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Executives

Stephan Eger – Head of Investor Relations

René Obermann – Chairman & Chief Executive Officer

Timotheus Höttges – Chief Financial Officer

Philipp Humm – President & Chief Executive Officer, T-Mobile USA Inc.

Analysts

Mathieu Robilliard – Exane BNP Paribas

Simon H. Weeden – Citigroup Global Markets Ltd.

Frederic Boulan – Nomura International PLC

Ulrich Rathe – Jefferies International

Hannes Wittig – JPMorgan Securities Ltd.

Peter Kurt Nielsen – CA Cheuvreux Ltd.

Matthew Bloxham – Deutsche Bank

Robin Bienenstock – Sanford C. Bernstein & Co., LLC

Justin Funnell – Credit Suisse

Nick Delfas – Morgan Stanley

Paul Marsch – Berenberg Bank

Dominik Klarmann – HSBC

Andrew Parnis – UBS

Emmet Kelly – Bank of America Merrill Lynch

Deutsche Telekom AG (OTCQX:DTEGY) Q4 2011 Earnings Call February 23, 2012 8:00 AM ET

Operator

Good afternoon, and welcome to Deutsche Telekom’s Conference Call. On our customer’s request, this conference will be recorded.

Disclaimer, 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 costs 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.

Now please listen to the statements of René Obermann and Timotheus Höttges, and Philipp Humm. Afterwards, you are welcome to ask your questions.

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

Stephan Eger

Yeah, good afternoon and good morning to the listeners in the U.S. As always, we'll be presenting our quarterly results, as well as the full year results, with our CEO, René Obermann, and with our CFO, Tim Hoettges. We will be having an extra session today with Philipp Humm, CEO of T-Mobile US, with respect to the fourth quarter result of T-Mobile US, and also the way going forward in 2012. And after that, we, as usual, will be kicking in with Q&A, and as a starter, I would like you to restrict yourself to two questions per person. Having said that, I would like to hand over to René.

René Obermann

Thanks, Stephan. Good afternoon, everyone. First of all, let me go straight into the results. First of all, we have delivered our full year targets with an EBITDA of €18.7 billion, and a free cash flow of €6.4 billion.

Important to notice, that this free cash flow figure does not include the cash element of the breakup fee received in December 2011. The reported net income of €0.6 billion is impacted by exceptional write-offs at T-Mobile US, and at the OTE Group. With our Save for Service program we overachieved our targets already earlier than planned with savings of €4.5 billion in 2010 and 2011.

As a result of achieving our guidance, the management and supervisory board will again propose a €0.70 dividend per share to the DT AGM in May, which is in line with our three year outlook on shareholder remuneration. The main highlights for the divisions were as follows.

In Germany, we defended our market leadership in Broadband and Mobile, delivered good growth momentum in important initiatives such as the VDSL, Entertain, and our contract customers, while our line losses declined by over 20% year–on–year. And thanks to €1.2 billion of cost savings, we stabilized our EBITDA year–on–year and we actually increased our margin to close to 40%.

In Europe, we faced a year of difficult economic conditions and tough regulation and competition. Nonetheless, we were able to show good growth rates in our TV and in our Broadband customer bases. Also in Europe, net cost savings of €0.7 billion helped us to improve our EBITDA margin by 50 basis points year-on-year.

Our T-Mobile US business suffered from a difficult year, with a pending deal on the one hand and a very difficult fourth quarter due to the iPhone 4S introduction with heavy promotions by three competitors. As a result, the revenue and contract customer development was not satisfying though the EBITDA very much was.

Philipp is going to update us later on the call on what will be the way going forward with our challenger strategy. Let me come back to our 2011 guidance for a second. Due to our pending US deal, we guided for our continued operations, i.e., excluding T Mobile US on EBITDA of around €14.9 billion, which we delivered.

For the entire Group, we guided for an EBITDA of around €19.1 billion, and we delivered €18.7 billion. But if we add back the €0.2 billion of currency losses in the year, we are 1% below the midpoint of our guidance. For the free cash flow, we had guided at least €6.5 million and we have delivered €6.4 billion impacted by the currency losses again of €0.1 billion. That means, to the point, €6.5 billion, comparing it like for like. It also means a payout ratio for our dividend of 47% and that differentiates us positively from some of our peers.

On slide 8, you see the key reported financials for 2011. Important to note are the following two points. Whereas reported Group revenues declined by 6%, the underlying revenue decline, i.e., excluding the impact of ForEx, regulation, and excluding the deconsolidation of T-Mobile UK after the first quarter 2010, was only 2.5%.

The adjusted net profit was €2.9 billion, basically covers the dividend sum of €3 billion and the reported net income was predominantly impacted by major exceptionals such as restructuring expenses, write-offs in the US, and in the OTE Group, that is on the negative side. And on the positive side, the breakup fee from AT&T. Tim is going to give us more detail on this topic.

So, let's turn to the development of our five growth areas in 2011, where we have seen overall a positive development in areas like Mobile Internet, which grew nicely by 18% to a total of now €5.2 billion. Also, the area of Connected Home kept growing, about 2%, to now €6.3 billion. But the revenue development in Consumer Online Services was negatively impacted by the closing of some unprofitable business lines such as the German cash card business.

At T-Systems, the external revenues, business with third parties that kept growing in 2011, but it grew at a lower pace than previous year. With our intelligent networks we saw the first revenues in 2011 and we are seeing some good signs especially at the healthcare area where we are providing new and intelligent services, for instance, for clinics for doctors or for insurances.

Let me come back to the outlook for 2012. And first off all to the guidance. Given the need for investments in the U.S. to execute successfully on our Challenger strategy and the still very challenging economic situation in our Eastern European countries, we believe that a prudent guidance is justified.

Therefore for 2012, we expect an EBITDA of around €18 billion and a free cash flow of around €6 billion for the group. That guidance is based upon a constant currency assumption on the average exchange rate of 2011 and is based upon no further significant deterioration of the economic and regulatory environment in the markets we operate in. This guidance also excludes the cash payments related to the break up fee. The guidance contains the necessary investment levels both on the CapEx and on the OpEx side into our U.S. business in order to address the strategic questions of network modernization and LTE roll out.

On the operational side, these are our key objectives for 2012. First, we have to reinvigorate our Challenger strategy in the U.S. in order to improve our performance, while we remain clearly committed to solve our long-term strategic challenges in the United States. In Germany, we are committed to defend our market leadership in broadband and even importantly in mobile while further stabilizing our underlying EBITDA.

In Europe, we remain committed to defend our cash flows and our market leading positions. At T-Systems, we wanted to further grow our external revenues while at the same time improving our margin.

Of utmost importance for us and me personally, is the continued focus on these five key growth areas where we need to push our innovation and our innovation capabilities, for instance with cloud services, also aided by payments and by content distribution.

Given continued pressure on revenues from regulation and competition there is no alternatives to further execute on the efficiency programs as well, which include Save for Service, shape headquarter initiatives, and the centralization of our IT functions.

We do remain committed to our shareholder remuneration policy in 2012 based upon our 2012 guidance. The third year of our remuneration policy is planned. As usual subject to the necessary Board resolutions and the approval by the AGM. The execution and timing of the buyback has not yet been decided upon by the management.

With that, I want to hand it over to Tim for more details and further explanations. Thank you.

Timotheus Höttges

Thank you, good afternoon everybody. Let’s turn to the fourth quarter details now starting on slide 11 with a Group overview. At the Group level, reported revenues declined by 3.7% year over year, whereas EBITDA increased by 1.3%. On the revenue side, trends worsened a bit in Germany, the U.S., and at T-Systems, whereas underlying revenue trends improved again in the Europe segment.

On the EBITDA, we saw strong developments in Europe and the U.S. with EBITDA growth in the fourth quarter, whereas EBITDA in Germany, as anticipated declined in the fourth quarter.

Moving to the details of the fourth quarter in Germany, the revenue trend worsened in the fourth quarter to minus 6.1% after minus 5% in Q3, partially driven by wholesale and one timers. However, the trend in Mobile Service revenue has further improved, and also the trend in the trend in the core domestic Fixed business has worsened versus the previous quarter, more on this on the next slide.

The underlying revenue trend, ex-one timers and regulatory effect, was minus 4.4% versus minus 3.4% in the third quarter. EBITDA in the quarter declined by 3.1%, as anticipated due to seasonal marketing investments and the Christmas business which is reflected in unprecedented sales success at some of our key products, as I will demonstrate on the next slide.

As a result, the margins sequentially decreased to 37.8% which, however, is the seventh consecutive quarter of year-over-year margin improvement. Main driver for this is our excellent cost discipline which resulted in an 8% OpEx decline year-over-year in the fourth quarter and full year net OpEx savings of €1.2 billion.

As said, the trends in our domestic core Fixed business revenue were pretty stable versus previous quarter. The main reasons for the weaker Q4 revenues were, one the one hand, reduction of €98 million online value added services, and other revenues, mainly due to the termination of our cash card business, declines in services like Televoting and fee based hotlines.

On the other hand, revenues in our wholesale business declined by 11.6% mainly driven by a one timer due to a court decision related to ULL fees in 2003. Excluding this one timers the revenue trend was basically in line with Q3 at minus 8.9%.

Our mobile service revenues trend has improved and was positive excluding the MTR impact was plus 0.4% in the fourth quarter driven by good contract customer growth and strong mobile data revenue growth of almost 32%.

In the German fixed Broadband market, we successfully defended our market share in excess of 45%, despite the lower net add share in 2011. Line losses were more 20% lower than last year at €1.3 million, only 295,000 customers of which in the fourth quarter.

On the IPTV and VDSL customer side, we had again made very good progress. We added 88,000 VDSL retail net adds in Q4 alone, more than 600,000 customers for the full year ’11 and an increase of almost 80% year-over-year.

On the TV side, we added 177,000 Entertain net adds in Q4, out of which almost 100,000 came from our new Entertain Via Satellite offering. In total, we now have 1.6 million connected entertain customers.

Our successful up-selling strategy resulted in a slight increase in our ARPA year-over-year. And importantly, as anticipated, we won the landmark deal with Deutsche Annington in December.

In Mobile, we saw another strong quarter of customer in take with 387,000 contract net adds with a strong emphasis, as in Q3, on the service provider end value segment, and record iPhone sales of almost 500,000 new adds.

One of our core beliefs and key strengths are our superior networks. Let me give you an update on our key initiatives here so far. In 2011, we improved our nationwide 3G coverage by 3 percent points to 86%, started our LTE rollout with a 14% top coverage and have connected 83% of our 3G sites with fiber links.

On the broadband side, we increased our fiber to the curb and our VDSL coverage further to 34%, and our Entertain coverage, as a result of the Entertain Via Satellite offering to 82%. The outstanding quality of our networks is reflected in all major network tests and awards carried out in 2011.

One of our core initiatives in Germany in 2011 was to revitalize our service provider segment, which we successfully executed. Whereas we lost contract net-adds in 2010 in this segment, we added almost 800,000 new customers in 2011.

Turning to slide 16 on Europe, the growth in key markets like TVs, broadband and mobile contract customers remain strong in the fourth quarter. And this despite economic trends in some of the markets like Hungary, Croatia, Austria even worsening in the fourth quarter.

Turning to operations in integrated markets, both revenue and adjusted EBITDA trends in Greece improved. With the EBITDA margin improving to 37% in Q4. Operationally, we continue to do well even increasing our market share in Mobile, whereas we suffered from significant line losses and a difficult market position in Broadband due to the tough regulatory environment. Importantly OTE sold their 20% stake in Telekom Serbia, which further supports the standalone refinancing efforts of OTE.

In Croatia, trends were similar to the previous quarter with a very impressive margin of almost 50%. Broadband and IPTV growth trends remained positive. While in Mobile, we doubled the share of smartphones of all dispatched devices to 45% and pushed the non-voice share of ARPU by 10% points to 35% in Q4, 2011.

Looking at Hungary, adjusted for the special tax and the shift of business customers to the T-Systems segments, underlying revenue was stable year-over-year. Whereas adjusted EBITDA trends were weaker partially due to higher indirect costs. Commercially we had the highest number of mobile contract net adds in the market this quarter. In Slovakia, we were able to grow our EBITDA in the fourth quarter by 11% and improved our margin to over 39% driven by efficiency gains.

On the TV side, we increased our customer base to almost 30% versus Q4, 2010. And in the tough Slovakian mobile market, we turned to positive contract net adds in Q4. In our mobile centric businesses, revenues were impacted by the economy, competitive pressures, tough regulation and the weak Polish zloty and Czech crown in Q4. In Poland on top of tough regulation, the revenue in Q4 were heavily impacted by foreign exchange.

Underlying revenues ex those effects were down by 2.1%. Underlying EBITDA was 8% below Q4 2010 due to a higher release of accruals last year. On the operational side, our rebranding since June 2011 has been a good success with high brand recognition and a reduced churn rate. In the Netherlands, a change in our tariff structure led to a revenue recognition in Q4 impacting both revenue and EBITDA positively at €47 million.

Underlying service revenue growth in mobile, ex regulation and one timer was still up 0.3% mainly driven by a strong 40% mobile data growth. We also showed good customer momentum with 100,000 iPhone sales, 46,000 contract net adds and further increased smartphone share of 58%. In the Czech Republic, we are facing tough competition. Underlying revenue ex foreign exchange and regulation and one-offs was minus 3%, whereas underlying EBITDA dropped by 12% mainly driven by a strong smartphone push in the quarter resulting in a doubled share of dispatched smartphones year-over-year and a good mobile data growth rate.

In Austria, we saw a weaker Q4 margin due to a market invest cycle pushing for smartphones. 73% of all dispatched devices in this quarter were smartphones. On the operational side, 96,000 contract net adds and an 0.9 contract churn are the highlights of our Austrian business.

In this context, let me say a few words about our U.K. joint venture everything everywhere, which already reported results this Tuesday. After Olaf Swantee has taken over in summer, the new team has made significant progress. In full year 2011, we showed a 1.3 percentage points increase in our EBITDA margin to 20.9%. In the second half year of 2011, the margin was even at 21.5%, but also on the operational side, good progress was made. We had strong 313,000 new contract net adds in Q4, almost 900,000 for the full year 2011.

Our smartphone penetration postpaid went up to almost 70%. Our non-voice service revenues increased by 6% points to 43% and our industry leading postpaid churn is now at 1.1% for three consecutive quarters. Furthermore, Everything Everywhere secured £875 million of bank loan in 2011 and issued its first 500 million bond in February 2012. And as an aside, DT remains fully committed to make Everything Everywhere a long-term success in the U.K. mobile market.

Turning to slide 19 on the Systems Solutions business. In Systems Solutions, we saw a slightly worsening trends compared to the previous quarter with revenues declining by 0.9% in Q4, mainly driven by lower internal revenues, whereas external revenues showed a slight increase. Due to successful cost savings of more than €700 million in 2011 EBITDA as well as EBIT margins improved throughout the year every quarter, with the EBIT margin reaching 5% in Q4 almost reaching last year’s level.

Turning to the key financial of the Group metrics page 21, starting with the free cash. The free cash flow increased by 8.9% year-over-year in the fourth quarter impacted by €257 million lower cash from operations, but supported by almost €400 million lower CapEx versus Q4 2010. For the full year 2011, the picture looks the same with lower cash from operations compensated by a lower year-over-year cash CapEx.

The slight decrease in cash flow versus 2010 is due to €100 million currency losses in 2011. We’re extremely proud to have over achieved our 2010 to 2012 saving target already one year ahead of schedule with major contributions from almost all our segments, leading to over €2 billion of gross savings in 2011 alone.

Most importantly, we also managed to reduce our Group OpEx base by almost 7% of over €3 billion in 2011. With net OpEx savings of over €1.2 billion in Germany, €0.7 billion Europe and €1 billion in the U.S. also supported here by foreign exchange. Let me be very clear. Though we’re not communicating a new tranche with new target numbers today, we will continue with our Save for Service initiatives. On the contrary, we will even increase our efforts and reinvigorate our program this year.

Our 2011 net income was impacted by several special items, which is why I would like to elaborate on the subject. As in previous years, the reported net income contains approximately €1.7 billion of restructuring expenses and over €300 million special factors attributable to minorities. At T-Mobile US, we had on the one hand a positive contribution of €3 billion from the breakup fee we received from AT&T. This is cash and spectrum and on the other hand a negative impact from an impairment taken in Q4 for the U.S. business of €2.3 billion.

At our OTE businesses, we had about €1 billion of impairment losses in Q4 predominantly in Greece and Romania. And the net tax effect on our special factors was a negative of €641 million, mainly driven by the €0.9 billion tax on the breakup fee in Q4. The adjusted net income for 2011 came in at €2.9 billion, basically covering our €3 billion dividend, also from the adjusted net income side. Also very importantly for us was to continue the reduction of our net debt in 2011. As you can see on chart 24, the biggest driver were our strong free cash flow of €6.4 billion, and the cash element of the breakup fee in the fourth quarter.

Importantly to note is that we could have reduced our net debt in 2011 by over €3 billion, if we would not have lost €0.8 billion due to currency losses. We continued with our strong balance sheet KPIs also in the fourth quarter, reducing our net debt to EBITDA ratio to 2.1 times, at the lower end of our communicated corridor, a gearing of 1.0 times, and the healthy equity ratio of almost 33%. As a result of the U.S. deal cancellation, the rating agency reduced the outlook to stable again.

With this, let me hand over to René and Philipp, talking on the U.S.

René Obermann

Thanks, Tim. Before Philipp will elaborate on the T-Mobile US Q4 results and how he and the team plan to reignite the challenger strategy, let me give you a strategic perspective from the DT perspective.

Basically, not a lot has changed since the Investor Day in early 2011. Clearly all of us had hoped for the transaction to go through, but as this unfortunately didn’t happen, we have to face the same challenges as a year ago.

There’s a big difference, however, due to the breakup fee of €3 billion in cash, and the valuable AWS spectrum from AT&T, and the 3G roaming agreement, DT and T-Mobile US are better off than a year ago. Nonetheless, long-term, same challenges, which I mentioned to you last year remain, with the long-term, the issue of non-sufficient spectrum for the entire mobile industry, and for T-Mobile US remains.

And secondly, the issue of lack of scale also remains. While we are not disadvantaged when it comes to procurements, because of the volume which we have in the Group, we do feel it in our share of voice, where we have to compete with much bigger pockets and in distribution.

So, we have to find a longer-term solutions for both of these challenges, and we will, midterm, continue to look at strategic options to generate value for the business and we announced the US deal last March. We hope we mentioned, had been looking at various alternatives, and some of these alternatives still exist. Others are not around anymore, and new ones have emerged.

I may be very clear. Do not expect a near term structural solution, nor anything like the AT&T deal. The 2010 priority, therefore, should be to reinvigorate our challenger strategy in the United States market, make use of the elements of the breakup fee to strengthen our competitive position, and invest into our network in order to rollout an initial LTE network and improve the quality of our coverage at the same time.

And with that, I would like to hand over to Philipp, who will now elaborate upon how we are going to do this, I think it must be in the middle of the night for him now, so Philipp, go ahead please.

Philipp Humm

Yes, thanks, René. It’s 5 o’clock in the morning here in Seattle, and it’s a dry day. So good morning everybody. Let me start us out with a quick overview of the fundamental metrics for T-Mobile USA. As you can see, it was a tough year for us in terms of revenue.

But we were able to deliver solid financials. Despite the deal overhang, we stayed focused on our profitability measures and delivered improving year-over-year EBITDA over the course of the year. We finished Q4 with $1.4 billion in EBITDA, a 3.4% year-over-year improvement.

You can see that this was driven by steady improvements of our EBITDA margin, which grew from 23% in Q1 to over 27% by Q4 in IFRS. I also want to call out that we delivered over $3 billion in operating free cash flow in 2011, which is in further improvement of $200 million over the previous year.

On the net add front, both contract and prepaid net improved through Q3. We even achieved an unprecedented low postpaid churn of 2.2% in September. However, contract net adds reversed in Q4 due to the iPhone 4S launch. On the prepaid side, we have continued to see strong growth mainly driven by the very successful launch of our new, higher ARPU monthly 4G prepaid product.

Finally, Data ARPU grew 11%, to $14.20, while blended ARPU was flat. We consider this a great achievement, as our customer base shifted more to prepaid and to value plans throughout the year. The pending AT&T deal negatively impacted customer satisfaction and brand perception in 2011, which is why we believe it is time to integrate the Challenger strategy into relaunch the brand.

This slide now is the core of what I’d like to talk to you about. For those of you who were at our briefing last January in New York City, you’ll recognize the structure from our challenger strategy 2011. The challenger strategy is still the right strategy for T-Mobile. It now needs a refresh, now that the deal overhang is gone. Our mission as challenger is making amazing 4G services affordable.

These five boxes here are the strategic levers that describe how we bring the strategy to life. They are largely the same as last year, so I’ll give you a quick overview of what we have accomplished, and what’s changing in 2012, and I’ll circle back with some details on some of our more important initiatives. The first box is Amazing 4G Services. We promised that we would build America’s largest 4G network, and we delivered, with well over 200 million POPs coverage with HSPA+ in 2011.

We also developed a broad portfolio of 4G devices, with 25 4G devices launched in 2011, and we have more on the way. In 2012, we will completely modernize our 4G network, and refarm spectrum to launch LTE in 2013. I’ll get into a little more detail on the topic later.

The second box on the slide is Value Leader. In 2011, we launched our new rate plans, especially the SIM-only Value Plans, with prices as low as $49.99 for two lines unlimited talk, text and web. With these new rate plans, customers were able to afford smartphones, and as a result, smartphones now account for over 90% of device sales as of Q4.

For 2012, we would like to continue building on that success, but we also know that affordability alone will not be sufficient. We need technology equity to be an integral part of our brand. So by Q3, we will relaunch our brand to become the best value in Wireless. I have a slide coming up on that as well.

The third box is Trusted Brand. We continued our J.D.Power’s Award winning record in the first half of 2011. However, our customer satisfaction score declined in the second half of the year, while we were under the deal overhang. So 2012 is a rebuilding year. We are continuing on initiatives that we launched last year, like leaning hard into unlimited rate plans, and finishing our store remodels to the new global design concept. In addition, we will also significantly expand our brand distribution footprint to drive up sales.

The fourth box is Multi-Segment Player. We launched our monthly 4G prepaid offering last year. This has been a big success and we will continue to evolve that product in 2012. In addition, we continue to grow revenues with our strategic partner, Wal-Mart. Our big initiative for 2012 is an investment into B2B systems, and in tripling our B2B sales force. I will talk more about B2B later.

In our MVNO business, we have frankly suffered under the AT&T deal, as we were unable to sign up new partners, given the deal uncertainty. However, we are aggressively pursuing wholesale partners in 2012, and will create a mobile virtual network enabler platform to make it easy for new MVNOs to sign up with T-Mobile.

The last one is the challenger business model. Last year, we talked about our regional leadership structure which allowed us to execute better at the local market level. We had also kicked off Churn programs in our cost-saving program, Reinvent.

The 2011 Reinvent program was quite successful yielding approximately $600 million of savings. We’ll ramp up Churn and Reinvent programs this year. We expect that Reinvent will deliver approximately $0.9 billion of incremental savings in 2012, which will be used to reinvest into the market and to stabilize EBITDA.

So that’s the overview. I’d like to spend some time taking you through three of the biggest initiative starting with LTE. We are very excited to announce that we are launching LTE in 2013. Overall, we will be investing $4 billion in total into network modernization and LTE overtime.

Over the next two years this represents about $1.4 billion in incremental network CapEx. The chart on the left is a quick presentation of what are doing, modernizing about 37,000 sites with multimode radios, tower top electronics and fiber running all the way up to the tower to new antenna integrated radios on many of our towers.

This network modernization enables our network to deliver LTE connectivity for customers with download speed of up to 72 megabit per second. It also adds about 4dBm of signal strength improving in-home coverage by 16%, which should help drive down coverage related charge.

T-Mobile now has sufficient spectrum to roll out LTE with 20 megahertz to about half of our 4G POP coverage in 2013, which represents about 75% of the top 25 market. For most of our remaining 4G coverage, we will launch LTE with 10 megahertz. The key catalysts of this build out is the additional spectrum we are about to get from AT&T. Other enablers here are fast adoption of 3G and 4G devices, successful (inaudible) plants and technological advances in network engineering.

However, the core building block of the work is refarming our spectrum holding. This illustration on right side of the slide shows how our spectrum refarming will work. Today we have about 54 megahertz of spectrum; roughly half of this is PCS 1900 megahertz spectrum that is dedicated for GSM. The other half is AWS 1700 megahertz spectrum on which we have deployed HSPA+.

The bar on the right shows the result of spectrum refarming. We will reduce the amount of 1900 spectrum being used for GSM deploy HSPA+ in the PCS band and make room in the AWS band for LTE. Also, with breakup spectrum from AT&T, our average spectrum holdings across the Top 100 markets increased from 55 to 60 megahertz.

In addition to creating capacity for LTE deploying HSPA+ in the PCS bands means that our spectrum bands will finally be harmonized with the rest of the US market and internationally. There are couple of very nice side benefits.

First, we can host international data roamers on T-Mobile’s PCS spectrum and significantly increase our inbound roaming revenue. Second, and more importantly, we will be able to attract AT&T iPhone and other iPhone customers through the T-Mobile network with the promise of getting better service by saving money with our value plan.

Refarming gives us LTE; however, we continue to need more AWS spectrum to support deeper coverage in those areas where we are deploying on 10 megahertz or less as well as to ease refarming execution.

With the investments in the network, we have an opportunity to reposition T-Mobile as the best value in wireless. Today customer thinks we offer great affordability compared to other carriers, and that is a primary reason for choosing us. However, we also need to push up our brand equities and network coverage quality and in particular, in technology. We want customers to know us for 4G services, 4G devices and a great 4G network.

Overall, we intend to spend $200 million more in other (inaudible) to re-launch a brand in Q3. In our meeting in New York last January, we announced that we intend to invest into B2B but while we make good progress in 2011 in the small business segment, we largely must vote the B2B push to focus on other priorities.

We are now back to capture a bigger share of the $60 billion B2B segment by adding 1,000 sales reps, investing in systems and introducing new aggressive rate plans. We have heavily leveraged our international footprint with DT and FreeMove coalition partners as an additional advantage in this segment. So, that’s our story in a nutshell.

To summarize, T-Mobile is back with the challenger strategy. 2012 and 2013 are rebuilding an investment years for T-Mobile. Our key focus will be to modernize our network, refarm spectrum and build out LTE. We’re also making investment in B2B and we’re launching the brand in Q3.

We expect to deliver 2012 EBITDA of approximately $4.8 billion, which includes 4.2 additional media spent and our mid-term targeted to return to subscriber and EBITDA growth. Finally, we recognize that we need to strengthen T-Mobile US capital structure to build for the future and are therefore considering strategic options.

Let me close by saying that we are convinced that we will get T-Mobile back to growth with the challenger strategy and that T-Mobile will become the best value in wireless. I look forward to keeping you apprised of our progress as we make amazing 4G services affordable for everyone. Thank you.

Question-and-Answer Session

René Obermann

Thank you, Philipp. I think we'll start now directly with the Q&A session. (Operator Instructions) The first question goes to from Mathieu Robilliard from Exane. Mathieu?

Mathieu Robilliard – Exane BNP Paribas

Yes, good afternoon. Thank you. First question with to Germany, when we look at the qualitative comments you make about the outlook for Germany in your quarterly documents last year and in the final one for the Q4, there is a little bit of slippage in terms of the outlook for 2012 EBITDA and you’ve also introduced the 2013 outlook in that document, which suggests that EBITDA in Germany could actually decline in 2013. Now after very long time, but what is interesting is to see that you don't really expect an improvement in Germany at this stage when you look at 2013, which may be a bit of a disappointment.

And my question was, what has deteriorated and what hasn't done according to plan throughout the year since cost were very strong, cost-cutting, so it has to do with revenues, but maybe you can give us some color there in terms of how things have slightly moved on.

Second question with regard to your ROCE target. Back in 2010, you talked about the target of improving ROCE, which was due to commission of improving EBIT and decreasing the asset base. I don’t see a target here for 2012, but may be if you can give us a little bit of color how should ROCE evolve? Thank you.

René Obermann

Thanks, Mathieu. I’ll start with the German outlook and Tim then takes over with the ROCE. Well first of all on the 2012 outlook for Germany, and that is also included as you’re rightly saying in annual report this morning, the outlook is $9.4 billion of EBITDA, around $9.4 billion, which however includes also a shift, which will be making throughout the year of the digital business unit from the German business into the business.

So underlying regarding for $9.5 billion of EBITDA for the German business, which is roughly stable 2012 versus 2011. And the outlook which was given for 2013 is rather a qualitative one and you are absolutely right, it is basically early to talk about in an hour. Our ambition is clearly to stabilize the German EBITDA going forward.

Timotheus Hoettges

Mathieu, with regards to the ROCE question, it was our target to improve the ROCE 150 basis point until 2012. But we see in 2011 is definitely is that we were negatively impacted in the ROCE with the impairments and we had to face in the U.S. and in the European businesses. So including these impairments and including the breakup, we have improved our total ROCE by 30 basis points compared to last year, but that is not yet, say, the 150 basis points we’re aiming for.

Now, considering the investments in the US, it is going to be a challenging and difficult for us to reach the target by 2012. And nevertheless, it stays our Group corporate KPI for midterm perspective to improve step by step by step the productivity of our capital employed. And we do in all areas we are working on initiatives to improve the utilization of our assets, even to increase the value around the return on capital employed.

Stephan Eger

Then I think we continue with Simon Weeden from Citigroup. Simon, go ahead.

Simon H. Weeden – Citigroup Global Markets Ltd.

Hello, thanks very much. So my first question is German CapEx. I think the annual report suggested a slightly lower figure for this year, and I wondered how that sat with your ambitions for expanding fiber and fiber to the curb footprint, and possibly, (inaudible) more deals along the lines as the Deutsche Annington deal. And on the U.S., I wondered if you could comment a little bit more, I know you have touched on it, but your reinvent program is intended to produce another $900 million of incremental savings this year.

Your EBITDA guidance suggests a decline of $500 million net. So you’ve got a significant wedge of extra budget to reallocate. You mentioned the $200 million, and going on the brand relaunch, you mentioned (inaudible) business to business, I wondered if you could fill out the gaps a little bit on them, where the extra spend is required? Thank you.

René Obermann

Hi, Simon, René here. The ambition for fiber is pretty much unchanged. Last year we covered about $169,000 of households and I think we did that in 9 cities. And this year, we’re going to continue in about 12 cities to built out a network probably in the same ballpark, households covered again, we do this in a very targeted way. You will see the first customers this year having Internet speed of 200 megabits downloads up to 50 to 100 megabit in upload.

So the program is running. On top, we will speed up the LTE coverage, because that is very much a strategic long-term objective to be leader in mobile broadband and therefore LTE is very important, but that is less costly. Overall, the three-year CapEx scheduled with around 10 billion niche, in that ballpark, for Germany, and I think we even overspend slightly in the accumulation of those three years.

So the program on building up the broadband is going on in a very targeted way. We’re looking to pre-sell and to going into areas, which makes sense where we can actually win customers and we’re doing it in a more targeted way than initially anticipated, but I do think that makes more sense. On the U.S., the reinvent program maybe it’s best if Philipp discusses that in more detail. Philip, are you online?

Philipp Humm

Yeah. On the reinvent side, so as I said we’re expecting the incremental saving for reinvent in 2012 of 0.9 billion and that will be used to cover on one hand, obviously, and additional investment into media, as I said $0.2 billion, cover continued revenue pressure and cover also cost escalators we have on different areas.

Stephan Eger

Thank you, Philip. I think we continue with Fred Boulan from Nomura. Fred, are you on or Fred has to wait then we continue with Ulrich Rathe from Jefferies.

Frederic Boulan – Nomura International PLC

On the U.S first of all, I guess it’s little bit early days, but if you could – I mean, do you think in stabilized the contract base ahead of the LTE launch or if it’s – that’s a little bit ambitious. And secondly, if you can comment on potentially securing the iPhone in the U.S. markets?

René Obermann

Yeah, I think this would put undue pressure on Philipp to ask him to stabilize the contract base ahead of launching LTE, I think, we’ll face some further churn on the contract side in the quarter’s ahead. But, however, as you can imagine, we’re doing our best to reduce the churn numbers and to work against that trend, without having the iPhone. And we would love to have the iPhone, but also has to make sense for both parties. I find it as bit concerning, if I look around, what the impact on margins the product has, but that’s separate from our desire to have the iPhone, we’d love to have the iPhone, it just has to be affordable.

Stephan Eger

Thanks, René, then I think, we’ll continue with Ulrich.

Ulrich Rathe – Jefferies International

Thanks very much. Yes, my first question would be on the LTE investment announcements of $1.4 billion. I was just wondering, what the determining factor for the size of that investment was? Was it sort of to keep the Group CapEx profile or was it the operational capacity for the process or was it the market need or what other measures have you used to sort of determine at what scale you wish to invest? And the second question is with regards to Germany the Mobile Service revenue trend there.

Now, even on an underlying basis excluding the MTR cuts, it is clearly a wide gap between what T-Mobile delivers and what competitors deliver. Now, the good reason for that, while I was wondering on what time scale you see that gap between DT’s trends and Vodafone’s trend, say, to close over time. Is that something that could happen by mid-year or late in the year or what you think that 2012, and there will still be a material gap between the two? Thank you.

René Obermann

Yeah. I think the U.S. question should be answered by Philip, because he workout the plan in detail, Philip?

Philipp Humm

Yeah, so I think, the additional incremental CapEx basically reflect that we want to role out LTE to our total 3G, 4G footprint, which is about 37,000 sites. And so to achieve a full modernization and then LTE rollout, this is then the number we – at the end of the day we’ll need to do that.

René Obermann

On the Vodafone side or on the service revenue side in Germany, that is something I also look at with big attention. And I think, in a couple of facts have shown – have been visible in the last quarters. There is the iPhone catch up effect, Vodafone didn’t have the iPhone for a long time and they got it, and now you see some, still there is some catch up in revenues because of that.

However, we remain in the lead with regards to Mobile Internet, our growth rate was bigger and better than competitors, which is good. On the other side, there was some aggressive moves on the B2B side by our competitors. Bottom line, we’re not spending, still, we’re not watching this, continue to happen, we will defend our market leadership in wireless broadband and then wireless in general. But it’s always a head-to-head competition with Vodafone, and that’s okay as far as I go as long as the market is still an attractive market, and the margins are still attractive, and that this is the case in Germany.

Stephan Eger

Thank you René. We’ll continue with Hannes Wittig from JPMorgan please.

Hannes Wittig – JPMorgan Securities Ltd.

Yes, good afternoon, thanks. My first question relates to the spectrum situation, of course, you have a fair amount of upper frequency spectrum, which you’re putting to better use and the question, however, would be, whether you would be interested and how significant it is for you to have sub-1 gigahertz spectrum, which of course, based on for coming legislation might be available for you.

So how much often necessities are there from your point of view, and how interested, therefore, would you be in such spectrum? And the second question is weather you intend to pursue the value plans with the same intensity going forward or whether you would be more mindful of potentially long-term dilution is attached to such plans?. Thank you.

René Obermann

Yeah. So, let me take the U.S. question. So, I think the first one we continue to be interested in below 1 gigahertz spectrum as it was obviously improved the efficiency of our network. Everybody knows you need less sites with lower band spectrum. And we would look at whatever is on the market, and then decide on that basis. We will continue to focus on value plans and on further optimizing all value plans. They are, today from a customer lifetime value pretty close to our classic plans and we are trying to fully close the gap, so that the value plans are long-term accretive as well.

Stephan Eger

Thank you, Philipp. The next one would be Peter Kurt Nielsen from Cheuvreux. Peter Kurt. Please.

Peter Kurt Nielsen – CA Cheuvreux Ltd.

Thank you very much. A question on German Broadband, please. René, you mentioned earlier that you're committed to maintaining, to defending your market share on Broadband. I seem to recall that at the call one year ago, you mentioned that 30% sort of share of net adds, new adds, was sort of a pain threshold, which you wouldn't want to move below. You seem to have moved slightly below that level now.

Have you taken or adopted a slightly more relaxed attitude as to market tiers, as market growth is coming down, i.e., are you happy basically to see the remaining market growth, the bulk of this going to your competitors in Germany? And my second question just relates to the dividend. You mentioned on this call that the dividend for 2011 is broadly covered by adjusted net income, I guess that by the – from the guidance for 2012, that would not necessarily be the case for next year. Is that likely to be an issue with the board when determining on the 2012 dividend? Thank you.

René Obermann

Peter, 26% net adds certainly is not something I'm excited about, let’s be very straightforward and open. However, put things into perspective. The overall growth in the market has come down significantly. If you look at what happened over the last couple of quarters, the [outlets] hardly moved up, the cable guys grew, I think, by 200,000 or so, and we grew by 100,000.

So overall, we kept our share at 44%, 45.5% or so, and in that ballpark, we'd like to keep our share. So the relative meaning or the relative impact of the net add share – the net add market share, it has diminished. And that is what makes me a bit more relaxed. But you know, to be very honest, I like to win, and I don't want the company to be seen as losing share. So I'd rather keep – have the team keep their focus on having a decent share of the market. And again, the prime objective is to retain the share at around 45%. And the dividend question, that probably is better for Tim to answer.

Timotheus Hoettges

Yes. I think the first and almost important statement is that we are quite happy with our shareholder remuneration strategy, which we laid out in 2010, and we are now executing, with the second year of this strategy, and we stick to the overall strategy for this three year perspective.

We have yesterday discussed it with our Board, and we make the recommendation to the annual meeting that we pay out the dividend of €0.70 for 2011 soon and after one month, in 2012, we are not even speculating on the dividend which gets paid out then in mid of 2013.

Nevertheless, if you look to our dividend coverage with regard to the free cash flow, and compare us with all our peers in the European sector, you will find out that we have a good coverage, and a good cash flow profile even including the investments for the U.S. and therefore, that should give you some certainty around, let's say the perspective for 2013.

Stephan Eger

Thank you very much, Tim. We carry on with Matthew Bloxham from Deutsche Bank.

Matthew Bloxham – Deutsche Bank

Yeah, hi there, a quick question on German Mobile. The contract minutes of use were down about 6% in Q4, which is quite a sharp drop versus the previous quarter. Is that just a mix effect or was there something more significant going on there?

And the second question, I guess, is again, just around the U.S. You've acknowledged the need for more spectrum over the mid-term and you're clearly kind of playing a bit of a balancing act at the moment about how you fund the investments in the U.S.

If spectrum was available in the near-term, what's the current thinking about, how those funded? And in the past, you've kind of expressed a desire for the U.S. to largely fund itself, but do you kind of see that as possible if a big lump of spectrum was available? Thanks.

René Obermann

So on Germany, you're referring to Mobile contract minus 6%, and my team here says you are talking about Mobile minutes, although I'm not sure I fully got that question right. But Mobile contract, numbers of customers’ has gone up. About a fourth was with our own retail customers or own-branded customers and three quarters were service provider customers. So what is the point here, I don’t get the question.

Matthew Bloxham – Deutsche Bank

Is average minutes of use per contract customer in Germany, minus 6.3%?

René Obermann

Okay. Now I get it, okay. So customer, all right. This probably has been impacted the most by the fact that the customer base was pretty much impacted by a strong increase of service provider customer base and that may have a different use profile, and we also increased the number of kind of flat rates tariffs into the base. So I guess these effects are the biggest contributors to that.

Philipp Humm

Matthew, can you repeat the question with respect to spectrum, that is the US spectrum.

Matthew Bloxham – Deutsche Bank

Sure.

Philipp Humm

That is, if we need more US spectrum, how would we fund it, is that correct?

Matthew Bloxham – Deutsche Bank

That’s right, yeah.

Philipp Humm

Do you want to take that Step or should I take it.

Stephan Eger

Maybe I start and then you carry on. I think the overall strategy for T-Mobile US as we have always said last year is a self-funding platform, i.e., trying to finance the needs into our network investment such as free cash flow we were generating within T-Mobile US. And then also Philipp has spoken about specific capital options they would also have at T-Mobile US, I remind you the fact that we said, always said that we’re willing to also sell our towers in the US and then probably Philipp can comment upon that.

Philipp Humm

Yeah, thank you Step, I think we, as I said we are trying to become a self-funding platform overtime and are looking at measures that can strengthen the capital structure for the US. Selling towers could be an alternative we are considering in that context, and also just a point to remind everybody the big auctions in the US are still two years old, so there is very little unfortunate in the US market, which is coming to the auction off in the short-term. Thank you.

Stephan Eger

Thank you Philip, and we continue with Robin Bienenstock, Robin.

Robin Bienenstock – Sanford C. Bernstein & Co., LLC

Yeah, thanks very much. I just have a question related to the plans, and given that spectrum auctions are still a way off. First, what is the average data consumption on your unlimited plans and if you continue in this process, at what point would you expect run into spectrum constraints? And second, what’s the risk of service disruption to your existing customers as you start to refarm your existing spectrum?

René Obermann

Philip, do you want to takeover?

Philipp Humm

Yes, maybe just to answer the first question, our Super Phones with more than one gigabits of data consumption, which is very, very strong usage from our customers. We have extrapolated overall data need going forward. And then relative to the estimates we had back in early 2011, we actually expect data demand to be lower and the reason for that is that we do a very good job with all rate plans and really steering traffic. as you know we have been struggling after such a threshold and that has proven to workout very, very well.

The second part of the question, I didn’t get, if you could kindly repeat that?

Robin Bienenstock – Sanford C. Bernstein & Co., LLC

The question was just, to what extent your risk in service disruption in your existing customers as you start to refarm your spectrum?

Philipp Humm

Refarming the spectrum is obviously a difficult process to go through. We will do everything we can, not to have a negative impact on the existing customers. So we are very, very mindful of that and are going through detailed testing to make sure that does not happen.

Robin Bienenstock – Sanford C. Bernstein & Co., LLC

Thank you.

Philipp Humm

You’re welcome.

Stephan Eger

Thank you, Philipp. The next one is Justin Funnell from Credit Suisse. Please.

Justin Funnell – Credit Suisse

Thank you, I have a couple of questions please. Just to fill in a bit more in that last question, the refarming change. If you go back to slide 29, and I know it’s illustrative, but it helps for in the question. If we look at the PCS GSM Black passes the left hand column, what proportion of your voice traffic is going through that pass of your network and what is your network utilization peak hour rates?

Obviously there is a very sharp change in the spectrum allocates to that part of your network over the next two years. Now it seems to be the pinch point in terms of doing the refarming. So you got to just explain a bit more how you deal with voice quality over that process please?

Secondly, in Germany I guess the question about the contract Mobile Service revenues points at a slight effect from tariffs in Germany. Since then have you seen KPN in Germany adjust their base prices and these appear to be reasonably good value now for higher end customers. Just wondering what you think about those KPN prices and whether there is a need to adjust some of your hiring plans, thank you?

Philipp Humm

Yes, let me answer that first question on the chart 24. Today about 50% of the voice traffic is in the PCS band, and the PCS band is under utilized from that point of view, which basically allows us to refarm that band in a significant way as we want to free up 20 megahertz from the PCS band about.

Justin Funnell – Credit Suisse

So I guess peak hour utilization, so you said it’s under utilized is there a figure you can?

Philipp Humm

No, we unfortunately don't disclose these numbers. I'm sorry about that.

Justin Funnell – Credit Suisse

Okay. Thank you.

Philipp Humm

You’re welcome.

René Obermann

On German Tariffs what do I think of E-Plus pricing I’m not too terrified of E-Plus to be honest in wireless. But we also have a second brand, which can compete there very aggressively with Congstar.

And also we have introduced promotional tariffs, special call and surf and mobile et cetera. They do have a positive impact on sales and especially in the value segments which helps to increase our mobile double play share.

And also I think is another point to underline our focus on mobile internet our mobile data strategy. These promotional tariffs are focused on sim only contracts and that does reduce the handset subsidies and also is a good opportunity for used smartphones in the market.

So that’s part of the answer and Congstar, our second brand with more than a million I think more than a 1.5 million subscriptions now they have a clear strategy to be a follow in the market of those competitive offers from second brands. So NVNOs which are hosted for instance on E-plus network. So I’m not terrified I think we can compete and we will have an eye on this.

Justin Funnell – Credit Suisse

Okay, thank you.

Stephan Eger

Thank you, René the next one is Nick Delfas from Morgan Stanley.

Nick Delfas – Morgan Stanley

Yeah, thanks very much. First of all, on the 3G refarm, could you just clarify if that’s going to happen well in advance of the LTE launch presumably that will be around the Q3 re-brand of the business re-launch of the business. So I just want to confirm if that was the case and from that date you will be able to accept iPhone customers from AT&T.

And then secondly on VDSL in Germany could you give us some kind of idea of what it would cost to take the VDSL network to more like 60% of homes past which is what we’re seeing in some other European countries. Thanks very much.

Philipp Humm

Yeah, Nick. Thank you for your question. On the refarm for the U.S. we will basically carryout the refarm in ‘12 and ’13. It’s about 12 months to 18 months period. So we will be able to have certain regions already lighted up this year on 1900s probably somewhere in Q3 and then Q4 more and more regions as we are rolling it out throughout the nation. So a little bit ahead of LTE, but LTE is then to follow shortly thereafter.

Nick Delfas – Morgan Stanley

Just a quick follow-up on that. If the iPhone 5 is coming out in Q3, does that interfere with your relaunch plans?

Philipp Humm

Not at all and no, not at all to the country.

Nick Delfas – Morgan Stanley

Okay thanks.

Philipp Humm

You’re welcome Nick.

René Obermann

Okay. So on the VDSL topic, the key point here is that we keep building it out actually, we have been in line with our objectives on the fiber optics, but on the FTTH, but we also do built out the VDSL network, which is of course less costly. And we do this also in corporation with local municipalities quite successfully, but I’m not going to give out a specific number. So far we are in the mid 30s and we intend to complement that into keep building it out, again in the targeted way. So we compete where it really matters with that against the cable guys, but I am not going to give you a percentage number at this point in time.

Nick Delfas – Morgan Stanley

Thanks so much.

Stephan Eger

Thank you René. I think we carry on for another five minutes or so. And the next one is Paul Marsch from Berenberg. Paul?

Paul Marsch – Berenberg Bank

Yeah, thanks. Maybe just following on from that VDSL question, given the EC is currently deliberating on its consultations to try and stimulate more investments in fiber. Do you think there's anything that you could see coming out of this process that would encourage you to shift the technology strategy from VDSL to fiber to the home, fiber to the building. I don’t know any black swan kind of events that might come out of this whole process; I know the CEO has put some proposals to the EC in the middle of last year, but they all seemed to relatively minor in the grand scheme of things? So that’s the first question.

The second question is just on the U.S., I just wonder out of the $3.9 billion of customer acquisition costs in 2011. If you could maybe just clarify what proportion of that, well how much of that relates to handset subsidies, not just the direct component which was $731 million, but also the handset subsidy that’s embedded in the commissions at the remaining $3.2 billion? Thanks.

René Obermann

Paul, the German Legislation is currently, the German Telecommunications Act is current under review and hopefully will be in ratified and will be in place soon. And that does have indeed some at least in the current status and we will see what happens, but that does have some clauses which I find encouraging, such as risk sharing is possible, regionally differentiating approaches, because in the competitive situation varies from region to region and that should be taken into account, when doing the price for the unbundled local loops, and so far.

So there is some light at the end of the tunnel, but it’s too early to say when it will be in place, and when it will be ratified. And so on the European side, you say something coming out which is meaningful, not to my knowledge, not at this point in time.

Paul Marsch – Berenberg Bank

Okay.

René Obermann

And therefore, I don’t expect any message change in the situation.

Paul Marsch – Berenberg Bank

Thanks.

Philipp Humm

And Paul from the other side thank you for asking going into the details of our acquisition costs, but we are unfortunately don’t disclose further details on that side, but I’m sure Stephan Eger can give you more guidance thereafter.

Paul Marsch – Berenberg Bank

Okay. Thank you.

Philipp Humm

You are welcome.

Stephan Eger

With pleasure, Philipp and having said that, we will continue with Dominik Klarmann from HSBC.

Dominik Klarmann – HSBC

Yes, thank you. One question on the trade of CapEx versus dividends, versus credit rating, would you confirm that keeping a stable credit rating has priority? Or would you consider accepting a downgrade given current financing conditions in Germany, and the need for higher CapEx over time?

And then maybe a second question, on your free cash flow and CapEx guidance, I’m just wondering how you get to this guidance and what’s the idea to reach the €6 billion free cash flow you need at the €1.4 billion and CapEx over two years, LTE and you add some, so are European CapEx had to be lower by the extra spend in the US, so Europe was the balancing number?

Or is it purely up, bottom up driven approach and do you just see no need to do extra investments in Europe, so for Germany, for example, you're fine with that’s rather slow pace of NGA rollout and because you just don’t see the demand. So I am just interested in the process of how you got to your guidance?

Timotheus Hoettges

Look, the first thing is that we, during the course of 2011, we have decreased our group net debt from €42.3 billion to €40 billion. And thus we reduced our ratios from 2.2% to 2.1% with regard to the relevant EBITDA, net debt to EBITDA ratios. So we are at the lower end of our comfort zone at that point in time. By the way, we are better off than we were one year ago when it comes even to the other KPIs, recurring cash flow to net debt and whatsoever.

Our credit rating with Standard & Poor's, with Fitch, it's a stable BBB+ rating, BAA1 with Moody's, and even we have an A flat stable and we have a stable outlook from all the agencies. So we do not have any indications for a negative rating action at that point in time. The opposite is the case; we are well covered from our net debt position that point in time. We are covering our maturities secondly beyond what we have said, 24 months at that point in time.

That said, trading off now dividend against the rating, I think that is not a question we have at that point in time and we always said in our stakeholder strategy, in our shareholder remuneration policy that all the three shareholders should have a kind of clear predictable guidance and we have said BBB+ is the rating we want to be in. And I do not see why we should, you know, get out of this rate with the planning we have for 2012 respectively.

Now talking about the free cash flow and guidance for this year, €18 billion of EBITDA in the vicinity of €8 billion net CapEx is planned for this year. We have €2.3 billion of interest payments.

We have to deduct something in the vicinity of €0.7 billion cash taxes and we have something like restructuring payments we have seen as well the respective and last year’s of €1.4 billion, plus we received a dividend coming from the UK of something in the vicinity of €0.4.

This bring us exactly to free cash flow position of €6 billion which we have forecasted including the additional CapEx, the €1.4 billion incremental CapEx for the LTE refarming case in the UK.

So, with that I think the €6 billion is, as it always was in the last year, it’s achievable from a free-cash flow perspective, and with this free cash flow we could easily cover the dividend payment and as well we are further working on reducing our net debt basis here and keeping the coverage of ultimately plus rating as well.

René Obermann

Thanks Tim, I think we’ve got two more questions. One is Andrew Parnis from UBS and then followed by Emmet Kelly from Bank of America Merrill Lynch.

Andrew Parnis – UBS

Hi, this is Andy Parnis at UBS. The first question, just a quick follow up on German mobile. I just wondered with this as the increased focus on sort of the service provider or the low cost brands, what’s the internal churn are you seeing between your main T-Mobile brand in Germany and then some of the Congstar brand and some of the other lower brands, customers move from maybe high priced plans to lower priced plans.

And then the second question, which is just on the US; are you able to a say to a turnaround in strategic options, what the preferred option would be in the US or what exactly you’re considering for the business in the medium to long-term? Thanks.

René Obermann

We are not actually doing this differentiated reporting on the churn side, but quite naturally the churn on the direct customer side on the branded customer side, Andrew, is much lower than the churn you can expect from third-party distributors in particular MVNOs, so the churn on the branded customer side is lower in general.

Timotheus Hoettges

On the US side, thanks for your question, Andrew, on the strategic option, that you will understand that we will not comment at this point in time on strategic options and preferred ones. Sorry about that.

Andrew Parnis – UBS

Okay. Thank you.

René Obermann

Emmet?

Emmet Kelly – Bank of America Merrill Lynch

Yes, thank you. This is Emmet at Merrill Lynch. Just two quick questions, please. The first question I think Tim just touched on about a minute ago. It’s on the subject of cash taxes, your cash taxes still remain substantially lower than your P&L statutory tax charge, I think it was about €775 million in 2011. Could you just give updates on your cash tax outlook for 2012, and maybe for the medium term as well? I'm also wondering whether there were any cash tax advantages from the goodwill impairment charges that you announced this morning.

And then the second question, which is just on the cash flow statement, you touched on restructuring costs. And obviously, the severance payments, the early retirement and partial payments are still a little bit drag on cash flow. Again could you just give a quick update on, we see those coming out in 2012, and also, over the medium term? Thank you.

Timotheus Hoettges

So the second part of the question first. Our expectation with regard to the restructuring expenses in the vicinity of €1.4 billion for 2012, as it was in the last years, so that is what we calculate internally. And with regard to the tax, you are right, there is always deviation between the tax and accounts, and the cash tax. The reason for that one is first the – that we using NOLs for deducting the cash tax.

Second, what you have seen in 2011 is an increase of the tax rates, which is due to the breakup fee, due to German [Foreign Language]. And we have to consider a tax rate of 30.5% for the breakup fee, which is a high number, and which is increasing our calculated tax in total. But and the impairment is something which is not tax deductible. So overall, it looks that we are paying a very high tax rate this year.

But you always have to look to the net numbers, because, impairments are not tax deductible, and on the breakup fee we pay a 30.5% German tax rate on it. This is let say the counting perspective with regards to the tax on the cash side. This number is, I would say, half of what we normally see on the accounts by using the NOLs.

Emmet Kelly – Bank of America Merrill Lynch

Thank you.

Stephan Eger

Thank you, Tim. I think that was the last question. Ladies and gentlemen, the conference is about to end. Thanks again to René, Tim and Philipp. And thanks for all listening in. In the case of any further questions, and I know there is a couple of people in the pipeline, we take note of those, and we'll call you up from the IR department.

And as always, the recording of the conference will be available for the next seven days. You will find the details on our webpage and with that we’re looking forward to hearing from you again. Thank you very much and have a good day. Bye, bye.

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