rollout and go into areas which we can afford, where it makes commercial sense, and where we have a chance to save the big CapEx, and to dig up the ground costs the most money. So we’re trying to be smarter in the rollout and parallelize it with sales and marketing activities as a general direction.

Tim Höttges

Good. Maybe an indication as to the savings on SAC, not so much Save for Service because it’s a mix effect. If you compare the SAC for contracts Q3 last year to Q3 this year, it went down from €170 to €107, so a decline of 37%. That’s partly, of course, a mix in handsets, and it has to do with SIM-only. Whereas last year iPhone introduction took place, this year we are waiting for the iPhone. So you get an indication of the optimization you were doing in the SAC for contracts, but don’t see this as the full Save for Service effect.

The same is true for SRC (Subscriber Retention Cost). You see a decline from €194 to €185 in Q2 and €152 in Q3. Also, this is more specific steering, optimizing, and wanting to be safe with that we invest in new customers, but at a more efficient rate than we have been doing in the past.

Operator

Mr. Thomas Friedrich from UniCredit, may we have your question, please?

Thomas Friedrich – UniCredit

Yes, thank you, guys. I have two questions. Jan, looking at your momentum in ULL (Unbundled Local Loop) net adds recently with a negative figure last quarter, a small number this quarter, and against the backdrop of the increasing clash of the cable platform and the telco platform for broadband customers. Would you consider against this backdrop a wholesale LTE offer as well? That is for the LTE fixed plan replacement product, do you think that could make sense, and could it maybe help you stabilize your wholesale business revenues; and if not, why not?

And the second question related to wholesale as well. I think Jan Niek mentioned in one of the earlier conference calls a plan to make wholesale VDSL offers more attractive. Has this happened already; and if yes, how? And if not, can it be expected for the future? Thank you.

Niek Jan van Damme

On wholesale LTE offer, there is nothing in the market yet. I don’t know of any initiatives of our competitors as well. Let’s say we are carefully evaluating that opportunity from time to time. At the moment, it is not in our focus in any way to replace fixed line offers, of course.

That’s different for wholesale of ADSL. We have been very active in that area. We have found ways of more creative pricing for our partners. We also will also see the effect of that. The absolute numbers are still small, but there is an increase also in the wholesale of ADSL. We are at the moment discussing the opportunity of having co-invest of our partners in ADSL, and that should lead in the end to a really more aggressive offering of our partners because with our current wholesale pricing based on regulatory amendments or regulatory instructions, it’s difficult to offer a very competitive price in many areas of Germany where cable is our competitor or the competitor of our wholesale partners.

Operator

Mr. Mathieu Robilliard from BNP Paribas, may we have your question, please?

Mathieu Robilliard – BNP Paribas

Good afternoon, two questions, please. First with regards to the very strong performance in mobile net adds in Germany, could you give us a little bit of color in terms of the characteristics of these subscribers coming notably from providers, such as ARPU? And how does that compare with your current contract or prepaid ARPU? And linked to that given the very strong performance in terms of volumes here, should we see an acceleration in service revenues in Q4 thanks to that?

The second question has to do with the U.S., where there was very strong cost cutting. Also as you mentioned, part of the cost reduction is linked to lower SAC in Q3. Can you quantify that, more than €100 million? What explains the rest? I think there’s probably another €200 million of cost reduction. Can you give us a little bit of color into what initiatives resulted into that and how sustainable that is? Thank you.

Niek Jan van Damme

As to the quality of the subscribers, I can say for those we get of service providers, they generally have a slightly lower ARPU, which absolutely fits that specific target group we are addressing. Once more, I want to stress. If we wouldn’t have this offer via those service providers, we would not even be able to address those groups.

Our ARPU on contracts has been basically stable, from €30 in Q3 last year to €29 this year. You should take into account, of course, also the MTR effect, any optimization of the customer. So I would say what we see of the new customers coming in from service providers a slightly lower ARPU than our own ARPU; and our own promotional tariffs very successful, as Tim addressed, but with an MSE of €24.95, also basically in line with our ARPU at the moment on contract.

René Obermann

But the one additional statement here is that our mix has improved, so more contract customers. And overall in the quarterly comparison to Q3 over Q2, overall ARPU has gone up slightly. And if I’m not mistaken, that compares positively to some competitors.

Niek Jan van Damme

Maybe to the second part of the question, the acceleration expected in service revenues in Q4, yes, we do expect an acceleration. Do not forget that the MTR cuts came in 2010 for the first time in Q4, so that will be a positive effect.

Operator

Mr. Emmet Kelly from Merrill Lynch, may we have your question, please?

René Obermann

No, there is an answer outstanding. I’m sorry, just a quick one to the U.S. If we compare the – let me just double-check where this number is. The customer SACs and SRCs, we have a significant decrease in Q3 versus Q3 2010 of about $160 million U.S. And if we compare it between Q3 and Q2, there is a decrease of $100 million U.S. I think that question was still open. Okay, so $160 million in the yearly comparison in the quarters versus $100 million between quarter three to quarter two this year.

Operator

Now Mr. Emmet Kelly from Merrill Lynch, your question, please?

Emmet Kelly – Merrill Lynch

Yes, good afternoon, everyone. I’ve got two questions, please. The first question relates to group headquarters and shared services. You talked a little bit about the Shape Headquarters plan, and you talked about cutting that by 40% over four years. It looks like you’re already having a pretty good success rate in reducing the EBITDA losses at HQ. I estimate they’re down around 15% or 16% year to date. And at the beginning of the year, you talked about flat headquarter costs year on year. Should we now be looking at a reduction year on year, or is there a lumpy cost to come in Q4?

And my second question just relates to the top line at T-Home in Germany. Obviously, there have been a couple of exceptional events impacting the top line, be it the decline in wholesale revenues or the discontinuation of the card business. But the top line is currently falling there I think at around 5% year on year. In the past, you have said that analysts should not assume that T-Home Germany is a business that will see negative growth in our terminal years. So I’m just trying to piece together the jigsaw. At what point do you think we start to see a healthy turnaround in the top line at T-Home Germany, and what are you looking at for the next few quarters there? Thank you.

René Obermann

I suspect you mean not T-Home. You mean the fixed line business, right, because we put together the fixed and mobile business, and you’re referring to the fixed part of the business.

Emmet Kelly – Merrill Lynch

Yes, that’s right.

René Obermann

That did decline significantly. Mostly single-play is really giving us still a headache, of which a lot of analog customers are still churning and they’re losing connections there, albeit much less connections than in previous years. Double-play is pretty stable and we’re growing nicely in triple-play, so there is a mitigating effect of this big decline in single-play is by triple-play. So there we have some 30% year-on-year growth in the Entertain part of it. And wholesale also is contributing to the decline in fixed line revenues.

I think it’s very difficult to say when the fixed line business gets stabilized. Of course, we’re pushing, as Niek Jan has pointed out, value-add services. We are pushing VDSL. Now with 0.5 million customers and more, we are pushing the Entertain package and value-add services. But it’s very hard to say how fast will it happen and when are we going to stabilize. The two together, mobile and fixed, so the overall German business that should stabilize in the near term, but the pure fixed business going to be difficult.

Stephan Eger

Emmet, on your question with regard to the GHS, obviously, we have not yet really started with the Shape Headquarters project. We are now in the phase of really fine tuning that and putting the measures in place for the next three to four years. You’re right. We made good success on the cost side also in GHS, but that is not a result of Shape Headquarters yet.

With respect to the GHS EBITDA contribution for this year, at the beginning of the year we were pointing towards around last year’s levels. I think it’s fair to say given the progress that we’ve made that we will be slightly better than that in 2011.

And with that, I think we’ve come to the last question by Nick Delfas from Morgan Stanley. Nick, go ahead please.

Nick Delfas – Morgan Stanley

Thanks very much, so two questions, just a quick on mobile data because Vodafone gave some pretty low numbers for volume growth of only about 20% in Europe. And on page 10, it doesn’t look like the mobile data is really growing Q-on-Q. Could you maybe just talk a little bit about how you expect mobile data revenue growth to develop over the next year? What are the real drivers of that growth? And how come the Q-on-Q number looks so weak?

And the second question is you launched this Entertain satellite service on September 1. And I guess in many ways, satellite is an old technology now compared to what you can do using your upgraded fixed network, which is now, as you say, 33% of homes. So is that just a very clear signal that you intend to bid for Bundesliga rights? And is that something you think you can make money from? Thanks.

Niek Jan van Damme

Okay, let me try to answer first the question on data. At the absolute, you don’t see that growth. I think what has happened in this period is that compared to Vodafone, we massively invested in the market, which you see reflected in the EBITDA as well. It has affected from higher end customers. We had been focusing a little bit more on the mid-segment of the market. It does include data, but to a slightly lesser extent the higher complete price plans we have been pushing so far. SAC is the main driver. I’m confident that mobile data, which is still growing at 26% versus a year ago, will keep on the trend and might even accelerate with the new iPhone 4S now coming in the market and also in our portfolio. So I’m confident that we will continue to see that strong double-digit growth there.

Entertain via Satellite, if this is related to a potential Bundesliga bid, I would say no. We see it as an extra carrier. We unfortunately cannot sell yet the Bundesliga product via Entertain over Satellite because we simply didn’t buy the satellite rights at that point of time. For the near at Satellite, the new bid from LIGA will include all three channels, and it could be part of our strategy, as I said. We have all options open to include this in our portfolio as well. I’m sure our customers would definitely love it also in the additional 30% – 35% of the country we are now supplying with Entertain.

Stephan Eger

Niek Jan, thank you very much. Unfortunately, we have to end it here. I think we already are overdue for 20 minutes. We tried to do the best to serve you all. For those still out there in the waiting queue, we’ll get back to you immediately after the call on the IR level. Thanks for the understanding. Please understand that there is also call from our colleagues at O2 coming, and we won’t interfere with that one. Thanks a lot for all participants and speak to you soon. Thank you. Bye-bye.

Operator

We’d like to thank you for participating at this conference. A recording of this conference will be available for the next seven days by dialing in Germany 49-1805-2043-089 via reference number 414160#. I repeat, Germany 49-1805-2043-089 via reference number 414160#. We are looking forward to hear from you again. Thank you and goodbye.

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