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Deutsche Telekom (DT)

Full Year 2005 Earnings Conference Call

March 2nd 2006, 7:30 AM.

Executives:

Thilo Kusch, Head of IR

Kai-Uwe Ricke, Chairman of the Management Board, Chief Executive Officer, Chief Operating Officer and Head of Business Customer Segment

Dr. Karl-Gerhard Eick, Deputy Chairman of Management Board, Deputy Chief Exeutive Officer and Head of the Financial & Controlling

Analysts:

Nick Lyall, Morgan Stanley

Scott McKenzie, SG Securities

Graeme Pearson, Lehman Brothers

Brian Rusling, Cazenove

Hannes Wittig, Dresdner Kleinwort

James Golob, Goldman Sachs

Guy Peddy, Deutsche Bank

Stefan Borscheid, WestLB

Frank Rothauge, Sal Oppenheim

Andrew Beale, Arete Research

Justin Funnell, Credit Suisse

Richard Prentiss, Raymond James

Mark Cardwell, Sanford Bernstein

Jonathan Dann, Bear Stearns

James Ratzer, New Street Research

John Carlides, Man Securities

Jacques de Grayling, IXIS Securities

Stephen Garibaldi, Credit Suisse

Operator

Good afternoon and welcome to Deutsche Telekom's Full Year 2005 Results Conference Call. On our customer's request, this conference will be recorded.

Company Speaker

This presentation contains forward-looking statements that reflect the current views of Deutsche Telekom management with respect to future events. They include statements as to market potential and the planned T-Online merger and the "Outlook 2006" statements at the end of this presentation. Forward-looking statements are based on current plans, estimates and projections. 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, including those described in the sections "Forward-Looking Statements" and "Risk Factors" of the company's Form 20-F report filed with the US Securities and Exchange Commission. Among the relevant factors are the progress of Deutsche Telekom's workforce reduction initiative and the impact of other significant strategic or business initiatives, including acquisitions, dispositions and business combinations. In addition, stronger than expected competition, technological change, litigation and regulatory developments among other factors may have material adverse effects on costs and revenue development. If these or other risks and uncertainties materialize, or if the assumptions underlying any of these statements prove incorrect, Deutsche Telekom's actual results may be materially different from those expressed or implied by such statements. Deutsche Telekom can offer no assurance that its estimates or targets will be achieved. Deutsche Telekom does 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 IAS/IFRS, Deutsche Telekom presents so-called non-GAAP financial performance measures, e.g. EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, adjusted EBT, adjusted net income, special influences, free cash flow, free cash flow before purchase of network assets and spectrum in the US, leverage, net debt, net debt adjusted, EBITDA and the adjusted figures on the page titled "FY 2005 Net Income". These non-GAAP measures should be considered in addition to, but not as a substitute for the information prepared in accordance with IAS/IFRS. Non-GAAP financial performance measures are not subject to IAS/IFRS or any other generally accepted accounting principles. Other companies may define these terms in different ways. For an explanation of some of these terms, please refer to "Reconciliation to pro-forma figures" under the "Publications" heading on Deutsche Telekom's Investor Relations webpage at: www.deutschetelekom.com.

Operator

Now please listen to the reports of Kai-Uwe Ricke and Dr. Karl-Gerhard Eick. Afterwards you are welcome to ask your questions. May I now hand you over to Mr. Thilo Kusch.

Thilo Kusch, Head of IR

Yeah -- hi good morning all from me as well. Everything is set, so let's get straight into the speeches.

Kai-Uwe Ricke, Chairman of the Management Board, Chief Executive Officer, Chief Operating Officer and Head of Business Customer Segment

Thank you, Thilo. Hello everybody. As you will have seen from this morning's announcement, the results for 2005 are very satisfactory and we have met all the financial targets that we set ourselves at the beginning of the year. Revenues have risen by nearly 4%, just under €60 billion, with an increase of 5.4% in the fourth quarter. Adjusted EBITDA increased by 5.7% to €20.7 billion, and free cash flow of nearly €8 billion represents a free cash flow yield of 14%. This results in net income for the year of €5.6 billion, which on an adjusted basis equals €4.7 billion. This excellent bottom line performance means that we will be recommending to the AGM that a dividend of €0.72 per share be paid in 2006 for the year 2005, an increase of 16% over last year.

It is Deutsche Telekom's excellent financial position, the strongest it has ever been, that allows us to recommend the highest dividend payment in our history.

Let me just highlight some of the business areas that have contributed to this strong performance, and also give you an update on our top ten targets that are part of our excellence program.

In Broadband/Fixed Networks we have been very successful in stabilizing the minute loyalty through our tariff reforms, and we have secured the IPTV football rights for our triple play platform, to be launched later this year.

The Mobile business successfully implemented its mobile data strategy with 400,000 web'n'walk devices sold during the year. The objective of providing seamless services to our customers saw the introduction at the beginning of this year of T-Mobile@home, and preparations are in hand for the launch of the customer relationship management database in April.

Within the Business Customer division, we acquired the Gedas Systemhaus business from Volkswagen in December last year, for which we got EU approval on Tuesday. This acquisition is in line with our strategy to grow ICT solutions.

At Group level, we announced back in November the objective of reducing personnel numbers in Germany by a total of 32,000 over the next three years. Let me just stress that the implementation of this program is not dependent on any accord with the trade union as it is based upon voluntary agreement with the individuals concerned.

I will go into a little bit more detail now about the results for the three divisions in turn, but I will keep my remarks to a minimum, as you will have the opportunity to hear more about each of these from their respective management teams at our Investor Day at CeBIT in a couple of weeks.

Starting with Broadband/Fixed Networks, you can see how broadband growth is accelerating. During the course of the year there were more than 2.1 million DSL net adds in Germany alone. The fourth quarter developed especially well with 660,000 DSL net adds. This is the highest annual and quarterly increase seen to date, and we expect the strong growth to continue for the foreseeable future, particularly as there is still a lot of potential in the German market. We currently have nearly 8 million domestic DSL customers, and of these Deutsche Telekom's retail share stands at around 80%. In addition, the development in Central and Eastern Europe is progressing very well with total DSL subscribers more than doubling to around half a million.

We are also seeing similar, very positive developments in Mobile in Central and Eastern Europe. Within T-Com specifically, total revenues for the full year declined by 3.5%, that is around €1 billion. Of these €1 billion, €0.2 billion were internal revenues driven by reduced prices and volumes in its relationship with T-Online and T-System.

External revenues in the fourth quarter fell year-on-year by nearly 5%. This is due in part to a loss of narrowband access lines, but mainly it is because of the deliberate policy of proactively defending our customer base through the introduction at the beginning of last March of a new optional tariff structure which led to a stabilization of our minute market share, and the focusing of DSL sales and marketing in T-Online alone.

As part of the broadband strategy, and in order to maintain its competitiveness, T-Online twice reduced its flat-rate tariff during the year. In 2006, we will be introducing the new triple play products into the market, and we will be giving you more details about this at CeBIT.

Moving now to the Mobile division, you can see clearly how Mobile revenue growth has progressively accelerated during the course of 2005. This is true for both total revenues and service revenues in all the key markets of Germany, the US and the UK. The service revenue growth in Europe was driven by a 5% increase in minutes of use of the network as SIM-card penetration grew, which over-compensated for the slight expected decline in ARPU per SIM-card.

Total Mobile customers numbers increased by 9 million to nearly 87 million. The impact of the Safe for Growth program is clearly evident in the fact that despite this very significant rise, total subscriber acquisition costs did not increase, remaining stable at below 3 billion, while Save for Growth had decreased by 14% year-on-year.

The US Mobile operations have enjoyed another spectacular year. Customers increased by more than a quarter to nearly 22 million; revenues grew by 28% to almost $15 billion, and adjusted EBITDA by 60% to over $4 billion. T-Mobile USA has been, and continues to be a key contributor to revenue and EBITDA growth within the Mobile segment, and Deutsche Telekom as a whole. In 2005, T-Mobile USA contributed 40% of the total mobile revenues, compared to 31% in 2003. The adjusted EBITDA contribution increased to 34% in 2005 from just 18% in 2003.

At T-Mobile UK, we saw a turnaround in the customer growth and revenue development in the fourth quarter. Compared to the fourth quarter of 2004, revenues grew by almost 10% to €1.1 billion. Clearly, this turnaround is partly due to the fact that the year-on-year development was no longer impacted by the termination rate cuts; however, the strong revenue growth is also a reflection of the operation improvement of T-Mobile UK, which is also evident in the strong customer growth of 845,000 in the fourth quarter.

As you will have noticed, we also took a write-down in the goodwill of T-Mobile UK of €1.9 billion. This re-evaluation as part of the annual impairment test, which is obviously a non-cash item, is a consequence of the valuation of O2 following Telefonica's takeover bid. This is quite different to the reasons that led Vodafone to its recent write-down. Karl will return to this later.

If I turn now to Business Customers, the focus has been and will continue to be on the opportunities of leveraging the Group's expertise and scale in cross-selling IT solutions to the small, medium and large customers. Although this program was only introduced during the course of the year, the impact is already clearly visible and the increase of nearly 30% in IT revenues from this customer group to over €400 million.

I now hand over to Karl to take you through the numbers in more detail.

Dr. Karl-Gerhard Eick, Deputy Chairman of Management Board, Deputy Chief Exeutive Officer and Head of the Financial & Controlling

Thank you Kai. From a financial perspective I can only underline Kai's remark that we generated excellent results. We delivered on all our financial targets; revenue at €59.6 billion came in above the low end of the guidance range due to strong growth in Mobile in particular. Adjusted EBITDA with €20.7 billion was precisely in line with guidance. CapEx, excluding the acquisition of network assets and spectrum in the US, at €7.2 billion came in slightly below the low end of our guidance range.

We are pleased with the free cash flow performance. For the year we achieved a free cash flow of €7.8 billion, despite significantly higher cash taxes and an adverse development in working capital and accruals.

With a net debt to adjusted EBITDA ratio of 1.9, we improved our leverage further, compared to our guidance of no further improvement of this ratio. The net debt to adjusted EBITDA ratio is actually slightly below our target range of 2 to 3. Our yearend 2005 gearing of 0.8 is at the low end of the target range of 0.8 to 1.2. Finally, our equity ratio of 38.8% is back to the historical high in 2001, and above our target range of 30% to 35%.

Reported net income increased by almost €4 billion to €5.6 billion, while adjusted net income improved by 26.7% to € 4.7 billion. This strong bottom line performance allowed us to increase the dividend per share by 16% to €0.72 per share, which is our proposal for the AGM in May. You will recall that we said that the dividend was dependent on the profitability development.

Looking at the divisions, Broadband/Fixed Network continued to experience top line pressure in 2005. Both revenues and adjusted EBITDA came in at the low end of the guidance ranges in each case. Revenue at T-Com Germany decreased by 4%. This was partially offset by stable revenues at T-Com Eastern Europe and at 3.8% revenue growth at T-Online. Despite a revenue decrease of €0.9 billion, T-Com's adjusted EBITDA nearly stabilized at €9.6 billion, after €9.7 billion the year before, continuing its strong record in terms of improving cost efficiency. This strong adjusted EBITDA performance at T-Com was partially offset by the development at T-Online, where adjusted EBITDA decreased by more than 30% in 2005. This is a reflection of the intense competition in the ISP market, and T-Online's successful attempts to stabilize its market share. However, even including T-Online, Broadband/Fixed Network's overall adjusted EBITDA decreased only by €0.3 billion year-on-year compared to the revenue decrease of €1 billion.

Mobile had great results in almost every aspect; revenue grew by 11% to €29.5 million, and exceeded our guidance from November of €29.3 billion. Adjusted EBITDA came even at the high end of the guidance range with €9.8 billion. The customer base grew by 9 million customers to almost 87 million internationally. Almost half or 4.4 million of these new customers came from the US, with Germany contributing 2.1 billion and the UK 1.4 million new customers.

T-Mobile US contributed almost 90% of the absolute growth in revenues, underscoring the importance of the US for the overall growth of Deutsche Telekom. Encouragingly service revenues grew in all mobile companies with the exception of the UK. Even in UK the trend is starting to look a lot more positive. Fourth quarter service revenues in the UK increased by 5.6% year-on-year. Total revenues increased by 9.7% due to strong handset sales as already said by Kai.

Adjusted EBITDA for the mobile segment increased by 16.3% to €9.8 billion, even faster than the 11% revenue growth. As a result, the adjusted EBITDA margin improved by 1.5 percentage points to 33.2%. Germany and the UK posted essentially stable adjusted EBITDA margin for the year with 41.8% and 31.4% respectively. T-Mobile US improved its adjusted EBITDA margin by an impressive 5.5 percentage points to 27.7%.

Compared to our guidance from November T-Systems delivered excellent results, revenues came in at the high end of the guidance range with €12.9 billion. Adjusted EBITDA exceeded the guidance range with €1.6 billion. While this is encouraging we still saw some revenue weakness at small, medium and large enterprises for the year, which was not completely offset by the revenue strength in the top 60 customer segment. However, we are encouraged by the initial success of our initiative to grow the IT revenues within the small, medium and large enterprise segment as already highlighted by Kai.

We are very pleased by our continued strong cash generation; with a free cash flow of €7.8 billion, we've fully met our target range of €7.5 billion to €8 billion. We managed to achieve this stronger side despite the adverse change in working capital and goals, significantly higher cash taxes and significantly higher cash CapEx. We benefited both from a very strong underlying cash flow of almost €20 billion and a significant reduction in net interest payments due to the lower debt level.

In 2005 the change in working capital and accruals had an impact of €0.7 billion on the cash generated from operations. Working capital increased by €0.5 billion, due in particular to higher account receivables driven by revenue growth. Accruals decreased by €0.2 billion, while associated payments increased. These apply in particular to the restructuring of the civil servants' health insurance fund.

In this context, let me say a few words about CapEx; CapEx amounted to €7.2 billion excluding €2.1 billion for the Cingular network in California and Nevada in US spectrum. Compared to 2004 with CapEx of €6.4 billion, CapEx increased in '05 due to higher investment imports and fixed network and mobile, still CapEx came in slightly below our guidance range of €7.5 to €8 billion.

We are also very pleased with the developments of the bottom line, net income more than tripled to €5.6 billion, while adjusted net income increased by almost €1 billion to €4.7 billion. Looking first at adjusted net income, EBITDA and net financial expense improved by €1.1 billion and €1.4 billion respectively. The improvement in net financial expense was due in particular to a lower net interest expense driven by the reduction in gross debt, and the impact of the improved rating on the bonds with step up clauses. This more than offset the increase in D&A and income taxes. The increase in adjusted D&A by €1.2 billion was driven primarily by higher amortization of intangible assets which in turn was driven by significantly higher amortization of UM test licenses, due to the IFRS rules that licenses can only be amortized from the date of the launch of service.

You certainly will remember that in 2004 we have only written off our UM test licenses for half a year whereas in '05, we had the full year effect of the UM test license amortization.

Adjusted income taxes increased by €0.5 billion to €2.6 billion. In terms of reported net income let me highlight the biggest special influences in the fourth quarter. In the fourth quarter reported costs including D&A, excluding D&A amounted to €12.4 billion. Adjusted for special influences costs were €11.1 billion, by far the biggest special influences where personal restructuring charges amounting to a total of €1.2 billion before taxes. Personnel related restructuring charges at Broadband/Fixed Network contributed about half of this amount, with the remainder coming from primarily from Business Customers and GHS, including the rental. These restructuring charges were made in connection with our program to reduce personnel by 32,000 employees over the next three years. Other operating income was boosted by €0.8 billion gain from the release of accruals due to restructuring of the health insurance systems of the civil servants.

In terms of D&A, essentially the entire special influence came from the --already by Kai -- mentioned €1.9 billion unscheduled write-down on the goodwill of T-Mobile UK. This write-down resulted from the regular annual impairment test that we had already selected in the third quarter interim report. The bid by Telefonica for O2 provided a comparable valuation that we were required to apply for the valuation of T-Mobile UK, which then led to the required valuation adjustment of €1.9 billion. This was not caused by any change in the outlook for the business, and let me stress that the write-down is obviously a non-cash item.

Just for clarification, this situation is clearly quite different to that of Vodafone. Vodafone had more than €120 billion of goodwill, following the international acquisition. We on the other hand, have only a small amount of goodwill in our balance sheet left, out of the total of €18.4 billion of goodwill, only €11.3 billion are in our international mobile businesses, and in any case as you will recall, we made some write-downs in the year 2002.

Returning to the special influences, taxes were positively impacted by a €2.2 billion non-cash income tax benefit related to the net operating loss carry forward for T-Mobile USA. This loss carry forward represents an asset to T-Mobile US to the extent that they can be utilized to reduce future cash income tax payments. By maintaining evaluation allowance against deferred tax assets related to these loss carry forwards, T-Mobile US had not recognized them as assets in accordance with accounting rules requiring evidence of its ability to utilize them in the future. In the fourth quarter of '05 T-Mobile US determined that its financial performance strengths were sufficiently positive to support a €2.2 billion reduction in the valuation allowance against its deferred tax assets related to its tax loss carry forwards. This then resulted in the gain we see here.

Despite significantly higher cash outlays we continued to improve our balance sheet, which is now I would say in excellent shape. Shareholders' equity improved by almost €4 billion to €49.6 billion, while net debt at yearend 2005 stood at €38.6 billion or €1.3 billion lower than at the end of the year before. As a result of these developments, all key graded metrics continued to improve as I described in my introductory statement.

Let me remind you in this context that we have nearly halved our net debt since its peak in mid 2001 by more than €35 billion. Our 2005 yearend net debt of €38.6 billion compares to an estimated net debt of approximately €74 billion under IFRS as of June 30, 2001. This achievement has also been recognized by the rating agencies where we now have a stable Single A long-term rating from all three major agencies. Back to Kai.

Kai-Uwe Ricke, Chairman of the Management Board, Chief Executive Officer, Chief Operating Officer and Head of Business Customer Segment

Thank you, Karl. Let me conclude by summarizing the revenue and EBITDA targets that we announced in November for 2006 and 2007. For revenues we are targeting between €62.1 billion and €62.7 billion in 2006 and for adjusted EBITDA the guidance is to deliver between €20.2 billion and €20.7 billion in 2006. The targets for 2007 remain unchanged as well. As I said before we look at 2006 as a year of investment, similar growth and to enhance our long-term profitability. This level of investment in the business is reflected in the CapEx expenditure. We would expect CapEx to increase to around €10 billion in 2006 driven in particular by the fiber investments in Germany and increased investments at T-Mobile UK, T-Mobile Germany and T-Systems.

This of course does not include any option of next generation rollout costs in the US AWS option where we expect to fully participate. This is going to be a very important step in the development of T-Mobile US. With the spectrum acquired in this auction we intend to rollout the next generation network with the objective of enhancing further the capacity of our network for both fixed to mobile substitution and mobile data and of driving cost benefits. But, as in the past, we will take a very discipline approach to the auction and we will not overspend. As you are probably aware, the SEC has set June 29 as the start date for the auction in its recent public notice.

Finally, let me just take this opportunity to update you on the other outstanding issues. First the online; here we do now appear to be moving forward. Last month the appeals court in Frankfurt approved the accelerated registration of the merger but did grant leave to appeal to the Bundesgericht, our federal court of justice, which is Germany's highest appeals court. The Bundesgericht has yet to determine whether it will allow an appeal. If it were to do so, then we would have to wait for a final decision which would be some time later this year.

Second, we are waiting for the revision to the Germany telecommunications act to provide us with the regulatory certainty that we require in order to continue our investment in fiber-optic network. We remain confident that this will be finalized in the not too distant future.

And third, you will have seen that there have been some points of detail raised by Brussels regarding the acquisition of tailoring; however we see no reason why these cannot be resolved and expect to be completed by May. And as you will have seen yesterday our agreement with Ortel has been extended until the middle of May.

As I have said before, future dividend development will be dependent on the profitability of the business and we remain very confident about this. In addition, let me just reiterate that Deutsche Telekom is committed to providing attractive returns for our shareholders. Thank you.

Thilo Kusch, Head of IR

Okay let's move straight into questions.

Question-and-Answer Session

Operator

Thank you very much Mr. Ricke. The question and answer session will be started now. Operator Instructions.

Mr. Lyall from Morgan Stanley, may you ask your question please?

Q - Nick Lyall

Hello, yes if I could just ask a couple of questions firstly. Just on the movements in T-Com revenue, the overall revenue is down 1% but it looks like network communications as you mention was down about 8% this quarter year-on-year. Could you maybe explain a little bit more in depth what happened to the network communications revenue line? And also wholesale was strongly up. So is it possible for you to explain why it was so strongly up given the comp in the fourth quarter was so weak? And the second question. Could you maybe mention on dividend -- could you explain a bit more about what you mean by profitability of the business exactly? You've not set a floor this year for the dividend payment but it looks with the spending at the EBITDA line as if your net income -- there's a possibility it could be flat or even down. Could you just explain to us what you mean about profitability and what you're linking the dividend to exactly? Thank you.

A - Kai-Uwe Ricke

Well let me try to answer your first question at a glance. It reflects the developments in the business customers area. Until Q3 2005, the overall trend was increasing external revenues and slightly decreasing internal revenues. Q4 2005 saw an extraordinary change in internal to external revenue development, 1) the decreasing external revenues compared to Q4 2004 due to very strong Q4 2004 which was toll collect. And the weakness in systems integration whereas there were increasing internal revenues, and the main driver was the Windows XP rollout at Deutsche Telekom which could be completed in Q4 2005. I hope that address your question, I'm not sure whether it really was your question. Second, dividend. I'd like to stick to what I said. We have always said that the development of the dividend will depend on the development of the profitability and that we want to pay an attractive dividend. So no change to that, and we always said that. That still remains true. And I would like to add that it is our strong intention, it's the intention of the management to increase the profitability of the business. And when it comes to the dividend for 2006, we will decide it in 2007.

A - Karl-Gerhard Eick

Probably to add to the first point, you're probably looking into the backup where you have the T-Com domestic split but the explanation we have given in the presentation, on the T-Com total revenue decline of about €300 million explains exactly what is happening in the fourth quarter. And probably to the wholesale revenues in T-Com, the increase mainly was borne out of the fact that if you look at the 2004 numbers, we had a very unusually low number in Q4 so it looks as if there's a huge increase year on year but that basically is borne out of an accounting treatment of the year 2004 where we had very low wholesale revenue in 2004. I hope that was it, let's move onto the next question.

Operator

Mr. McKenzie from SG Securities, may we have your question please?

Q - Scott McKenzie

Yes I was just looking at the T-Mobile numbers and seeing that both T-Mobile Germany and T-Mobile UK have swung back into positive revenue growth territory. I was just wondering how sustainable that is going forward given various profit warnings elsewhere in the sector? I was also wondering whether you were surprised by Vodafone's downgrade of its outlook earlier this week?

A - Kai-Uwe Ricke

Whereas I do not want to comment on Vodafone and any other outlooks, let me dive a little bit into the German and the UK performance. Yes, you are right; what you see is, and that is where we are very proud of, a decent growth in service revenues, not only in Germany, but also in the UK. And that’s very specifically in the fourth quarter, which is, and I'd like to stress that, a direct result of our strategy which we started some time in 2004, as I recall it, to “Save for Growth”. Saving for growth meant that as for today, although we are growing the business like hell, the EBITDA margin look very satisfactory for the 2.3% in Germany, and decent 28.7% in the UK whereas strong customer intake -- intakes also grant some more movements for revenues for the quarters to come. And this is exactly the strategy we are following. So I'm optimistic, not over-optimistic, but I'm very optimistic that our strategy is going to work.

A - Thilo Kusch

Okay, next question?

Operator

Mr. Graeme Pearson from Lehman Brothers.

Q - Graeme Pearson

Thanks good afternoon. I guess linked to the previous question, on the regulatory side, what could be the impact of the potential roaming cuts on your German mobile revenue growth in 2006? And then secondly, what are you assuming on mobile termination particularly around timing? Thanks.

A - Kai-Uwe Ricke

Well when it comes to the roaming cuts, it is definitely too early; there are all scenarios thinkable. What you should take from us, and I know that Rene also was very outspoken in Barcelona about that, that we are -- we are about to proactively move and that we are a net payer in that scenario. This is all I can say right now. Sure that you will have more discussions then on CeBIT about the issue. When it comes to the mobile termination rate cuts, everything has been said for 2006, as you know, there is an agreement in 2005, for 2006 with the regulator. You all read, you all heard that the regulator wants us to cut termination rates further in 2007. We don’t know any details; we need to talk to the regulator; it is really too early. Just note please that when it comes to the -- to the argumentation of the regulator, he wants us to be on the European average. Please also note that we are already €0.02 below the European average here in Germany.

A - Thilo Kusch

Okay, next one?

Operator

Mr. Brian Rusling from Cazenove. May we have your question please?

Q - Brian Rusling

Yes if I could ask two questions. First of all on content that you're going to be using on your wonderful VDSL network. You’ve got the football rights; in theory they start in four to five months' time. Can you give us a little bit more detail on what you're doing on the content side? Are you working at it through T-Online, are you trying to do it with independent production companies? The second one is in relation to the job cuts program. Can you update us where we are in terms of the government changing the civil service law? Where are we on that one? And given that you’ve been able to take this provision in your accounts, what element of the 3.3 billion costs has now been allowed in the program? I know you haven’t reached an agreement with the Verdi union, but what element of the 3.3 billion that you outlined before should we expect to come through in 2006?

A - Kai-Uwe Ricke

Let me start to answer the content question and then maybe Karl, you could step in and explain where we are on the personnel cuts including the discussions which we have with the government. Content; yes you are right, it's a wonderful network. What you need is content, but this is our strategy, you don’t necessarily need to own content. Exception? Content where you don’t want that others have it exclusive or where you think that you can and need rights to have a USP in front of the customer, which is the football rights. So, our strategy is to avoid all complications when it comes to German media law, but to do what we are doing, and we always did with T-Online, securing rights, giving access to our networks to third parties, which means to the broadcasters of this world, and at the same time, find or cooperate with independent producers, as you said, when it comes to how do we do the broadcasting around our own rights, like the Bundesliga rights. So there is more to come on CeBIT, more details; we are in full swing and we are very positive that the new world also will be a success.

A - Karl-Gerhard Eick

Let me go shortly into job cuts. We are also in intensive discussions in this respect with the German government. We are in discussions with the government not only about this issue, but also about this one. What we do want to achieve and supported by the government is an early retirement program for civil servants. This is certainly not an easy one, but we are optimistic that in our intensive discussions we are going to be successful soon or later. You know that I have outlined that we have covered out of the 3.3 billion extraordinary expenses we have covered 1.2 billion before taxes in '05 already. This leaves €2.1 billion remaining, I would hope that we can cover a major part of this 2.1 billion costs in this year, but the decision about this one is dependent on the acceptance of the individuals of the programs. So it is unfortunately too early this today to make a precise forecast for '06, but I hope that we can cover another significant part of this one in this year.

A - Thilo Kusch

Okay, let's move on. We have a long list of questions so I think we're going well, so if you restrict your question to one or two that would be great, thanks.

Operator

Mr. Hannes Wittig from Dresdner Kleinwort. May we have your question please?

Q - Hannes Wittig

Yes, thank you. Two questions then if I may? The first one is regarding the European mobile prospect. To my understanding it was said in Barcelona that you would be happy with achieving flat rate new growth in your European mobile units in 2006, but as we have seen you're moving into the year with positive revenue momentum. So if you could clarify that, I don’t know, official guidance or comments from Barcelona would be helpful. Also, did I understand you correctly earlier that you were ruling out further cuts or voluntary cuts in the mobile termination rate in 2006, let's say before mid December?

A - Kai-Uwe Ricke

Hannes, yes I don’t have any evidence that there will be further mobile termination cuts in 2006 as per today. When it comes to Thomas' remarks in Barcelona, let me clarify that. From my perspective there is positive revenue movement, as just said, from 2005. Yes we all know that the competitive environment in Germany remains tough, but we have no reason to revise the guidance given to you in November.

A - Thilo Kusch

Excellent, next one?

Operator

Mr. James Golob from Goldman Sachs. May we have your question please?

Q - James Golob

Good afternoon, could I ask two questions? One on -- both on the US; one is on the net operating loss writebacks, does that reflect any change in your view of the business plan over the next few years? Are you any more optimistic than you were previously when you were last at the assessment? And then in the past I guess there was a target for the US cash cost per users and I think the aim was to get it down to the sort of low $20 level. Is there a target and do you expect further reductions in that next year, this year?

A - Karl-Gerhard Eick

I'll take the first one, which is the future perspective of our business in the US. I think our future perspective is more or less unchanged. I think what we have seen is an earlier net profit than expected and this was exactly the reason why we had now to capitalize this tax loss carry-forward. And some quarters earlier than originally expected, i.e. to a certain extent in our actual developments I think we have seen an even stronger development than we have predicted but in general I would say our future perspective of the US operation is strong but unchanged.

A - Kai-Uwe Ricke

When it comes to your cash cost question. Yes it was me who I think two years ago invented the 20 bucks per customer as a target because I strongly believed and still believe in the scale of facts. In the meantime there have been quite a lot of changes for example the 9/11 costs, there are some taxes, which had to be taken into account still. So I am not aware where the costs are right now on a cost per user basis. Still from my perspective given the fact that there are 21.7 million customers that is a quite significant customer base. There is potential -- further potential for scale, for reducing the cost but I can't now comment and give you a detailed number.

A - Thilo Kusch

Okay, next one?

Operator

(indiscernible)

Q

Thank you, two questions, first in terms of your 2006 revenue and EBITDA targets, is there sensitivity to those targets if the Appeals Court does hear the T-Online case and it gets delayed even further, let's say to end of 2006? And second question, given you highlight that your net debt to EBITDA is now below the two times to three times range and that you have the convertible or the mandatory convertible coming due in June, would you consider buying back some of those shares given the strong balance sheet and also the comments you made in the past about buying back the shares from the T-Online merger to avoid dilution? Thank you.

A - Kai-Uwe Ricke

Well let me take the first one, which is a very tricky one because we still are in good hope that we get this deal done.

A - Karl-Gerhard Eick

And when it comes to the question about the mandatory convertibles, in the context of our 1.9 net debt to EBITDA ratio. First I would like to say in general this 1.9 does not put us under any pressure to do anything, not in terms of acquisitions nor in terms of share buybacks. There is no reason of getting nervous about this 1.9. And the decision about the mandatory convertible is not to be made today, that's the only thing what I would like to say about it today.

A - Thilo Kusch

Okay, next one?

Operator

Mr. Guy Peddy from Deutsche Bank, may we have the question please?

Q - Guy Peddy

Yes, good afternoon gentlemen. Just one follow-up question on dividends. When you suggest you're striking a measure of profitability on your dividend outlook, are we assuming that that's on your adjusted profitability numbers? And on a second question, Kai, you kindly sort of answered I think probably a different question than Stuart actually asked a moment ago on whether your guidance would change if T-Online was delayed until sort of 2007. I'm just wondering whether you could confirm whether you still assume in your business plan whether that is the case? And also in your business plan can we assume that the Gedas deal that you announced pre-Christmas was deemed in the normal course of business and therefore already included in your guidance? Thank you.

A - Karl-Gerhard Eick

Let me start with one remark about the merger of T-Online. I think from my perspective, the likelihood that it is going to be delayed until '07 is not too high. We are optimistic that we get it done finally somewhere in the middle of '06, and Kai certainly will afterwards address the question whether any for delay would address our guidance. But before I hand -- I am going to hand over back to him, let me also go into this dividend question. First in general as we have always said we think it's not right to make it dependent on a matching number. This was true for the past, this was true for last year and this is also going to be true for next year and the years to come. I think what one has to have in mind in order to really better understand what we think when we talk about profitability is, how much is the total dividend payout, how much is the dividend yields, how much is the payout ratio in terms of free cash flow? How much is the payout ratio in terms of net income but also in terms of adjusted net income and how much is also this kind of payment in relation to our EBITDA performance? All this I think has to be put into perspective and all this other has to be put into perspective with our credit metric tools, which we have in place. And last but not least we have always made it clear that we also do want to be seen as an attractive dividend payer in a competitive environment. And then I think it is unfortunately not as simple to make it dependant on a certain matching number but I think we had proven with our dividend developments over the last two years that we are heading in the right direction in the interests of our shareholders.

A - Kai-Uwe Ricke

Well back to the question around T-Online. Assuming that we get that done in the second quarter and, meant by give and take a month or so. But assuming that we get it done in the second quarter I do not see any reason why we should change our guidance for the T-Com, the BBFN and sorry the total revenues for the fixed line, which already were foreseen to go down, and just remember here, foreseen to go down in 2006. I think in the region of minus 0.5 to €0.6 million -- right, sorry billion, billion Euros. So that is as clear as I can be on that issue and still we hope that we get it done in the course of the first half 2006.

A - Karl-Gerhard Eick

And yes just briefly on Gedas, I mean Gedas is one of, we basically count as one of the big deals T-Systems is aiming to complete to basically grow as particular its enterprise services part of the business. Next question?

Operator

Mr. Borscheid from WestLB, may we have your question please?

Q - Stefan Borscheid

Yes thanks. Two questions, two quick ones please. The first one on the subscriber acquisition costs of T-Mobile Germany, I've seen that they've quite significantly decreased in the fourth quarter. Is that a level that we can now assume also for 2006 or can you give us any guidance on the SAC trend of T-Mobile Germany in the current year? And the second question relates to depreciation, they have, even on an adjusted basis, they have raised significantly compared to the first nine months of this year, there also if there are any, are there any other special effects in there? And accordingly should we expect depreciation to return to the €2.5 billion level in the first quarter again?

Thanks.

A - Kai-Uwe Ricke

Why, well everybody's now digging into the depreciation issue here. I'd like to be careful because I'm really not deep into it when it comes to the SAC level on the fourth quarter you are right, so an exceptionally low SAC level. But I'd like you to save this question for the guys when we're meeting on CeBIT the week after next week. Just to be on the safe side here because it looks exceptionally low, it is from my point of view. You have an answer on the depreciation?

A - Karl-Gerhard Eick

Now we've switched it off, are we still here? We just have to change microphone button sorry. No when it comes to D&A and the development which we have seen in the fourth quarter, there was another old point, two exceptional ones for another small item, I think it was more in the real estate field, that's something which was more a one-timer and I think we should go back to the normal level we have seen over the first nine months.

A - Thilo Kusch

Can we have the next question please?

Operator

Mr. Frank Rothauge from Sal Oppenheim, may we have your question please?

Q - Frank Rothauge

Hello everybody, I have a last question remaining and this is on the CapEx. You gave a guidance of increased CapEx to 10 billion, you previously said that you want to achieve a return requirement of 8%. Given that the increased CapEx is not primarily invested obviously in the US but rather in your slow-growing areas in Germany and UK in the fixed line, can you give us an idea how you can ensure that this 8% return requirement is met and in which timeframe do you expect your divisions to meet this target?

A - Kai-Uwe Ricke

First let me be more specific in where the CapEx comes from so that we talk from one base. First of all it's very easy to remember, it is 4-4-1-1, for the 10 billion it's round about 4 billion reserved for the Broadband/Fixed line business, another 4 billion reserved for the Mobile business, another 1 billion reserved for the Business Customers, the T-Systems, and another 1 billion reserved for central head offices, and let me give you some more insight then. On the fixed line side, on the BBFN side, CapEx has been as I recall it around 2.5 billion in 2005, so there is some more to come and we already earlier said that roundabout 1.2 billion is reserved, and I explicitly mean it when I say it's reserved, for the triple play, for the further to the curb investments. Which does not necessarily mean that we are going to spend that, that depends on further development, also the regulatory issues. When it comes to Mobile we have had roundabout 3.5 billion as I recall it in 2005, and we now have reserved another 200 million, roundabout 200 million for what we call an accelerated rollout of the 3G networks because by the way, we also see things happening, I mean if you look into the revenues, into data revenues, I’d like to remind you that the data revenue without SMS is now up to 900 million. So 3G, and another 200 million, roundabout 200 million for the accelerated rollout of the 2G networks, specifically in the Central and Eastern European areas, brings me to Business Customers where it had been about 0.8, and there is a accretion of reserve now of another couple of hundred million, as I said, 1 billion more or less is the target. Four things like Gedas, working on big deals we call it, and then there is another investment planned for the GIS which -- and that's where Thilo you'll have to help me again, we were talking about some electricity and whatsoever issues.

A - Thilo Kusch

Yes, no sorry, it's just some upgrades in the general electricity supplies and air conditions for mainly the fixed and mobile network which is as you know the tower company and the real estates are located in the headquarters, that's the increase there.

A - Kai-Uwe Ricke

But the question then was, how do we make sure that the 8% -- on average the 8% are met. Well by being very outspoken when it comes to the business cases because everybody has to then submit a business case finally to our CFO, who then has a lot of fun in judging the respective processes.

A - Thilo Kusch

Next question please?

Operator

Mr. Andrew Beale from Arete Research, may we have your question please?

Q - Andrew Beale

Yes, I've got two questions. First of all, do you think there is a different model to European mobile where you could take prices down quite a lot further, but also take quite a lot subsidy out of the market, and is that an approach that you'd be willing to look at or do you think your profit pool would be too vulnerable from that? And secondly, just wanted to understand your medium term gearing targets, I mean do you see that two to three times leverage is the right longer term or medium term target, I mean leaving aside the current pending acquisitions in US spectrum and so on, or do you think you will delever from two to three times in the medium term?

A - Thilo Kusch

When it comes to your subsidy versus tariff question, our avenue – our approach is to test the price elasticity curve, and not to just jump on it and then take the bet, so I know from a couple of discussions I had with the Mobile guys, detailed discussions because as you know our strategy on the mobile set is to go for fixed mobile substitution, that we want to test it, we want to take it in steps and that is exactly the path we are following.

A - Karl-Gerhard Eick

And when it comes to our gearing targets now we do not intend to change them because these are mid to long term targets which I would like to shortly repeat, it's a two to three time net debt to EBITDA, it's an 0.1 to 1.2 gearing, it's a 30 to 35% equity ratio and it is an 8% ROI. And are we getting nervous if we are doing better now? We are not getting nervous. Does this put us under pressure to do anything now? It does not put us under pressure to do anything. It is long-term targets where we do want to be in, and if we're doing better I'm fine.

A - Thilo Kusch

Okay, next one?

Operator

Mr. Justin Funnell from Credit Suisse, may you ask your question please?

Q - Justin Funnell

Thanks. I just wanted to ask you about the tax first, maybe I got it wrong, but I thought your tax guidance for '05 was 2 to 2.5 and your accrued tax seemed to be slightly higher than that, is there any guidance for the -- where the accrued tax rate is going, are you seeing basically a higher underlying tax accrual going forward than you originally thought? And then secondly, the CapEx in the UK in Q4 seemed sort of double versus Q3, is that just seasonality or should we be taking that as the run rate for CapEx in the UK over '06 per quarter?

A - Kai-Uwe Ricke

Let me take the CapEx question because I already implicitly mentioned it when I explained the total CapEx of the Group. Well I do not have in hand now what the CapEx figure in the UK was in the fourth quarter, but what I said was that we are ready to invest another roundabout 200 million beyond what we have invested in Western Europe for 3G, where a lot of it will be invested in the UK, because when it comes to the UMTS networks we are very well advanced in Germany, we are not that well advanced in the UK, and since we really take it into the next round in the UK, there will be further investments, CapEx investments in the UK, but they cannot beyond the 200 million which is the figure I gave to you for a total of Western Europe.

A - Karl-Gerhard Eick

And when it comes to the Texas, this unfortunately is getting more and more complicated, also as a consequence of adopting international accounting standards; let me be a little bit more specific about it for the last year. First, we had tax expenses without the special effect in the US of 2.6 billion, and also affected by some tax loss carry-forwards in other markets such as France especially, which we had not predicted, including the special effect of this especially in the US, we had in '05 a tax expense of O2. And last but not least cash taxes in last year amounted to 1.2, which is the third number in order to further make it complicated and complex. And the same situation I think we will face in '06. Tax expenses without special effects I think are going to be somewhere between 2.0 and 2.5. Cash taxes could somewhere be around 1.5 to 2 and dependant on the profitability in the US, we also could see in '06 if the profitability development continues to be as strong as it was in '05, special effects on the tax side could be another 2 billion which then would bring down our tax expenses including special effects again quite nicely. I hope this gives you some explanation.

A - Thilo Kusch

Okay, next one?

Operator

Mr. Richard Prentiss from Raymond James, may we have your question please?

Q - Richard Prentiss

Yes hello I've got two questions. On the US side, in your press release you mentioned that you now have 50% increase of coverage with some new roaming agreements. Can you update as far as what percent of your handsets in the US can utilize the cellular frequency? And is this an important concept to compete for net adds against companies like Leap or Metro that are doing unlimited fixed to mobile substitution? The second question is with the auctions coming up, Sprint yesterday said they will not work with Direct TV or Echostar. Are you looking at potential partners or MVNO agreements with your thoughts about what the auctions and the future networks might be in the US?

A - Kai-Uwe Ricke

Well to take your first question -- your second question first, please understand that I do not want to comment on anything when it comes to the spectrum auctions and the preparation to T-Mobile US for the spectrum auctions. When it comes to the roaming agreement, you are referring to what we did on the 850 side. We have now a substantial part of our base already for 850 of the handset base, but forgive me I forgot the number, but it was substantially high. We would come back via Thilo who doesn’t know it now by heart. But it is less directed against the Leap guys, it is more to be competitive when it comes to compete with the other three national carriers. We are, by the way, when you look on the map, T-Mobile US over the last 12 months has made huge progress when you compare Verizon's network to T-Mobile US network; it really looks great from a T-Mobile point of view.

A - Thilo Kusch

Yes I'll come back to you on that. Next question?

Operator

Mr. Cardwell from Sanford Bernstein, may we have your question please?

Q - Mark Cardwell

Yes thank you. Two things. First of all, could you comment a little bit on what your expectations are with the new tariff plans in the UK in terms of ARPU going forward and what sort of response you expect from your competitors over the next six months or so? Secondly, going back to T-Mobile USA, I don't want you to comment on the auction but assuming you get something reasonable that you're looking for in terms of spectrum in the auction, can you give us some sense of both the timescale before you expect to be able to rollout true 3G services after that auction is completed? And also roughly what you think the initial CapEx for the first couple of years would be for that special rollout?

A - Kai-Uwe Ricke

We will be very fast in rolling out but no other data we want to give. When it comes to -- and again why are we so strict here? Because we don't want to give any indication to competition on what it is, what we are doing. The first question was -- sorry I missed it again.

A - Thilo Kusch

T-Mobile UK and the tariffs.

A - Kai-Uwe Ricke

Yes, the new tariffs, they look very promising. Again I don't know it by heart now how promising but they look very promising usage wise and ARPU wise. And specifically on the prepaid side, the rates tariffs, they work and I'd like to ask you to keep that question on CeBIT because people will then give you the precise numbers. But it looks promising.

A - Thilo Kusch

Next question?

Operator

Mr. Dann from Bear Stearns, may we have your question please?

Q - Jonathan Dann

Hello, I’m sorry, hello, I've got two questions. One is, I guess looking out at 2007 and 8, do you see any reason why CapEx would fall below the €10 billion level that you've currently guided to? And secondly, I guess a factual question. In the previous quarters you broke out the fixed line revenue between access broadband and you no longer do that. Could you provide those two figures?

A - Kai-Uwe Ricke

Well, let me start with the CapEx number. Well certainly CapEx is always very much dependant on the strategy but also it is dependant on the cause of the business. I think as long as we continue our strategy to grow the business, and this is supported by our strong profitability and the free cash flow performance, I think 10 billion could be a good number also for '07 and '08. But as proven, if there would be reason to reduce it, we also I think would be in a position to reduce it. It goes back to what Frank Rothauge's question was. I mean the question was how do you manage CapEx. And as long as you manage it according to the business plans which have to grant you on average the WACC of 8%, then it is not a question of how much money you invest, yes it is in reason, I look into the eyes of Mr. Eick sitting in front of me. But it is more the question of the rate of return you can for, and as long as we are finding areas to invest, and I'm talking about the organic areas, we will do that.

A - Karl-Gerhard Eick

And on the split in revenue, well we have decided is that we are basically following the rebalancing path and basically incentivising people more and more to pay a monthly fee for our services. We have stopped providing that split but I don't know what you want to achieve in terms of analysis, let's take that also after the call if I can help you in any other way.

A - Thilo Kusch

Okay let's have the next question.

Operator

Mr. Ratzer from New Street Research, may we have your question please?

Q - James Ratzer

Yes, I have two questions please. The first one was going back to a point made at the very beginning of the presentation regarding narrowband line loss in your fixed business, which is now running I think down about 4% per annum. I was wondering how you saw that developing going forward please, especially if the cable operators start to get a bit more aggressive. And the second question was regarding ARPU in your US Mobile business which just in the last few quarters seems to have slipped a little bit. I was wondering whether that was a one-time effect or whether there was something more structural going on? Thank you.

A - Kai-Uwe Ricke

Let's talk about the line losses first. Let me just give you the detailed figures for the quarter again so that we have a base we're talking from. In Q2 -- sorry I'll start with Q2 '05 we had a loss of 430,000 lines. In Q3 we had 350,000 lines losses, and in Q4 we had 373,000 losses, which is high compared to the US. Not as high in the US but it is high. Which is on a level where we are fighting it and when you look into revenue development, I earlier said that we took actions in March 2005 to really fight it by lowering the prices and betting on the customer loyalty. So actions work and when it comes to T-Online and the T-Com merger, one of the benefits is that we can be more bundled because as you know the PSTN is still bundled with the DSL business here in Germany, so that's where we see positive activities to be even better during the next couple of quarters. Yes on the negative side you have growing competition. You referred to the cable guys when it comes to the cable guys I think they will need a couple of quarters more to really compete. So it is very difficult for me to judge on when and how the cable guys and really will make a big difference in the marketplace.

A - Thilo Kusch

Okay, and I think you ask about ARPU in the US, if I understood that right? If you look in the split between blended, sorry post-pay and pre-pay and that explains part of it. As we are approaching about 70% of penetration in the US, we have launched a very attractive pre-pay product, and are successful in that i.e. again selling more pre-pay which means if you look at the mix you have a slight decline in ARPU. But still these pre-pay customer bring in about $25 a month of ARPU; obviously a very profitable business for us as well. Let's move on to the next question.

Operator

Mr. John Carlides (phonetic) from Man Securities, London. May we have your question please?

Q - John Carlides

Thank you very much, a very good afternoon to you. Two questions if I may? Firstly I would be very keen to get a bit more color on the 700 million of EBITDA you plan to invest in mobile. Basically my concern is that once you start competing more aggressively you won't be able to sort of pull back if you want to. So is it possible to chat about the areas where you would be looking to invest this EBITDA? And then separately, completely different subject; I note what you're doing about T-Mobile@home and the CRM database, but in the context of the pretty radical mergers happening with Telecom Italia and Cesky of their fixed and mobile businesses, what's your assessment of the pros and cons of this strategy with regard to Deutsche Telekom, and are there any specific company specific reasons that would prevent you, if you wished to follow suit?

A - Kai-Uwe Ricke

Okay, when it comes to the 0.7 billion, let me reiterate what we said earlier and what we’re doing. When you look into what the guys are doing, it's exactly what we already said in November. Investing in customer growth, but not necessarily increase the SAC and we just talked about the low SAC in Germany. Mobile broadband go for HSTPA, invest in the handset in the respective terminals and do what we have to do, not only to advertise, but also to proactively tariff the pieces. Other mobile data topic, Web 'n' Walk, push it, we have 400,000 we have 400,000, want to go for a million Web 'n' Walk devices, not necessarily something you want to go back, you want to push it; stimulate the migration to a next generation, that’s what we're doing, you know go into Mates tariff; go into U-Fix tariff; be more intelligent on the tariff side; give the benefit to the customer so that the customer comes. Go to the brand; invest into the brand, not only in the UK, but also in Germany. If you now look into newspapers, the world is pink with T-Mobile@home. By the way huge success, a lot of customers we're taking. Back to your question; you should not be too much afraid that we repeat all the experiences we made since the beginning of the mobile businesses. And the guys who are running it, they really know what they're doing, they are professionals. The second question was again --

Q - John Carlides

Technical difficulty

A - Kai-Uwe Ricke

Well, no when it comes to our structure let me be very outspoken here because we had those discussions and I had those discussions each and every year, each and every month, fixed mobile convergence et cetera. When it comes to our structure, there is no other reason than that it is the right structure. Why we have the structure? It is that T-Mobile is going to focus on fixed mobile substitution plus mobile data. And they compete with the Vodafone guys of this world. And then there is T-Com focusing on the residential market, broadband, fixed line and they go the homes. And then there’s the systems for the business segment.

When it comes to the convergent products, we looked into it in very much detail. We believe in some products, I know them all, I know the roadmap, but you do not mingle everything, you don’t create the dinosaur or the elephant here, you need to be focused and do it too. When it comes then, and that was the product side, when it then comes to the synergies, for IT budgets, for network, cost benefits, then you have to manage it and that’s what we call intelligent integration. So we do it our way.

A - Karl-Gerhard Eick

And let me add from my perspective some more general remarks about the questions which are now raised quite often about OpEx and CapEx flexibility. Because I hear the concern from some of you that we are now increasing our investments into the markets, and we are also increasing our investments in our network infrastructure, and as a consequence of that, we would no more be in a position to reduce it. I only can say, this is the wrong impression. First, I think we have proven in the past that we have enough flexibility to reduce this if we want to reduce this and reduce it, and it was our conscious decision to invest into growth to do more in infrastructure investment. We are committed to grow our revenues; this voluntarily leads to a reduction of margins. Our reduction, our margin reduction is not accidentally, this is not caused by anybody, but only by ourselves as a consequence of a conscious strategy decision. This can be easily reversed if we do want to. Nobody can hinder us, we bringing down our OpEx down and our CapEx down. I think this is really important to understand as a differentiate in criteria to some of our peers.

A - Thilo Kusch

Okay, next question.

Operator

Mr. Jacques de Grayling (phonetic) from IXIS Securities. May we have your question please?

Q - Jacques de Grayling

Thank you. One small accounting question. What kind of period, I mean how many years of projection for T-Mobile users do you use to create the tax asset? First question. Second question, when we look at the targets set for T-Online in France the 15%, which is by the way the lower part of the target, it means more or less have a 30% market share on net add each year. We are far away from that many quarters after that. Are there still realistic assumptions? And one last question if I may, the number of lines you publish exclude fully unbundling lines? Thank you.

A - Kai-Uwe Ricke

France, the 15% they referred to by far lower market projections. Again I do not have the detailed numbers in place. But what I know, and I know it, very much in detail, is that when it comes to our net adds in France they are higher than what we projected originally, but the market, the market size, also is higher than projected originally. Then you had the question of the unbundled lines? Yes, you're right, this is not including the unbundled lines exactly. Karl, there was a technical question.

A - Karl-Gerhard Eick

The first question was about the accounting period for the capitalized carried forwards. Precise answer to a precise question, it is exactly three years which is now capitalized.

A - Thilo Kusch

Okay, in terms of time I think we move on to the last question?

Operator

Mr. Garibaldi from Credit Suisse. May we have your question please?

Q - Stephen Garibaldi

Yes I lucked out. There's more than one way to grow, you can grow organically or you can grow through acquisitions. We've seen several of other companies growing through acquisitions, could you please state what your feeling is on acquisitions particularly in light of your capital investment and your investment in Spectrum in the US? Thank you.

A - Kai-Uwe Ricke

Before we talk inorganically, again let me reiterate that we are investing organically and let me reiterate what Karl said; we have an asset base where we can create revenue growth organically. And the US is a perfect example for that. When it comes to inorganic growth, again it is what I said earlier. It is that our acquisition policy, we’ll remain highly disciplined; we will continue to evaluate any opportunities which arise within our existing footprint, that’s what I said earlier and that’s what we're sticking to, and which then finally also meet our rigorous return on investment criteria.

A - Thilo Kusch, Head of IR

Okay well thank you very much. Let's actually you're throwing in one answer to Rick's question I think on the 850 megahertz capable handset in the US, and it's actually more than 50% of handsets of the base are capable of 850 megahertz roaming. With that saying, thank you very much for your time and if you have any more questions, do give us a call at the IR department. With that I say goodbye and have a nice day.

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Source: Deutsche Telekom Full Year 2005 Earnings Conference Call Transcript (DT)
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