Deutsche Telekom AG Brands, Inc. (DTEGY) CEO Timotheus Hottges on Q4 2021 Results - Earnings Call Transcript

Feb. 24, 2022 4:20 PM ETDeutsche Telekom AG (DTEGY), DTEGF
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Deutsche Telekom AG Brands, Inc. (OTCQX:DTEGY)

Q4 2021 Earnings Conference Call

February 24, 2022, 8:00 AM ET

Company Participants

Timotheus Hottges – Chairman & Chief Executive Officer

Christian Illek – Chief Financial Officer

Hannes Wittig – Head Investor Relation

Conference Call Participants

Ulrich Rathe – Jefferies

Joshua Mills – Exane BNP Paribas

David Wright – Bank of America Merrill Lynch

Georgios Ierodiaconou – Citigroup

Simon Coles – Barclays

Andrew Lee – Goldman Sachs fish

Ottavio Adorisio – Societe Generale

Steve Mark – RET firm

James Ratzer – New Street

Usman Ghazi – Berenbeg

Polo Tang – UBS

Adam Slater – HSBC

Hannes Wittig

Good afternoon, everyone, and welcome to our live Full Year 2021 Webcast and Conference Call. As you can see, with me today are our CEO, Tim Hottges, and our CFO, Christian Illek. Tim will first go through a few highlights, followed by Christian who will talk through our financial numbers, and then Tim will take you through the operations in greater detail. After that, as always, we have time for the Q&A. Before we proceed, please pay attention as usual to the disclaimer, which you'll find in the presentation. With that, I'll hand it over to Tim.

Timotheus Hottges

Thank you, Hannes, and welcome everybody. You could have mention that we're not very happy with our today's environment in which we are offering our great results of 2021. But you can show the dates. We're totally shocked and appalled by the Russian attack on Ukraine. And I would like to say that our thoughts are with the people and -- who suffering in this situation. And I can tell you one thing, it shows us that business is not everything in life. But anyway, I think Deutsche Telekom is well positioned in this environment, we are in the western world, we're not exposed to the Ukraine and all we're exposed to Russia or the rest of the world. Our business is very well-established in this western environment. So therefore, on the other side, we are as well maybe a little bit on luckier side here. But let's talk about that later on in our discussions.

We have changed the magnitude here or the order of our today's presentation. And I will start briefly, but then Christian will go into the details of the financials, and then I will give you an update about the operational performance of our business. We will also add a few multi-year perspectives of today's fourth quarter and the full-year review. Let me start with an overview chart. And you'll see that here, it shows our progress against the strategic priorities we laid out at our last year's Capital Markets Day. One year into our new capital market guidance, I think it's fair to say that we are very well on track. We over-performed in most of the KPIs for our stated financial and for our strategic targets, 2021 was a very strong year for us. Our commercial growth has continuously strongly across the board and we're very proud to announce 7.1 million postpaid customers in addition to what we had, 800,000 new broadband customers last year in our operations, we over delivered as well against our old costs saving target.

And we are well on track of our capital markets commitments. We are on top of that driving our transformations towards our long-term ambition. The leading digital telco, and our '22 guidance is for around $36.5 billion adjusted EBITDA. And for the first time a double-digit free cash flow guidance, 10 billion is the number which we lay out here. And we will at least deliver on €1.25 earnings per share for this year, so another increase on this important KPI. On the capital allocation and portfolio side, we have also been very active in 2021, as you know, we secured a 5.2% stake increase in T-Mobile U.S. We agreed to exit the Netherlands and Romanian fixed line business. We are working on this strategic revenue of our towers and we will talk about that promise later. We made great progress towards undistributed network leadership in all our markets.

And we made great progress both on 5G and on the fiber to the home build-out. Previously announced, we are proposing a dividend increase to $0.64 in uncertain times. By the way, it is a payout ratio of about 50%. So, it shows you the substance and the solidity of our business up from $0.60 last year. With all this, I hand it over to Christian, who will give you now the deep dive on the financial numbers because today is the revenue of 2021 and our numbers.

Christian Illek

Thank you, Tim. And welcome from my side. Look, I got three main messages for you. First, 2021 was a good year financially. Second, it's within a series of good years which we can see in the CMD review, which we're going to provide later on, and we will not stop with our growth trajectory also in the upcoming years, and you can see that in our guidance. So, let me start with the usual table. Obviously, reported financials are impacted by the Sprint merger back in 2020. And we have a lot of organic trends being provided in the backup. Our headline trends are also impacted by the deliberate and accelerated wind down of the handset lease business in the U.S. But let me have a look at the revenue number first. So, revenues on a reported basis were up 4.7% on a quarterly basis in Q4 and 7.7% on an annual basis. Organically that translate into a 2.3% quality growth in Q4 and 4.5% last year. Let's move to EBITDA.

Reported EBITDA was up by 0.6% in the fourth quarter. And the headwind from the handset lease business in the U.S. was approximately €0.5 billion in that given quarter. Organic EBITDA after leases without handset leases would have grown by 5% in a given quarter or 7.8% over the whole year. The reported ex U.S. EBITDA was impacted by the sales of the Romanian fixed line business, where we only accounted revenues and EBITDA for nine months. Organic growth in the ex-U.S. business was 5% in the given quarter and 4.8% over the course of the full-year. Let's move over to earnings per share. The Q4 EPS was down by 24% on year-on-year basis, and that is very much driven by a $0.06 impact of our valuation loss, both on the options and the forward. For the whole year, the EPS was 1.22, which is actually pretty -- significantly higher relative to what we said at the Capital Markets Day, which was a €1.10. Noteworthy, I think we have in the adjusted EPS, two I would say especially impacts.

One is the negative impact from the options in the forward, which account for roughly $0.04 over the course of the year. And also, we have some headwinds from the held-for-sale accounting from the Dutch business which accounted for $0.2. Moving on to free cash flow and net debt. Look, we invested €18 billion in 2021 and we were still able to beat the free cash flow guidance of $8 billion, which we have given at the beginning of the year. And that comes with a small FX headwind. And it accounts and also includes a prepayment of T-Mobile U.S. of $1 billion on leases to American Towers. The growth of free [Indiscernible] was very much driven by EBITDA growth. On that debt, without leases, we were up year-on-year. That is all driven by T-Mobile U.S. effects and I will get into more detail later on. So, let's take a look at the financials on an organic basis. T-Mobile U.S. grew by 0.1% in 2021. If you exclude the accelerated wind down of the handset lease business, they would have grown on the core EBITDA number of around 10% or exactly 10.1%.

Germany grew at 3.7%, the European segment grew at 5.4%, Group Development grew by 13.5%. But if you take the held-for-sale accounting tailwind out of the equation would have been still a 10% growth. And T-Systems grew at 6.1%. So, our combined ex-U.S. EBITDA half the lease is on an organic basis grew almost at 5% in 2021. Germany has now delivered 21 consecutive quarters of EBITDA growth. This is more than five years. And in Europe, which is chasing Germany, and hopefully will never catch up, they basically have a consecutive growth of 16 quarters of full four years. So, for the whole group, we've seen an EBITDA growth of 1.9%, excluding the handset lease unwind that would have been 7.8%. On service revenues, we were up 3.5% over the total year and 4.2% in the fourth quarter. The organic service revenue ex-U.S. grew by 2%. So, free cash flow was very much driven by operational free cash flow coming from the operations. And that increase of $2.5 billion was very much driven by the underlying strength of our commercial engine.

Despite the fact that we have leasing prepayments, which I talked about earlier, and also an increase of Capex by $1 billion coming from the U.S. On adjusted EPS, the net income grew at 3% and to be honest, it was very much impacted by the U.S. options which we talked about earlier on. On net debt and leverage ratios, let me dive into this a little bit deeper. So, what you can see without leases, net debt has grown by $11 billion. So, there were actually net debt driving impacts coming from the U.S. One was obviously acquisition of additional spectrum, which in total accounted for €8.3 billion and C-band only was €7.5billion. And also, the acquisition of Shentel which is accounted for €1.6 billion. Secondly, there is a very strong impact which impacted the increase of net debt driven by the dollar. The dollar was at 123 at the beginning of 2021, but at the end of 2021 it was 113. And that big impact was largely driven by the U.S. dollar. Including leases, our leverage ratios at roughly 3.1 excluding leases, it's at 7.1.

Very noteworthy to mention, we're totally committed to deliver the net debt targets and the ratio targets below 2:7:5 by the end of 2024, as we said it last year at the Capital Markets Day. And that brings me actually to the Capital Markets Day review. And starting on Page 9 you can see what we have delivered relative to our commitments. I'm particularly happy that we have delivered our group free cash flow, which is 8.8 versus the larger eight, which we indicated and also the adjusted EPS targets. And remember, these numbers were all prior to the merger. So, what we actually said is we expect this to be dilutive, but still we overdelivered on the KPIs. On the dividend, we scored ourselves yellow because we have changed the policy in 2019, which you will recall. And so therefore, overall, I would say a very, very good result. If we're moving to the next page, page 10, you can see that especially when it comes to service revenues, EBITDA and free cash flow, you'll see a consistent performance over the course of 2017 to 2021. And we are completely committed to our free cash flow target, which is supposed to be greater $18 billion by the end of 2024.

So, let me get to the guidance. I know we have the indirect cost on the CMD target. Sorry. I missed that one. So, our commitment was $1.5 billion reduction, and we actually delivered on -- we delivered 1.8 billion. We're continuously focusing on indirect cost because direct cost is very much driven with revenue upsides and you know that we're growing revenues. So therefore, our target is indirect cost. If you reflect our achievements in 2021, we roughly delivered 400 million cost reduction, and that is 1/3 of the total target which we have given ourselves until 2024. Now to the guidance. So how is the guidance being structured? First, it reflects the midpoint of the T-Mobile guidance. Secondly, we have U.S. GAAP IFRS adjustments which account for roughly €0.6 billion. And thirdly, we added the ex-U.S. guidance, obviously on a proforma basis because we had to excludes Romania fixed line and T-Mobile Netherlands.

So as mentioned, the headline EBITDA 's impacted by the accelerated went down of the handset lease business in the U.S. And as I said, the ex-U.S. business does not foresee any kind of contribution from the T-Mobile Netherlands business, despite the fact that we haven't closed the deal yet our guidance is also based on the dollar exchange, which was last year's dollar exchange on average, which was $1.18. So, if we basically adjust for the current spot rate, that number would look differently. Let's start with the adjusted EBITDA after leases on the right-hand side. You can see that we're guiding $35 billion, of which $14.2 billion are coming from the ex-U.S. business and $22.3 billion from the U.S. business.

So, on a like-for-like basis, if you exclude the Dutch business and you exclude the Romanian business, that is a $400 million increase on a proforma basis. The $22.3 billion guidance on the U.S. does include negative adjustment from U.S. GAAP into IFRS. Our guidance is completely aligned with the consensus if you adjust for currency in the Netherlands. And we also have to bear in mind that the use is actually accelerating the wind-down of the handset lease business. So, their plan is to reduce the handset lease revenues on a dollar basis by $2.1 billion in this given year. So that has a slight acceleration relative to 2021. So, if you exclude the leases out of the equation and we're getting to the core EBITDA guidance, you see that we're around $35.5 billion.

And that would be a 5% increase. Moving to free cash flow. You see our group guidance is around $10 billion. Again, that accounts for the midpoint of the U.S guidance, plus a 3.7% free cash flow contribution from the U.S. and that is on a pro forma basis comparable to deliver your $3.5 billion in 2021. And Again, what I said is that is an increase in free cash flow despite the fact and we talked about this a year ago, that we're accelerating the fiber build out here in our European business, especially in Germany. So, if you want to have the details on our ex-U.S. financials, I would defer you to page number 49. In the appendix, everything is being listed in there. Last but not least, the adjusted EPS, we guide a greater than €1.25 contribution. Obviously, we're not assuming anything happening on the options and the forwards. This is not being forecasted.

And again, the full overview can be seen in the appendix. Of course, I want to reconfirm that all the commitments we have given last year at the Capital Markets Day remain valid. And that is actually the end of my financial review, and now I'll hand it over to Tim.

Timotheus Hottges

Thank you Christian, and I start with our usual slide on the network infrastructure here. And as you can see, we have now passed more than $10 million European homes with Fiber-to-the-Home, of which 1/3 is Germany. In Germany, we added a record of 1.2 million homes last year, and outside of Germany, we added 1.4 million homes, which is also a record number. We cover over 90% with 5G, and 29% of our European footprint outside of Germany. And in the U.S., we cover $310 million pups with 5G of which 210 million pups are coming with ultra-capacity 5G services which have speeds around 400 megabit per second.

We added more than seven million customers on the mobile net adds site in 2021. It's another record number, and you can see how consistent our customer intake has been doing the last five years. On top of that, we added more than 800,000 fix broadband customers in Europe last year, and more than 300,000 TV customers. Moving onto ESG. While we're always -- as well showing a few selected and important KPIs on Page 16.

Christian Illek

Energy consumption and CO2 emission became part of our short-term incentive plan in 2021, not only for the board members, but for the whole leadership team here. We promised to reach a 100% electricity from renewables, DT group-wide from 2021 onwards and we delivered. Our CO emission declined about 90% year on year. Our energy consumption was slightly up compared to 2020. But please keep in mind that this is before the full benefit from the de -commissioning of the Sprint network this year.

Timotheus Hottges

So, it shows you the huge productivity increase which we have because data volume was increasing sharply as well. Our energy efficiency already improved by 15% in 2021. Going forward, this will improve further and we reiterate our target to keep overall energy consumption stable from 2020 to 2024. We were able to improve our overall customer satisfaction in 2021, and to main employee satisfaction at a record level achieved in the year before. Of our many other initiatives let me also highlight our support for our last year's flood victims here in Germany, created as well a big reputation for us; T-Mobile's project in the U.S. of $10Million, which has already connected 3.2 million students with free subsidized services; and our work against hate speech in the Internet, a well-recognized campaign which we are running recently.

Now, let me deep dive into the operations, starting with Germany. In Germany, our revenues grew by 1% this quarter. Organically, the growth was 2.1%. EBITDA AL grew by 3.6%, consistent with the strong growth shown all year. Total organic service revenues were up 2.1% even better than the previous quarters. This was driven by growth both in B2C and in B2B. For the full year, organic total service revenue growth and B2B was 1.6% -- sorry, 2.6%.

This would have been 1.6% without just over €90 million nonrecurring public sector revenues that reflect to you throughout the year. Fixed service revenues growth also benefits from the ongoing strength of our broadband businesses while roaming and wholesale remind [Indiscernible]. Underlying mobile service revenue growth adjusted for roaming and termination rate cuts was around plus 2% as in the previous quarters. Our mobile contract intake remains solid as you can see on the following pages. Our fixed line commercial remains strong as well, 84,000 broadband [Indiscernible], again, almost no line losses anymore. TV [Indiscernible] plus 34,000 and healthy retail fiber [Indiscernible] of 204,000. Our wholesale fiber [Indiscernible] remained a bit soft, largely due to the ongoing Vodafone migration. Moving on to Page 22, our strong broadband customer growth combined with ARPU growth drove 6% broadband revenue growth, this is outstanding.

Organic retail fixed revenue growth remains strong at 3.5%. Wholesale revenues improved to -3.3%. We expect another year-on-year decline in Q1 '22, but slight growth thereafter as last year's switch from the contingent model to the commitment model begins to roll over. Before we move to the other segments, we have a few more shots on Germany. On Page 23, we show our progress with fiber. As promised, we doubled our deployment run rate to 1.2 million last year. We achieved this with an unchanged Capex budget, but don't extrapolate this, we still expect our Capex to be €500 million higher by 2024 as we further accelerate the build-out. In 2022, we target close to 5.5 million homes passed and for 2024, we reiterate our beyond 10 million targets. To this, you can add the incremental contribution from our new joint venture with IFM, which goes live this year. We are well on track to our Capital Markets targets to take unit deployment costs down 25% on a like-for-like basis. Inflation is not affecting us, we have long-term contracts. We're also making good progress with monetizing our investments.

As you can see on the right-hand side, the share of contracts with at least a 100 megabit per second is now 1/3 up from a quarter last year. As a result, the broadband output grew by 3% points. We delivered 360,000 broadband net adds and our broadband revenue growth was 6.1%, and a super big up selling potential. Our more than $300 million EBITDA growth in 2021 was driven equally by gross margin, and indirect cost savings. A big driver of our performance is our customer service. We further increased our first contracted resolution, a key KPI to drive customer satisfaction. Complaints were down by 1/4 since 2017, they are down by 3/4. And we dominated German customer service surveys again, in fantastic results. We also progress with our digitization, some examples, we revamped our [Indiscernible], bringing it our best-in-class [Indiscernible] our segment Europe now into Germany. We further chart and our IT time-to-market, and we shifted more calls to digital on track to our 40% capital and market they target.

Our customer growth and our -- sorry, our customer and employee satisfaction remained at record highs achieved in 2021, but we won't stop here. Our final shot on Germany shows our service revenue and EBITDA performance from a multi-year perspective. You can see that we are well on track for our stated guidance of 2.5 to 3.5 EBITDA CAGR through 2024. Another strong year of our German segment led by 3D parlor. With that, let me move over to the slides on T-Mobile. T-Mobile had strong results, too. U.S. GAAP service revenues grew by 5.5% year-on-year. Core EBITDA AL was up by 3.2%. Adjusted EBITDA AL declined by €0.3 billion, but that was after €600 million year-on-year decline in handset leasing revenues in Q4, and that is something which we're actively driving.

We added 1.2 million postpaid accounts, a key metric. Our postpaid phone ARPU was up slightly year-on-year as we begin to monetize our market-leading 5G network, total postpaid additions were 1.8 million, phone-net were 840,000, bringing the full year to 2.9 million. And as Mike Sievert said during the call, if Sprint customers have shown the same churn like Magenta our branded customers, we would have closed with 1.4 million postpaid phone numbers higher. The good news is that we think that we saw the high watermark of Sprint churn last quarter as we accelerated the integration. And we will decommission the Sprint network later this year. The network integration is very well on track. Our final pitch on T-Mobile shows just how consistently T-Mobile has grown and why we won't stop. T-Mobile remains very well positioned. It leads in the most important purchasing criterias, be it network, be it value for money, or being it customer service.

T-Mobile has a unique exposure to growth vectors, including small towns and rural B2B and home internet. And I was just in the U.S. and we saw impressive number on the way, how we are growing in this area. We have further upside on synergies, while merger related [Indiscernible] are currently at a peak, but these are clearly finite and coming to an end. Let's go to Europe. Organic revenues grew by 3.6% in the fourth quarter helped by a further roaming recovery. Organic EBITDA grew almost 7% even better than the preceding quarters, this was driven by both net margin growth and further indirect cost savings. Our commercial performance remains consistently strong too, as you can see on the following page. At last year's Capital Markets Day, our European segment laid claim to being Europe's fastest growing large European telco. Well, they almost missed it. Not because they did not grow fast, they delivered 5.4% growth, but because DT ex-U.S. and some almost beat them with 4.8%.

Good competition inside. We are proud of our segment in Europe, led by Dominique Leroy. Organic EBITDA has now shown 16 quarters in a row growth. And we track well towards our Capital Markets guidance. We passed a record of 1.4 million homes with fiber last year to reach 7 million homes on track for our 10 million targets. We recently decided to further accelerate our fiber build in Greece. By the way I was on Monday in the Greek environment and very impressed about the development I'm witnessing in this country, especially in the field of digitization. It was wise from us too early commit to a more -- the build out there because we are now riding the wave of this development. We think the segment is best-in-class when it comes to convergence and digitization. Our EPS is a great platform for leveraging our Magenta advantage. We have seen strong results in our early trials of our collaboration with SoftBank as well. Let's move on to Group Development led by Thorsten Langheim.

Strong organic revenue and EBITDA AL growth continued, driven by both Netherlands and the Tele business. The total contribution from held-for-sale accounting to our 2021 EBITDA was €40 million. T-Mobile Netherlands continue to perform very well. A clear highlight this quarter was our organic mobile service revenue growth of 6.4%. Moving on to the towers. In Germany, we added 1.1000 or 1,100 sites in the last 12 months. This is the net result of 1,400 new builds and 300 decommissions. In the last four years, we built 6,300 new sites. This is far more than any other of our peers in Germany or elsewhere.

Recurring rental revenues grew by $9.1%, boosted by $12.8% growth in external sales. Organic EBITDA grew by 5.9%, organic EBITDA after leases grew by 7.9%. Another strong and peer leading performance in this business. Finally, let me look at T-Systems led by Adel Al-Saleh. organic revenue growth, small, slightly negative this quarter, but EBITDA growth was positive. The decline in the order book is driven by a tough competition. We expect growth in orders in 2022. We are seeing a recovery from the pandemic, but revenue trends remain impacted by an accelerated migration from legacy IT towards cloud-based services, where we are also seeing good growth.

Headline trends are further impacted by the planned exit from low-margin activities, such as end-user service and resale. Adjusted for this 2021, organic revenues would have grown slightly year-on-year. The transformation is on a good way. Restructuring activities have been comprehensive. And in preface, as you can see, it's almost €400 million of net indirect cost savings in the last four years. We reiterate our 2021 Capital Markets guidance for slightly revenue growth during the guidance period and more than 5% EBITDA AL CAGR. Now that we have gone through the operating segment in detail, let me show you the group outlook for 2022 once more. 36.5 billion adjusted EBITDA after leases, around 10 billion operating free cash flow, and more than €1.25 earnings per share. My final chart shows how our adjusted EPS has steadily increased at how we expect that to continue. Let me remind you once more of our capital market guidance of more than €1.75 adjusted earnings per share in 2024. We have maintained a solid dividend during our peak investment period. Our dividend is linked to our strong earnings growth for the 40% to 60% payout ratio that we have committed. Thank you for your attention, and now we are ready to take your questions.

Question-and-Answer Session

Hannes Wittig

Thank you very much, Tim. And now we can start with the Q&A part. [Operator Instructions] With that, the first question we have is from Ulrich Rathe, Jefferies.

Ulrich Rathe

Thank you very much. I would like to focus on the fiber activity in Germany, it sounds very much like the ordnance really ramping in this sort of the, a lot of press and in announcements and news flow around us. Now obviously that implies infrastructure share loss. Would you say this is still at the level of, let's call it uncomfortable pinpricks, or is there a reason for you to accelerate fiber plans simply to avoid giving up too much market share in this last translunar activity of the old net at this point. Thank you.

Timotheus Hottges

[Indiscernible] Look, I don't see that we have a market share loss as the opposite is what I'm seeing. I saw that by the way as well in fixed line broadband with vectoring, super vectoring, we have gained market share from Vodafone. In this tough, as you can see from the strong growth, around six this year. And on top of that, there are a lot of announcements, big numbers are flying around. Look, our thing is we have doubled the build-out ratio compared to last year. We will double again this year. We have the capacity, we have the tools, we have the people who are building it. So therefore, we go our path. We will have let's say more than 50% of the total fiber market in our plan, which is almost in all the retail market share which we're offering today.

So, I don't see the risk of losing infrastructure share here in this regard. On top of that, we are open to collaborations with people who are building infrastructure. We have a whole buy strategy as well, so I appreciate if others are building infrastructure as well. The only thing what I'm asking for reciprocity, because they are using our infrastructure and we want to use their infrastructure. So therefore, I think and know I'm not so worried. I even see that some of the commitments from the odd nets at especially from the municipalities. Let's say, stepping Dick from their high commitments are at least from the execution because they see us moving forward in areas where we have strong market share. So therefore, take the IFM example and our commitments to 4 million households in areas where we have significant market share to lose, where we are now building own infrastructure. I am not worried. I think we have never been as strong as we are on the fiber side. I would say yes, we're losing some customers to overbuild list, but we're taking more share from cable and we expect to continue to do so.

Hannes Wittig

Okay. Thank you. And we will be reached 12 million rural homes by the end of the decade on current plans, that's taking a lot of the market hopefully. The next question we have is from Joshua Mills at Exane, please.

Joshua Mills

Hi guys. Thanks. I've got two questions. One is just going back from the German KPIs and I guess if I could revenue and EBITDA performance [Indiscernible] role. But if you look at the fiber net transfer, retail and wholesale, I think that coming in a bit low than previously and, I'd just like to get your view on whether this is ongoing [Indiscernible] that this put forward in demand we saw during the pandemic and what we should expect or we should expect for the growth rate going into 2022. And then the second question will just be to get an update on the carve outs of the tower businesses for Czech Republic and Slovakia on how that business factored in to guidance next year, but it's on the European segment, still [Indiscernible] development sections. Thank you.

Christian Illek

So, I would say on the Germany KPI is obviously in line with the new wholesale models, which we have constructed especially. You've probably read the news on the 101. We are also getting into a discussion right now how we're moving not only the net adds up, but also the migration from the vectoring network into the fiber network because ultimately, we want to see our wholesale customers sitting on the fiber network. That is definitely a discussion which is in early stages and how to do the corporate to fiber migration. And therefore, I think that is too early to see the results. Do we expect a continuous degration of wholesale net adds? No, I wouldn't. I would basically assume that is on a similar level as we've seen in the second half of this year. You want to take a--

Timotheus Hottges

Look on top of that, Christian, I would like to say we have a really significant advantage on customer service. We constantly dominate all the service, in this regard, we have a very loyal customer base who is now willing to go with us into the up -- selling. We are upgrading, as I mentioned, the 100-megabit, the 250 super vectoring services. For me, I think the biggest issue is how can we accelerate the take-up rates in the fiber-to-the-home services. Because around 20 is a little bit low from a utilization perspective, I think this is a task which we should be -- should get focused on that one. I think our customer basis very solid, very stable, and loyal and to the net promoter scores are very nice. Update on carve out of tower business in Czech and Slovakia, look what we're doing is we will curve out all the businesses and then make them independent.

The advantage which we have on our teleco today is we are not as the others in the very early stage of the business. They are -- every time they're learning, they're carving it out, they have to build a governance. The processes are not professionalized. Now, what the big advantage of our teleco is that -- it's how you need professionalized. Now, this requires pre -work and we're doing this in the Czech and the Slovakia. It's another upside potential for us to monetize [Indiscernible] infrastructure here. It's too early to say. It's not part of the focus of our [Indiscernible] activities at that point in time. But, perspectively, yes, it is not another option which we are preparing.

Christian Illek

And when it comes to guidance impact, we assume that the towers still remain in the [Indiscernible]. That is part of the guidance. If we have changes over the course of the year, obviously, we'll let you know.

Hannes Wittig

And it takes about a year between in deciding to carve-out and actually getting it done or potentially a few months, shorter or longer. Next question we have is from David Wright of Bank of America, please.

David Wright

Thank you, Hannes. Look I might just ask you [Indiscernible] Have you had any descriptions and discussions on the way. It's reminders of the absolute priorities in terms of what you could choose to do with your talents business and then if I might just start a second slightly separate question. Europe performed very strongly throughout the year. There's a good acceleration through the year. In particular, if I look to the '22 guidance, stable revenue slight increase EBITDA, to start favorable a little cautious, a little prudent, or what are the headwinds. Maybe some of the low-hanging increase on cost have gone now, maybe you just talk through, just perhaps if that looks like I said. Thank you.

Timotheus Hottges

First, David, thank you for the appreciation. And I would urge every active investor to just look about the different stocks in the telco sector and compare the growth rates, both on revenue and on EBITDA AL and free cash flow and bench market. We are doing very well in this comparison, and we are constantly monitoring that. And I think our aggressiveness, our activities, our acuity in the way how we are doing is always being totally aware, awake about what's going out there -- on there with regard to the towers, let me stress bond issue. I do not know, you know that I'm not going into details of the ongoing negotiations which are taking place, but I think we couldn't have chosen a better window for our activities because we have an up and running organization. We have unbelievable growth on building towers in the most attractive market in Germany last year. I mentioned a number 1400, which is more than thousand more than our next biggest player here in this environment.

This is delivering an 8% overall revenue growth and it's delivering a 13% external revenue year-on-year growth because others -- everybody wants to use our towers for the 5G service and the like. So, we have a great upside potential as well for third-party opportunities. Only 25% of our hotels are used today. So, the upside potential is very nice. On top of that, we are again, in the position of being a kingmaker. So, we do not have any time pressure or whatever, and by the way, even if you don't want to make me pressure here, I will not make bad deals, I never did that and I'm patient like a cat. So, we will wait for the right thing and for the right optionalities, but I will not exclude any kind of option at one point in time.

Being it's creating another alternative to selinexor as a big operator, being a, let's say, having the industrial solution or being it let's say maybe making one of the companies one of the biggest tech players in the world or giving an opportunity for somebody who is coming from the outside and want to find his relevance in the most attractive market here. It's a growing market, highly valued, we are ready to deconsolidate as I said, we want to monetize money for our debt reduction going forward and for our finance options we might see. And our business is very solid and very well-performing. And that's where we are and I can tell you a lot of activities are going on these days, but I am not sharing them with you right now.

Christian Illek

Let me continue with the question regarding the European segment. I think first of all, we have to bear in mind that the European segment was benefiting in 2021 from a very good roaming recovery, which supported the year-over-year growth between '20 and '21. The second one is we're confident about the commercial trend in the European segment, we have no indication whatsoever that this is coming down. But especially when it comes to EBITDA, there's also headwinds coming from inflation, especially when it comes to salaries which we are facing, especially in the European segment. So, this is why I would call this guidance all up realistic and not prudent.

Hannes Wittig

Okay. So the next question is -- thanks, Christian and Tim. The next question is from Georgios Ierodiaconou at Citigroup, please.

Georgios Ierodiaconou

Yes. Good afternoon, and thank you for taking my questions. I have two. The first one is on towers, and just a quick -- maybe a full [Indiscernible] on the comments you made earlier around the growth trajectory. If you don't mind, any [Indiscernible] as a bit of an update on where you are in the [Indiscernible] 2022. I know [Indiscernible] increasing your comments on getting [Indiscernible] supply side constraints for some of your competitors. And also, regarding one-on-one, more advanced in where they are with our network rollout specific previous time, we spoke 20 November. Just curious to hear from you somewhere where you see opportunities for profit growth. And Mike, I will question for the wholesale and you've said specific on the revenue trajectory as we pass the anniversary of the reset from the commitment model in market per next year. Just want to get an understanding of what kind of ARPU growth you could see are for your customers upgrading to [Indiscernible] just to get a bigger idea of how much of a headwind versus tailwind we could get in next year. Thank you.

Timotheus Hottges

Georgios first let me say the first thing. We built 6,300 towers over the last four years in Germany. Nobody else is able to do this in the speed. That has to do with the regional organization, both from a construction perspective, but as well from a political organization. Because the reason why a lot of these towers have not been able to be built in Germany is because of, let's say, political concern -- considerations. And our, let's say, strong local organization, political organization is helping here big time. On top of the credibility of Deutsche Telekom, we have more credibility than other investors in this regard, and this made us -- the machine running. Nevertheless, we were willing to build 2,000 towers on an annual basis over the last -- over the next years. So, we are well behind our build-out ambitions.

Now, if you ask me today, what is our plan for 2022, another 2000 I think it is a little bit unrealistic to get them all approved because of the federal system and about the concerns of citizens when it comes to the build out here. But nevertheless, we will again be the number one builder here in Germany. Every kind of new sites of -- gifts the off -- optionality for growth on the third-party businesses. This is part of the TowerCo already today, 25% is where we are. I think we can easily go beyond 30% in this regard over the next year. And so, we see further growth even on the double-digit side possible for these activities in the operations. Is there Capex needed for that? No. This is included in our Capex envelope. So all of this is foreseen. And if we're not able to roll that out, we might have some excess Capex here, at least in this field, to be considered.

Christian Illek

So when it comes to the wholesale question, George, I would say you see it already to sequential improvement in our quarterly numbers and wholesale. In Q2 there were negative 5.6% in Q4 there were negative 3.3%. And when it comes to access revenues, in the second quarter, we had a drag in the wholesale business of negative 9%. And on the fourth-quarter was only a negative 6% and SD commitment model is rolling over. We're confident that we're going to provide stable numbers for the wholesale business. The second point is, the upsell from ULL to VDSL vectoring. That is something which we are betting on and as a subsequence step, as I said early on, we have to discuss with our wholesale partners how to drive fiber utilization and how they can help us on this one.

Hannes Wittig

Unit -- as we said last year, unit prices, wholesale prices for the bitstream products, VDSL, bitstream products will grow by about 10% between 2020 and '24, and then you have the mix effect on top that Christian has referred to. So we start -- we have the next question from Simon Coles at Barclays, please.

Simon Coles

Hi, guys. Thanks for taking my questions. Sorry for [Indiscernible], but could you just remind us your view on the various options you have for the pros and cons from using say, a partnership with ano versus say, merging with another mobile, afraid to give in, you've already been running your towers, I think in Germany for over 20 years so you already have a more developed business, so I'm not sure what merging with another mobile operator Telekom might bring. And then the last option obviously is a strategic financial investors. So it'd be great to hear latest thoughts on those three options. I know you've talked about it a lot in the past, and then just on leverage, I think last year you'd said that leverage should peak in 2021. I think now with the latest agreement with crown costs, so it feels like leverage to peak in 2022. So if you could just elaborate on that sort of bridge, that would be great and maybe come clear on how leases have progressed after the crown costs. So deal is factored in, we would assume that should come down given the May decommissioning in the U.S. Thank you.

Timotheus Hottges

Simon, long question a very short answer. I wanted to see money, I want to see the highest value. Full stop. And this depends on the deal, and therefore we will take most juiciest deal for us. We're not concerned about golden sites, we have MLAs and everything has been defined. So this is all soft, we do not need control, we're flexible on the structure, I want to see the money.

Christian Illek

Simon, first of all, congratulations to your memory. You're absolutely right. A year ago, I said net debt will peak in 2021 and we assume that obviously the Crown Castle deal is being struck and being reflected in the numbers in 2021. Now, as we're having a slippage into Q1, we -- I have to repeat myself, we're going to see a peak in net debt in this year. But what I expect, to be honest, is that we see in the second half of this given year, and that depends on the timing of the white space auction in the U.S., a slight decline on absolute numbers in net debt. We don't expect another big tower deal to come. So that's obviously always renewal business happening. But bear with us into the second half and then we should actually see either a complete stabilization or slight decline on the net debt numbers. But I think we also have to be prepared that we going to see three big impact from the first half. One is already the 7 billion Crown Castle. The other one is spectrum from the previous auction, and the third one is the dividend payout, which will hopefully get approval from the annual shareholder meeting.

Timotheus Hottges

I'd like to spend one more sentence. When we made our statement, we were not aware that the C-band auction was accelerated that way. So it came much earlier than we expected. So I see that more positive because the C-band auction, you know, made one thing clear, our strategic advantage with regard to spectrum and capacity is absolutely intact. So I do not know what this is doing wit that spectrum, but maybe they will roll it out, but it is better to have that in their hands than it is in Verizon sense. So I was surprised that Verizon was not showing up on this auction, but the advantages that we have kept our advantage on the capacity side. Now, this auction is now digested or it will be digested now -- very soon.

And then the good thing, if you look for it, there are no significant big things on the spectrum side, which are obviously coming here for the upcoming of the next years. We still have this wide spend, the 110, but this is the last thing which we had planned. But then, there's nothing big to come. And I think that's good for us because then we have a time to reduce our debt in the U.S. as we have foreseen. So the acceleration came a little bit by surprise. We didn't know this, nobody knew it. We digest it now and then we go into the debt reduction.

Hannes Wittig

Thank you, Tim, the next question is from Andrew Lee, at Goldman Sachs fish.

Andrew Lee

Good afternoon, everyone. I have two questions. Was just on the inflation that Christian mentioned earlier. Just wondering if you could talk about your confidence in passing through cost inflation customers and what timing or structure that [Indiscernible] three would be. And then secondly, just wanted to follow-up on Josh's question and your comment Tim, about the big up selling potential and your ability to monetize your five additional infrastructure. And we know you've got the pricing freedom and regulations now, but I guess hoping [Indiscernible] we got the customer demand and we've seen good evidence in customer demand through the work from home or locked down era of COVID. But what's giving you the confidence as George asked just pull forward of demand. And that demand can continue to kick on. What are the data points as evidenced you're seeing customers going to be willing to pay more for more, thank you.

Christian Illek

Okay, Andrew. On inflation, let me -- let us remain all together what are the cost impacts and then the potential to increase prices. So, what we said is on energy cost, somewhere in between 75% to 85% of the energy costs for this given year is being hedged. We have a longer-term hedging in Germany. We don't have that to a large degree in Europe, so we have to see how it plays out. But this has, from our perspective, absolutely no significant impact on our guidance. The second one is obviously salary agreements, which are ahead of us, and there's quite a bit of an appetite. I think we have to go through the negotiations. And the third one was on raw material pricing or on procurement pricing, where there was a limited impact.

So this is the cost side, and I think we're -- especially in 2022, I think we're really confident that we can get control over this throw impacts. On the price increase, I would say limited opportunity in Germany given the premium pricing which we're already commanding. But there is opportunity in European markets, but please respect that I cannot explain where exactly that is obviously to dominate and [Indiscernible] leadership team. But we will basically trying to take advantage out of the inflation by increasing prices in some markets. What gives me confidence about customer demand and especially with regard to the upselling opportunities.

Timotheus Hottges

The first thing is what gives me confidence is the evidence of 2021 and we have upgraded a third of our customer base to higher speeds in areas where we can offer it. And we have 70% to go. We see an uptake on the 100-megabit and we see uptake on super vectoring as well. But on top of that, we have 20% utilization on five fiber-to-the-home where we have build it. It is a clear focus of our activity to address the base and tour offer them higher-speed. Now, the good thing is that we have a customer base who are -- is getting more eligible towards higher bandwidth. And we have seen that, and that is exactly what we are now serving. The good thing is that we are not at risk, that are really cannibalizing us in this area. Why? Because we have upgraded from 50 then to 100 to 250.

In some areas, other operators account with 16-megabit and the like and if then cable, sorry, if fiber is available, then they have really a risk of churn. This is not the case, we do it step by step with our customers, offering higher speed and the take-up rates, especially over the last two quarters. You can go to the slide number 23, it's very impressive. We went from 17.6% to 33% uptake rate, including a monetization of that, our ARPU is going up. So that is for me, the best point, the proof point for further potential industry got. Our teams are incentivized to push this.

Hannes Wittig

Let me maybe add one point on the pricing questions. We are not -- Germany is not a market that is -- has a lot of inflation indexing or so, but Germany does have significant promotions that operators offering six months for free, for instance, and those operators could reduce those promotions that would be [Indiscernible] them on to a price increase. So we can only encourage them not to sell their products too cheaply. And with that, I think the next question, I can't see right now. Okay. Here is from Ottavio Adorisio at Soc Gen, please.

Ottavio Adorisio

Good afternoon. A couple of questions on my side. The first is a follow-up on TowerCo, I apologize, but it's the topic of the moment. It's -- this for Tim. Tim, basically you said clearly that your key priority is to maximize cash, I guess for cash I mean proceeds. Therefore, my question is, whatever bio towers and infra co, or an industrial partner look at towers they don't just look at the infrastructure, they look at the contracts. Therefore, the question is, as part of the big picture, are you prepared to review the contracts you currently have between the OpCo and the TowerCo by increasing the rent? And also, if you can tell us how contract current structure with the length, most of your peers tend to have contrast with a lot of renewal, so therefore, they can lower the capitalization of the leaves.

But normally, when you look upon the lesser parking, they do come for much longer length, something like 15, 20 years. We prepare to basically give away such a length in the contract without options to renew out and meet terms and also, you said and correct me if I didn't really get it right, that control is not a quiche. I remember, in past conference calls that control was critical, especially to some strategic towers so if it cannot operate if anything changed on that particular strategy, and if the case, how many towers control is critical? The second question is to Christian, it's much quicker. It's specifically to do with the operating free cash -- sorry, with the free cash flow AL target you have for EX US. In the CMD, you're basically target for 2024 ramp €4 billion. Now I see on Slide 49 that to repeat that €4 billion, but the perimeter has changed.

Timotheus Hottges

Of course, you had sold T-Mobile Netherlands and the fixed line in Romania. Do we have to read that 4 billion has that you reiterate the 4 billion? And if it's not the case, what will be the target adjusted for this consolidation of these two businesses? Thank you. Let me start with a free cash flow number. Obviously, you have to compare on a pro forma basis therefore, you have to deduct the contribution from Netherlands and Romania. I think they're in the vicinity of 300 million to 400 million, free cash flow.

This is the one piece which we have to factor in, the second piece is at the Capital Markets Day, where we announce that 4 billion targets, there was no increase in the Capex foreseen.

And you know that we accelerate the rollout, especially in Germany in fiber. And we said last year that we got to increase the Capex envelope by €0.5 billion, €400 million are kicking on this year. This is why the free cash flow number is moving from 3.5 pro forma to 3.7, and ultimately, we are targeting 4. And you know that given what we're seeing on the Capital Markets Day review, if there's potential to become -- to come to a higher number, we will take the opportunity. Ottavio, I'm trying to be very precise on your questions. The first one is the key priority is not cash, the key priority is value. Proceeds -- cash proceeds are definitely something which we appreciate.

Second, yes, we are willing to deconsolidate because we want to leave a business which has the possibility to leverage and to grow the business in a built-to-suit model without affecting our balance sheet fully consolidated negatively. Thirdly, we have four strategic goals in sights. We have MLAs, an independent from the tenure of this contract, these towers are not accessible. By the way, most of the most interesting towers are the antenna places on rooftops, currently where we have limitations. And this is less of the discussion here. Thirdly, with regards to control, that doesn't mean that we do not want to have a seat in it. We are not in the -- I don't see us being a full seller here. I see us always being part of this journey. And if you have looked into how we struck a deal in the past, we always made the first step with the partner,

And then we were part of the upcoming value with Swatch created at these entities. We call this the strategy of options, which we always creating. And then we want to participate in this order. And the last thing is the question about the passive infrastructure. I think on this area, we are not so focused on, for us, it's more the coverage and the network which we are providing to our end customers. Therefore, we want to monetize this. In principle, nothing has changed but, I can tell you, everything has his value. And let's have a look to the alternatives which we are working on these days. And then we come back to you and hopefully we have found a clever answer on the value accretion for that Telekom because that's the main target. We don't want to do something stupid with no, we have to be forced to do something stupid. We really do it from a value enhancing for the group here. And enter development of the operating model of towers.

Christian Illek

The MLA question, Ottavio. This is not the first time that we're selling towers. Let me remind you that we have sold the Dutch portfolio to Cellnex, and obviously that comes also with an MLA and we know absolutely that the value of that transaction is very much based on the predefined MLA.

Hannes Wittig

And just to be a 100% clear, the 4 billion free cash flow guidance ex-U.S. for 24 stands, right? We did 3.9 billion last year and we do 3.7 billion this year after deconsolidating The Netherlands. Next we have a question from Steve Mark at RET firm, please.

Steve Mark

Good afternoon, guys. I hope you can hear me okay. Thanks for taking the questions. Just a couple of questions on the guidance of that so, just coming back to Germany, I guess I'm just trying standards of basic moving parts in '22 and '23. Your comments on inflation have helped that a bit, but I look at '22, you're expecting a very slight increase, all of which appears to drop-through to EBITDA. And so I guess the message is, no real inflation this year given, what you've said, but energy costs and everything else. And looking to '23, you see a bigger increase, but only a slight increase in EBITDA. So should we read that as essentially retail business is unchanged through those two years? But the wholesale business has a correction in '22 then grows in '23.

You see no real inflation this year, but you're getting pent-up inflation in '23 as those energy hedges roll-off. I'm just trying [Indiscernible] rhythm about German guidance, please. 2Then just on the U.S. I'm kind of surprised you've gotten to stable revenues there. I mean, consents, I think has% growth. I'll take the point on leasing revenues, but given the guidance given by U.S. management on volume growth on ARPU, that would imply the handset revenues ex leasing are probably done a little bit next year. So this year maybe just help us understand why U.S. doesn't grow in Germany felt starting '22, that big pricings.

Timotheus Hottges

Let me try to answer the first question on the guidance of '22 and '23. We're pretty confident that we have full control over the energy prices. Obviously, the big tariff agreement is still out there. I think what we've done in our prognosis that we basically flat the slight increase obviously is supported by the EBITDA revenue momentum, which we're seeing in the German business. What we haven't guided yet is what's going to be the inflation impact of '23, because I don't know, right? We know what's happening in this year. I can't give you full visibility in '23. If you know somebody, please let me know.

We are more than 80% [Indiscernible] in 2022 and 75% in '23. But that only relates to the energy costs, that's true. The second one is also still intact. We expect increasing revenues in the wholesale business, and this is why we are also being a little bit more positive on the '23 numbers with that guidance figure. And all the other things which you said at the Capital Markets they haven't changed. So there is no assumption, including our operational reviews which are deviating from what we have told you in May 2021.

Christian Illek

So go look it up.

Hannes Wittig

For T-Mobile's business, they have provided guidance for '22, as you know, and they have also provided guidance for '23 in the Analyst Day last year and they have confirmed those targets. So you have a fairly comprehensive set of financial forecast for T-Mobile, and I'm not aware that any of these have changed. Next we have James Ratzer of New Street, please.

James Ratzer

Good afternoon and thanks very much. Two questions, please. The first one can just sticking on the U.S. there. I think number of your minority shareholders in the U.S. business would be quite keen to see you start the buyback this year, if possible. Christian you're talking about deleveraging already starting in the second half of the year. I mean, as the controlling shareholder, is that something you would be interested in approving this year or do you feel you stick with the original plan, not only stocks next year? And the second question I had please was just. So, I have a lot of discussions around towers, but maybe could ask around your stake in British Telecom. What's your latest thinking on that stake? I mean, I noticed that perhaps you the value of that stake is the same value is [Indiscernible] stake can access in the U.S. do you think you might you can be interested in considering an asset swap with him on match potentiates are to getting some cable infrastructure in the U.S. as well. Just being your options in latest thinking on the BT stake. Thank you.

Timotheus Hottges

So, let me start with a quick reminder. So, whenever the T-Mobile Netherlands deal is closed and we expect this to happen in Q1, we want to reinvest up to €2.4 billion to acquire additional shares in the U.S., which would bring us to 84.4%. Now on the share buybacks. But I would say the following. First, there's a [Indiscernible] statement coming from the Investors Day in the U.S., which basically set up to €60 billion starting from '23 towards '25. The second one is there's a statement for Mike who gave an indication that it may happen earlier. I think these things cannot be discussed in this kind of calls. This has to be discussed within the T-Mobile U.S. board. Therefore, I want to see how the business is developing. Yes, I'm confident that we have at least stable on net debt or slightly decreasing in the second half. Is that good enough for share buyback? We're going to see how the business evolves. But I will not basically pre -run now on any kind of share buyback discussions options in 2022.

And the BT stake, I think we have to better understand what are you doing with that stake? It sits in my pension fund, I expect roughly a 100 million dividend coming -- flowing into the pension fund this year. I think this is all we can say so far to BT. Let me, I'm still struggling with this question about the T-Mobile U.S. and the service revenue because I think that was a statement and no question. For me it was by far too negative. Look, guys, we have said that the revenue overall is stable because we are rewinding, changing the lease policy. We think from a customer perspective, it makes more sense to go into another model and therefore, we want to reduce the leases, which were accounted in the revenues in the past. Therefore, this number is stable, but the underlying service revenue, with all the growth we're having, can't avoid to grow.

So therefore, we will see an increase in the revenue, increase on the service revenue side. And this is the juicy piece, so please take that clear. There is no expectation that our service revenue is stable, it is going to grow. The second question is, look, we are in discussion with the U.S. management and yes, we can accelerate a share buyback already this year, if we want to do this. But this is a decision that we have to take. We will see how the year is developing with regards to the integration and with regards to the upcoming wide band auction and alike, and then we will decide that jointly with the U.S. team. That's nothing which we are discussing here, this is something which we'll then announce via other T-Mobile U.S. spot.

Hannes Wittig

Thanks, Tim. With that we can take four more questions and one is the next one is from Usman Ghazi at Berenbeg, please.

Usman Ghazi

Hi, everyone. Thank you for the opportunity. I've got two questions, please. The first question just on the DT group dividend. Obviously, everything seems to be running along quite nicely. You've indicated that's there's potential upside to synergies, in the U.S. given the time. When you recommend the dividend sometime in Q2, I guess, do you have confidence that the dividend can be at the higher end of the payout rather than in the mid end of the 40% to 60%, which has been the case for the last few years?

First question and then the second question was on the open letter that was written by the C.E.O's regarding the network traffic load that has been born as a result of the OTT players. I just wanted to understand, I mean how, is this a big Capex for the sector or is it that you were asking for just a factor investment shares, the better the traffic load.

Timotheus Hottges

Usman, let me start with the first question on the group dividend. Look, as we said at the Capital Markets Day, we have two vectors of dividend growth. One is obviously the growth in EPS and as we have heavy, heavy investments. In the U.S. so far, aside from special factors, we only see a slight increase in 2022, but a significant one in '23 as we also indicated, a Capital Markets Day. The other one is basically the payout ratio, 40:60. I wouldn't expect ever going to change that. And what we said.

Remember in Q3 last year, we said we always will review according to the business situation and what is going to be our proposal to our board and to the shareholder meeting when it comes to dividend payout, I think it's way too early to discuss this right now. Expect more communication as you always expected in the Q3 call, but not earlier than that.

Christian Illek

Was mine on the over-the-top discussion and the letter from the CEO is here. We have always pushed for a better level playing field of our industries. And this question about letting the over-the-top help us to build out the infrastructure is part of a big story of which we are driving with our local, but even with the European policy makers here. And I'll give you an example, since 2014, our traffic in the network increased by 13 times. At the same time, the ARPU went down by 30% in the western world, something in this vicinity.

Timotheus Hottges

It's very difficult for us to increase prices towards the end customers. By the way, politically the willingness to let us increase the prices is even something easy. On top of that, we have seen that the digital market in Europe is not existing. It is a 27 player market here. Every member has his own anti-trust rules. The consolidation -- interim market consolidation it says well it's something which is going to be difficult. So apart from the retail prices and the consolidation, the only issue which we can do is to reduce the cost. Our industry is paying off more than 50% of the profits into Capex, while in the U.S. it's only around 35%. And the consequence out of that is that per capital, the U.S. is investing more into infrastructure and connectivity than European players are doing it. Now, if we don't have the capability nor the power to build the infrastructure, this has a political dimension.

Now, the question is where is the money come from? Now, 5% of, sorry -- 5 players of the a big [Indiscernible] in the U.S., credit 50% of the traffic or if you take the big 11, they are creating 80% with their video streaming, gaming, social media platforms, and our infrastructure. Now, the ask is now that we say, by the way, if these guys are pushing content on our infrastructure for getting more data of the end customers. They're getting them for free by the way. Then they should pay for the infrastructure they're using here. Simply as that. We have interconnection fees among the telco operators. We have peering fees within our industry. So, tell me one reason why over-the-tops should not reimburse parts of the use of our infrastructure while they're not participating in this one. By the way, I would be willing to reinvest this money into fiber build-out and other infrastructure build-out.

But this is something where our political leaders should care about, that doesn't mean I'm not respecting the big over-the-top see offer this is the case. I see their success, I see how they are driving their platform model. But, this is a friendly asked that they should contribute in the connectivity which we are offering them, that they can provide even better service in the future. It's interesting, most of the politicians are listening to this one. For us, it's an upside. There is nothing which we have in our plans with this regard but this is definitely an argument which we are using in the political discussion these days.

Hannes Wittig

Okay. Thank you, Tim. And now we have a question from Polo Tang at UBS, please.

Polo Tang

Yeah. Hi, thanks for taking the questions. I have two questions. The first one is on spectrum. What are your latest thoughts on the allocation of the 800 megahertz spectrum in Germany and what do you see as the range of outcomes and impact on the market? And my second question is really just about EU recovery funds. How much impact do you think this will have specifically for the German markets and are you seeing any signs of funds being allocated and released? Thanks.

Christian Illek

Let me try to answer the first question on the spectrum. Look, we're currently applicating to basically prolong the given licenses and that is not only true for 800 megahertz, but also for 1800 megahertz, which is up for renewal and 2.6 gigahertz, as well, which is up for renewal in 2024. And we're just following the option from 2010. So ideally, and you refer the regulator to at least explore different options. It is unclear on, if there's going to be a prolongation, how the allocation will look like. And I think that is a subject probably and that speculation, if someone wants to prolong the spectrum by a couple of years, I wouldn't be surprised if the regulators coming back to us and said, clear this and get to an agreement within the participating MNOs, and that would include obviously one-on-one. But look, if this is not playing out, we're ready for an auction in 24, that is very clear. And from this perspective I think we can either go both ways, obviously, from our natural impact point of view. The first one is the better relative to the latter. But that will require that we have a consensus among the different operators on how to allocate the spectrum, especially what has been provided so far.

Timotheus Hottges

I'm very optimistic on this this auction and I expect that the German government is not making it a full-blown auction with everything to maximize the proceeds here. The German policymakers and regulators never been front runners, but they follow trends they seeing in other European membership states. And we have seen in Spain the extension of spectrum. We have seen how fruitful the allocation of 5G spectrum was, when the money was not given to the government upfront. So you saw then a huge uptake of build-out just coming back from Greece and Prime Minister Mitsotakis, he was well allocating the 5G spectrum and he sees now the benefit of infrastructure build in this country. So therefore, I think Germany policymaker are looking at the same way on it these days. So therefore, they will extend this auction without, let's say, big proceed expectations here.

With regard to the European recovery fund, my read outlook the last time I looked at it, it was something in the vicinity of €250 million what we have gained already at this regard. It's a multi-project -- it's a side project on Gaia-X. There is a lot of, let's say, projects around the schooling here in Germany. We have the funding for [Indiscernible]. There's a cloud project which is called Catena-X, which was funded where we are participating. So, in total, the recovery and the money which we are expecting there is $1.2 trillion between '21 and 2027.

Member states submitted their initial recovery on reticence plans to the [Indiscernible] so, they are now in the approval phase and there's stimulus package on Germany, on top of that which is very much going into digitization initiatives, strategy such as cloud, which I mentioned earlier. So we are with -- an independent organization, but in our company applying to this one, you know that we had great success serving public in the past. And I'm very happy that we were able to announce yesterday, for instance, that the WHO has awarded us to provide the global exchange server pandemic disease on for a 195 countries, which we are building out of systems. It's another very important societal project which Deutsche Telekom is allowed to drive.

Christian Illek

The European recovery fund of course is also a big piece for our Greek colleagues and in some of our other European nations, and in Germany, we already have significant public funds to drive digitization, especially the fiber.

Timotheus Hottges

Shown in one of the roadshows or in one of the presentations, in which kind of projects Deutsche Telekom is participating because [Indiscernible], I have no problem on releasing that.

Hannes Wittig

Last question for today is from Adam focused on the HSBC, please.

Adam Slater

Thank you very much. I had a question on IOT. I think a short time ago, you moved the business from T-Systems into Germany and now I see that TMOS has launched an international IOT offer. Firstly, I wonder if that's -- are you seeing that as the best routes to a global market? And I guess by extension of that, other products and services that you think might be better approached from a TMOS perspective, rather than from a DT one? Thank you.

Timotheus Hottges

Look, I'm just looking up because I was follow -- discussing that with my team the other day. We were a little bit late on this IoT. But now our organization has catch up significantly, and is doing very nice on that one. We have more than 45 million IoTs and machine-to-machine subs in Germany alone. This was more than 6 million on a year-to-year basis. We were growing. We have in Europe another increase of 4.5 million IOT devices. Revenue growth in this area was more than 10% and the growth drivers for this area is the automotive and logistics industries using our services. By the way, our all the machine-to-machine subscriptions are shown under the business prepaid customer segment. That is why you find it. The growing the net efforts to one thing, but we as well the part of the craziness as well that the ARPU for these devices went down as well so it just getting cheaper for all these IOT devices.

There is elasticity on the price here which we faced as well. Now, we have extended our office in two areas. The first area is, we are no offering for the big global companies together with the U.S. Having this super 5G and having that this countrywide LTE network for the first time, we can easily compete with AT&T and Verizon in this regard and AT&T [Indiscernible] the global player. And maybe you have seen the announcement of [Indiscernible] and that they are now working with us on a global place in this regard. This was a big win here for us and there are more to come. So this is the one thing and the second thing is we have as well wholesale partners we are working with like AWS and we're the only certified partner with our entity ones certified at Amazon in this one. The third one is we are now building this platform in a cloud-native environment, which is another big differentiation, which makes it much easier for customers to register to these services than going via sales and the supply organization here. We want to automate this access to the services to a maximum way prospectively, even maybe over a blockchain.

But it's a little bit too early to say. So we are investing technology-wise into this field. We see the growth coming. It will be an international offer. And we do that jointly with the TMUS, as one of the big synergies projects we are having. I don't differentiate whether this is now coming from the U.S. or from Germany or whomever or Fanta systems. We are serving the customer out of one hint in the group. And we're able to offer global services with our partner ecosystem. Is that answering your question, Adam?

Adam Slater

Yes. Thank you.

Timotheus Hottges

Good. Have a look into this one, exciting.

Hannes Wittig

Very good. Thank you, Tim. And I think you have wanted to close today's session with a couple of words?

Timotheus Hottges

For us, it's not an easy day because we're very proud about 2021 and how we delivered on the services, driving with our year results into this Ukraine crisis. I think what I want to leave with you is that I think Deutsche Telekom is positioned even in this geopolitical conflict in a very well way because we are serving the Western market. I think that our share price drop that was today, a very much driven by indices and a lot of things. I think fundamentally, there is no reason to do this. We're very confident with regard to 2022 where we are. I do not want to be seen as kind of over excited because this is a difficult environment and I even want to give you the feeling of dignity and by the way of stability.

I think we can be the anchor for a solid dividend payment, for a solid free cash flow growth, enabling society for connectivity. And this is the reason why I decided to stay in that company for another five years. The board asked me to extend my contract earlier than the expected 2023. I think that was a very clever move of my Chairman to generate a super stability at Deutsche Telekom, because we will have a new Chairman coming in at April, which is stuck to Apple, the CEO of DHL. And with me and my team here, we have now certainty as well. So I think everything is very well-maintained to face all the challenges which are around there. And I hope that we will recover soon from today's results and deliver on another record year in 2022. Thank you very much, guys.

Christian Illek

Thank you, guys.

Hannes Wittig

And thanks the two of you. And conference is now about to end. Should you still have any further questions, we kindly ask you to contact our Investor Relations department. Thanks again. And all the best.

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