Deutsche Telekom AG

Hannes Wittig - IR Tim Höttges - CEO Thomas Dannenfeldt - CFO

Andrew Lee - Goldman Sachs Sam McHugh - Exane Jon Dann - RBC Capital Markets Justin Funnell - Credit Suisse Robert Grindle - Deutsche Bank Ulrich Rathe - Jefferies Polo Tang - UBS Ottavio Adorisio - SocGen Fred Boulan - Bank of America Merrill Lynch Dominik Klarmann - HSBC Stephen Malcolm - Arete

Yes, good afternoon everyone, and welcome to our first quarter 2017 conference call. With me today are our CEO, Tim Höttges; and our CFO, Thomas Dannenfeldt.

Tim will first go through a few highlights of the first quarter, followed by Thomas who will talk about the quarter's financials. After this, as always, we have time for Q&A.

Before I hand over to Tim, please pay attention to our usual disclaimer, which you will in the presentation. And now, it's my great pleasure to hand over to Tim for his highlights.

Yes, thank you, Hannes. Good afternoon everybody, good morning in the U.S.

I know you have a quite busy day on telecos today, so therefore let's be quick because we are a little bit boring maybe with our results. We are delivering on line what was expected and a little bit ahead of our target internally.

I'm very pleased to say that we are -- 2017, off to a good start here at Deutsche Telekom. And I always start with a short overview before Thomas goes into the detail.

On page four, you can see that our peer-leading growth continues. Our customer growth is strong, our revenue is up by 5.8% year-to-date, and our adjusted EBITDA grew 7.5%.

In Germany, we added a new record number of quarterly Fiber customers, and we are rapidly approaching eight million customers. In the U.S., we delivered another strong quarter, and raised our customer guidance again, as seen in the numbers last week.

We continue to strengthen our position in Europe and in the U.S. after investing €11 billion in 2016, our year-to-date investments are up 15%, so we are on track to spend €12 billion in 2017.

Despite this step-up in investments, our free cash flow is strongly up on the year. Thomas will further reiterate on that one, that is driven mainly by our good EBITDA increase.

Our high investment in sustainable long-term growth are clearly being rewarded, you see that with the good customer take-ups [ph], both on LTE and on fiber investments. We keep filling the pipeline.

We now have almost 60% of our European homes on all our team [ph] as we moved out our target of completing this massive transformation two years from now. In Germany, while we continue our FTTC rollout, in addition, this quarter we launched a program to connect 100 industrial zones with fiber to their premise.

Also in Germany, we launched LTE in 900 megahertz to improve the customer experience, and drive our network leadership. And in the U.S., we were able to acquire massive 31 megahertz of valuable low band frequencies at a very attractive price.

This will allow us to take our commercial footprint nationwide from extension of more than 18 million customers. This quarter we were also able to close the sale of our web hosting subsidiary, Strato.

This resulted in a book gain of $500 million. So if you look to the math [ph] it's a very attractive deal which our people in the M&A department were able to strike.

Deutsche Telekom keeps delivering against the targets we gave at our 2015 capital markets day. We reiterate our guidance for 2017, where we target another year of strong investments into the future, combined with double-digit free cash flow growth.

Slide five shows some examples of the strong momentum we are seeing with our customers. We continue to see good momentum with our MagentaEINS convergence products.

We now have 4.9 million converged subscriptions in Europe, up from 3.1 million one year ago. Of these, 3.2 million are in Germany, 1.7 million in Europe.

I think if you compare that with any competitor here in Germany this is outstanding. I already mentioning our success with fiber in Germany, where we added a record of 2.6 million homes in the last 12 months, 36% of our retail broadband homes are now on fiber, up from 26% one year ago.

Our U.S. performance continues to speak for itself.

We have almost 73 million subscriptions -- sorry, subscribers, having added more than 7 million in the last 12 months alone. After 0.8 million postpaid phone net adds in the first quarter, we raised our 2017 guidance from a range of 2.5 million to 3.4 million to a range of 2.8 million to 3.5 million.

In the cloud, we grew only 4% this quarter, reflecting some teething trouble, and quarter's T-Systems project write-downs. We expect growth to reaccelerate as the year progresses.

Slide six shows the innovation and the focus on the customer experience. After the success with our More For More moves last year, which by the way we were the first operator to induce, we again showed innovation leadership in the German mobile market with our new StreamOn tariff offering, which we launched mid of April.

Subscribers to MagentaEINS or to our high-value plans now get free unlimited music and video stream. We look at this as a move to drive usage and up selling.

And we have had great feedback from the media and from our customers. After two weeks, we have almost 100,000 customers on the StreamOn proposition already.

Our TV momentum accelerated to 76,000 net adds in the first quarter, and in April we launched startTV, our new entry-level TV product. Last September, we added mobile video to our MagentaEINS portfolio, and this was very well received with almost 250,000 new subscriptions since them.

We made great progress with our Smart Home platform where we added 90,000 German customers in the last 12 months. Our pioneering hybrid router now has 320,000 German customers, and we have an internal discussion how we could further significantly accelerate this.

Our networks in Europe and in the U.S. keep winning surveys.

So far this year, we won the P4 Network Test in Poland and in Netherlands; very important, because remember these were two countries where we were suffering a bit. And in the Netherlands you see already the huge improvement of the situation.

We are also seeing the first tangible benefits of our network transformation. In Germany, for instance, where we have rolled out our all-IP aggregation platform, customers find it easier to connect, and our incoming call center traffic is lower by around a quarter.

Innovation also means service innovation. In Germany, we now have more than 635,000 subscribers to our IT support service, and we saw 350,000 transactions on our Magenta service app up 50% on last year.

Slide seven compares our first quarter performance with our 2017 guidance, which we reiterate today. We expect our revenues to keep growing, and our EBITDA to grow by 4% to €22.2 billion this year.

As you know, we guide using last year's average exchange rate. If you were to take the exchange rate of our most recent consensus instead, our EBITDA guidance would be even better, would be around €22.6 billion for 2017.

And despite the further increase in investments and the cost related to the U.S. spectrum auction, we expect our free cash flow to grow by more than 10% to €5.5 billion.

Our main group financial metrics remain well on track for that we committed at the 2015 capital markets day, and we reiterate this target today. Before I had over to Thomas, let me quickly say a word on the market's favorite subject, the strategic future of T-Mobile U.S.

First and foremost, we remain extremely happy with T-Mobile U.S. performance and execution.

This continues to be an exceptional success story. Along the way, there were many decisions for us to take, and I think we deserve some credit for our consistent investments for the deals we have done, and for the ones we did not do.

Our fantastic success in the low band auction gives us the opportunity to further improve our service for customers, and to expand nationwide. This gives us another huge leg of growth.

When it comes to the relative merits of different industrial combinations, it is of course clear that we will not be specific here. From a conceptional perspective we like consolidation, and we like convergence.

Each offers opportunities for synergy and scaling, but there are also many other factors to consider, such as relative valuations, financial leverage, or future governance. There is no rush at all, and we are happy to evaluate any opportunity together with our colleagues in the U.S.

from a position of strength, and with the primary goal to create even more value for customers and shareholders. Now that the quite period has ended it is possible, if not likely, that the there will be various discussions regarding various potential strategic combinations among industry participants, including ourselves.

You know our policy that we do not comment on M&A speculation, and we do not intend to give a running commentary here. It is of course far from clear that these will lead to anything, and in any case our number one priority is to leverage the fantastic opportunity that we have had or that we have on hand, and that we just further strengthened with our great success in the low band auction.

With this, I had over to Thomas, who will discuss our first quarter in greater detail. Thank you.

Yes, thank you Tim. And my first slide, as always, shows the financial highlights for the group as a whole.

As Tim said already, we're off to a very good start to the year with both revenue and EBITDA momentum well ahead of our group growth rates we guided for at our capital market day, back in 2015, and on track to our 2017 guidance. Adjusted EBITDA growth reaccelerated to 7.5% in quarter despite a difficult comp due to the last year's one-off related to the Belgian toll system.

Our adjusted earnings were impacted by financing activities related to T-Mobile U.S. With this, adjusted net income would've grown double digit.

And our reported net profit reflects the €2.5 billion gain related to [indiscernible] in the first quarter of 2016. Free cash flow was up almost 50% year-on-year.

It's a pretty good start, but as you know, this can be volatile, and we continue to target our guidance of €5.5 billion free cash flow for 2017 as a whole. Moving on to Slide 10, in Germany, our sales were slightly up this quarter.

While total service revenue was slightly down due to various regulatory effect. Our EBITDA grew 1% this quarter on track for our guided €8.4 billion for the year as a whole, and as you know, our German business no longer includes the tower operation, these are now reported under the group development segment.

On Slide 11, you can see that our reported total service revenues were slightly down this quarter. But when you adjust for roaming fix the noble termination rate cuts or total service revenues would have growth 0.4% this quarter.

Now turning to our mobile service revenue, these were slightly weaker than the prior quarter, but it's mainly due to incremental and regulatory drags. As you can see in the appendix adjusted for the 2.2% regulatory drag and a further 0.8% convergence accounting drag, our underlying mobile service revenue momentum remains firmly positive.

As before, small quarterly trend variations should not be overrated. We do not see any major underlying trend changes and we remain on track for our capital markets guidance of 1% mobile service revenue CAGR before roaming.

Our fixed line service revenue momentum improved slightly this quarter. But again this reflects regulatory headwinds from fixed interconnection cost.

Without these, wholesale revenues would have grown 1.7% and our fixed service revenues would have been stable, so, the picture for our total service revenues in Germany one of steady underlying improvement. Our commercial performance remains very steady, we gained 51,000 contract customers in the first quarter but this was again impacted by seasonal volatility in lower value service provider cost.

Our own branded customer base grew by 89,000 adjusted for a small write-down. This would have been a gain of 130,000, which is very consistent for the previous quarters.

As you know, convergence on a strategic focus and we are making great progress. This quarter we increased the percentage of homes, but the MagentaEINS contract to 16%.

Already 37% of our MagentaEINS branded mobile contract, a part of a convergent relationship, which is this. While keeping our underlying consumer mobile service revenues stable.

Our offsetting remains very successful. Home signing up to MagentaEINS homes spend on average €8.5 that ones mobiled us than before.

Benefiting from our [indiscernible] and other innovative propositions, our mobile data usage grows further accelerated and again almost double year-on-year. Going forward our innovative proposition such as mobile TV or newly launched StreamOn should write further usage growth.

So, moving onto a fixed line on Slide 14, the key highlight is the 775,000 new fiber customers, we achieved last quarter, which is another new record. Let me just remind you that means on a working day it's around 12,000 households moving into that new infrastructure.

While our resellers keep doing well most of the new customers were on retail platform. We think this strong customer response clearly demonstrates the benefits of our strategy to bring our super dense fiber network as many homes as quickly as possible.

We are also happy that TV net additions improve to 76,000 this quarter. We added 67,000 broadband customers on track for a target of at least the same broadband customer growth in this year as in 2016.

Both broadband and line losses were impacted by an accelerated IP migration or all-IP migration, which resulted in somewhat higher churn. Our broadband revenues grew 1.4% this quarter.

A slight slowdown in the run rate reflects the impact of the promotions launched last summer, which should washout later in the year, so that we remain enclose in spite of the 2% CAGR we promise at the Capital Market Day. Positively, our total retail revenue momentum further improved to minus 0.8% this quarter.

On Slide 16, you can see that we now pass 66% of German households with our FTTC network for a total of 28 million homes. We are on track to launch super factoring in mid of 2018.

This will increase the speed for most homes in our footprint to 250 megabits per second at a fraction of the cost of the initial FTTC deployment; 57% of our excess lines are already on IP up from 53% at the end of the last year. This accelerating run rate takes us towards our target of migrating our mass market excess business to all IP by the end of 2018.

Now moving on to our usual slide from T-Mobile U.S. has already presented excellent numbers two weeks ago.

As you know our momentum remains very strong, we want 0.8 million branded postpaid phone customers, we also added almost 0.4 million prepaid customers with an ARPU of $38.5. the combination of strong subscriber growth and year and year higher ARPUs combined to 11.6% mobile service revenue growth but we also saw another quarter of very strong EBITDA growth.

As Tim has already mentioned, T-Mobile also raised its subscriber growth outlook from range of 2.4 million to 3.4 million to range of 2.8 million to 3.5 million branded postpaid net additions. On the next slide, we show some selective performance metrics for our U.S.

subsidiary while branded postpaid phone churn improved further and it's now at the record low of 1.18% outstanding. Our bad debt expense ratio was steady when our cost of services are now below 20% of service revenues.

We now cover 340 million [indiscernible] and 269 million parts with our low band spectrum, and we'll begin to deploy our new 600 megahertz spectrum this year, again it's another outstanding element of the whole story deploying the commercialized spectrum so far that is really amazing; to sum it up, another great quarter for T-Mobile U.S. Now back in Europe, more than strong quarter for customer growth in the Europe segment, continuing to Q4 momentum, 225,000 organic contract net market substantial improvement compared to the prior year.

Note that the numbers on this page now excludes T-Mobile Netherlands which has moved to our new segment group development. Our convergence momentum remains strong with 127,000 new additions this quarter alone.

Meanwhile our TV and broadband momentum remains strong and steady. Our revenues in Europe was stable this quarter, while reported EBITDA was down 4.5%.

This was partly due to increased market invest but two thirds of the EBITDA decline was due to an internal transfer in favor of the GHF segment as a result of a recent reorganization. Adjusted for this and currency organic EBITDA almost only done 1.8% year-on-year.

On the next chart, the next chart shows that we now have migrated 61% of our homes to IP and our LTE coverage now stands as impressive 89% up 5% this quarter and our final coverage has reached 26%. Moving on to Systems Solutions, this quarter is revenue in EBITDA were in line with our expectation and on track for hours stable EBITDA performance for the year as a whole as we steadily move away from classical IT towards network centric services.

The first quarter year-on-year performance was impacted by digital comp due to the payment related to the completion of the budge and tol1 system in Q1 last year which we had selected at that time. Adjusted for this one off Q1 revenues would have been stable year-on-year while adjusted EBITDA would have been slightly up.

On the next slide we show our new segment group development which mainly consists of the T-Mobile Netherlands and our German tower business. Just to recap we created this segment for operations.

We want to consider alternative ways of managing government, but a good quarter in the Netherlands following the successful launch of our unlimited proposition. We also retain our lead in the P3 network test and agree to pioneering outsourcing deal with [indiscernible].

Our customer growth remains strong the 69,000 mobile contract net and this is now the seventh consecutive quarter of contract customer growth. We also added 12,006 broadband customers and our service revenues almost stable supporting a more positive EBTIDA development.

EBITDA also benefited from increased share of similarly contracts reflecting the recent change in Dutch consumer protection laws. Our tower business reported slight year-on-year EBITDA decline mainly due to transformation expenses and costs related to integrating the towers acquired from test two years ago.

Overall the segment EBITDA was up 7% this quarter as well on track for our guidance. As already mentioned our free cash flow was almost well up almost 50% year-on-year reflecting our growth in EBITDA.

We continue to target €5.5 billion free cash flow for '17 as a whole. Our net debt benefited from the growth in free cash flow but was impacted by the U.S.-related financing activity I already mentioned, plus some additional U.S.

finance lease. The next slide shows our financial metrics.

At 2.3 times, our net debt remains well within our comfort zone of two to two-and-a-half times adjusted EBITDA. Year-to-date, we have already raised €8 billion of debt on a favorable return covering our maturities for 2017 and to finance and advance our latest funding agreements with T-Mobile U.S.

My final slide, as always, summarizes the strategy we presented to you two years ago at the capital market day, and we continue to execute well against those targets, and remain very confident that we will keep delivering them going forward. And now, we're looking forward to your questions.

Thank you very much Thomas and Tim [indiscernible]. Now we can start with the Q&A part.

[Operator Instructions] And with that, I go to the first question, and it is from Andrew of Goldman. Andrew, can we have your question, please.

Yes, thank you very much for taking my question. One's a bit of a partial question that you may [indiscernible] on free cash flow generation.

On the partial question, is there any reason why consolidation in U.S. and the synergies available should be dissimilar to the synergies that we're seeing generated in European consolidation, both mobile-to-mobile and fixed-to-mobile?

And then secondly, just on your free cash flow generation, on slide, I think it was 24, when you look at the net debt development. We've consistently had spectrum and other offset free cash flow generation, meaning your net debt -- or you haven't delevered.

Spectrum hopefully or presumably comes down now that you've made the big investments in U.S. spectrum, but just wondering if you could talk about how we should see the development of the other line, that has been €800 million to €1.5 billion over the past few years, and includes derivative accounting, vendor financing, et cetera.

Can that go down or do you think it will go up over time? Thank you.

Andrew, I'd like to start with the first question. I don't think that they are dissimilar synergies Europe to U.S., I think in principal and conceptional, they're following the same logic where they're coming from, and the areas you know.

And in mobile-to-mobile or fixed-to-fixed there are normally higher synergies than in fixed-to-mobile. Even this is something which is known, but I will take them with a similar proportion in the U.S.

compared to European ones.

And on the question on the net debt, I guess -- the headwinds we had this quarter basically are €600 million in change of valuation on the derivatives from the U.S., and 300 vendor financing. And the biggest chunk of that €600 million headwind is basically two types of one-off.

One is related to the mandatory convertible which will end this year. The second one is on the valuation on those loans we called, which is a one-off as well.

So, let's say, a big chunk of what you're seeing in terms of that €900 million headwind this quarter are one-off type of things. So they will not disappear because some of them are related to the development in the U.S., but for sure, I think there is a pretty good chance that we will see them declining.

Thank you. And the next question is from Sam at Exane.

Sam, can we have your question please.

Yes, of course. Good afternoon and thanks for the questions, guys, just two.

Just first on super vectoring, I was kind of interested in how you're thinking about the regulatory outlook for that and wholesale pricing. I seem to recall, before you had a bit of a disagreement with the regulator kind of overcharging more for higher speeds?

And then just secondly in key systems, are there anymore Belgian-like one-offs that we should be thinking about for the rest of this year? Thank you.

As to the second question, no.

Look, the first thing is we are very positively [ph] you know, deploying vectoring this stage, and we are well on track with the super vectoring in 2019 -- '18 and '19 finalizing on that one across the country. So have extended the market with high bandwidth at really, let's say, speed -- rates here.

And we're going to continue this rollout. Now, everything which is needed for that one has been approved from the regulator already.

So there are no headwinds at all. Let's say, we maybe spend a sentence on this new market consultation the regulator has started here.

He is now looking whether there are areas to deregulate the market, and to look, let's say, how the market dominance of the different players is going to be. So he is looking now into every detail of the market.

And I think the hope which we have here at Deutsche Telekom is that in certain areas where no market dominance is given we get out of regulation. In markets where others are dominating with their infrastructures we might see even new players getting regulated, but in principle that the cooperations which we are trying to do with our smaller carriers here in Germany are not infected automated [ph] largely by the wholesale access obligation and by the price regulation which is existing there today.

This is all in the area of probably ahead of 250 megabits so it's not affecting the vectoring and the super vectorization here. But the rollout and the capabilities to [indiscernible] with these two services is given, and it's safe now from a regulatory perspective.

So, may be one addition, because my answer was quite short [indiscernible]. If you look at last year, basically there have been two types of one-off.

First quarter was a positive [indiscernible]. The negative one was Q4, with the write-down's on the two big contracts we had we explained here.

And our assessment is you will not see the first one neither the second one type of situation during the course of this year.

Thank you, Thomas. We have the next question from Jon Dann at RBC.

Jon, can we have your question please.

I thought I'd limit myself to one. With the integration of the O2 [ph] towers in Germany, can you give us an idea on a timeline and how you think that will impact capacity and your competitive advantage?

Look, as you know, the competitive advantage we're trying to create and what we have created and we keep going on that one is based on three pillars basically. One is for the backhauling infrastructure.

The second one is some advantage in spectrum. And the third one is rollout where the passive infrastructure is a part of it.

So if you want to talk about competitive differentiation, we're now looking at one-third or a fraction of that one-third of it because the other elements are playing a relevant role as well here. The integration is taking place now so that they are, let's say, commercialized already.

We're going to use them, and they are part of the enhancement of the total infrastructure we are going to seed towards 5G infrastructure. You know that's for sure a kind of LTE network in the German environment is 20k to 25k towers, obviously with 4.5G, 5G development you see that is not enough anymore, and we will enhance that number significantly by the magnitude of roughly two.

And so that's part of that activity which is going on right now.

Thank you Thomas, and thanks Jon for your discipline and restraint. As I said, two questions are fine.

But obviously it's a tough day for everyone. So, Justin is next.

Justin, can we have your question please.

Thank you. On the StreamOn tariffs, we obviously saw a similar tariff launch by [indiscernible] couple of years ago.

And then in their new follow-up with full unlimited data, which the market has quickly followed, do you think that's your likely endgame in the German market as well? It's notable that markets like Finland and Switzerland seem to have been able to drive revenue growth with unlimited plans.

So is that your thinking? Thank you.

Sorry. So, the first thing is that the StreamOn optionality, you are right, it's free of charge in the existing tariff scheme, but it's not free of charge in all tariff scheme which we are offering.

It's only in the L tariff and in the MagentaEINS proposition, whether it's StreamOn optionality is bookable [ph]. The second thing is it is a great instrument for capacity management because you know the service is coming for all customers at the same speed, so it is a good capacity issue.

And by doing that we are not violating net neutrality as well because all traffic is treated in the same speed and in the same way. So it's a good optionality for organizing let's say and video and music streaming in an organized fashion.

That said, it's a great upselling opportunity because we are upselling it into the higher bundles and into the MagentaEINS offerings. And you know with MagentaEINS today we generate [indiscernible] more with a customer than outside of this tariff.

So this is a great opportunity for us to earn more money in this one. Do I correlate that with any kind of unlimited tariffs at that point in time?

Not at all. We have an unlimited tariff already which is beyond €100 if customers are interested in that one, so that's already optional bookable and it's not our intention to go into unlimited stream fee in Germany.

Thank you, Jim. And maybe also worth adding that another similar innovation that we included the entertain mobile -- so TV in our converged -- for our converged customers free of charge in September last year.

And as we said before, that has resulted in a very good take up. So we are working hard to showcase our network and motivate greater usage.

And we are seeing this coming through. And I think StreamOn is another piece of the puzzle here.

So, next question from Josh [Ph] at Redburn, please.

Hi, thanks for taking my question. I just wanted to ask about your Dutch numbers actually.

I can see that your contract gross adds -- your net adds were very good again. But your SAC declined a lot compared to Q4 2016.

So I was just wondering how you've managed to maintain the commercial momentum while reducing your SAC. Thank you.

So first of all, I think you are right. We have a great momentum there.

We have the right team onboard now. We have the right dynamics in the market.

There is a good demand from customer side as you see on the net adds. But looking at the SACs and SRCs, there is one effect we need to be aware of that is the change in consumer law there which means that basically the way the SACs and SRCs are treated as like the -- split contract logic.

So basically you move EBITDA into cash burden and EBITDA goes up. The effect of that is 17 million in the quarter.

So, excluding that, the remaining effect is around 5 million with 6% growth. So still very good growth, but this is important to understand that due to the Dutch lower, we have that kind of effect.

Nevertheless, commercial momentum, demand of customers, upselling all works well, plus also the first good step forward in the fixed line area. So we are pretty happy about latest developments we have seen there.

Okay. Thank you, Thomas.

Next question is from Robert at Deutsche Bank. Robert?

Yes. Hi, there.

Please can I ask Tim for bit more clarity about his comments around the cloud revenues? He said they were teething problems.

It feels it should be just a bit easier than that for this growth segment, but perhaps the full term growth is not like to like and something happened in T-Systems, perhaps you could just give a bit more color on that? Thank you.

So -- look in the cloud areas, we had a number of one-offs adjusted for in this year-over-year growth of 4%. Our ambition is higher in these areas.

And the weakness compared to the prior year is mainly in two areas. One is the inevitable self-cannibalization as we've been confronted.

And the second one is hangover from the deals that we had to write down in the last year. They were partially in this cloud service included.

So that said, our cloud revenues for this year and the remainder of the year, we estimate a 14% growth for the whole of 2017, knowing that we are still including some risks. I think the issues are different.

And in some areas we are good on public cloud and in some areas we are more stronger on the private cloud. I think the OTC service or the open telecom cloud, public cloud, we are doing pretty well when it comes to T-Systems, but we are weaker when it comes to Deutsche Telekom's German business [indiscernible] unit.

And when it comes to private cloud service, it is the other around. So we are on both angles focusing our sales orientation, sales focus.

And on this angle, we have now cleaned up the deals from last year. And then, we have this self cannibalization effect here in the business which we are what we are managing.

Thomas?

Yes, and maybe just to add a little bit outlook for the year, still we are very confident that we deliver this year a double-digit growth in that year. So -- because as Tim mentioned that write down in the Q4 part of last year that will go away.

So within this year, you should expect a double-digit growth for the full year on the cloud revenues, so…

So Robert, you can see we remain optimistic. And the next question is from Ulrich at Jefferies.

Ulrich, can you ask your question please?

Thank you. I will try two if that's all right again.

The first one is on the broadband intake. Obviously, you have extreme high upsell, which is really good.

But it doesn't come through on the overall broadband intake. Now you've talked about the All-IP migration impact there.

But still I mean you are running very high discounts at the moment with this promotion that you started late last year. So I am just wondering is the upsell to fiber essentially a moment of churn by itself?

Is that essentially the moment where customers sort of reconsider whether they want to use Dutsche Telekom or not? And is that the reason why despite this extremely high upsell, you are not able to accelerate the broadband intake?

Or that's not the reason, what holds back the overall intake in the face of this very good product that you are selling there? The second question I have is on the mobile service revenue growth.

In the report, you disclosed that the consumer -- your consumer mobile service revenues actually declined -2.6% in the quarter. Now I think in the annual report for '16, instead of talking about -0.7%, there is a huge acceleration in the mobile service declined in the first quarter that cannot be explained just by the regulatory impact.

So I am just wondering is there any particular one -- particular reasons that drove this acceleration? Thank you.

Look, the first thing here is you investors you gave us the trust and the support that we are investing more into our infrastructure. And we are doing that very consequently to give you an indication on the fiber side in Germany only vectoring 1.5 billion in Germany alone this year, which is the highest amount ever in this field.

Now the consequence of that is that we have now already 28 million households covered by fiber. Of which, 18 million households are serving speeds beyond 50 megabit already.

Now from this 18 million, we have 8 million households where we have now a subscription already, so where our line is active. And early in the first quarter, we added another 800,000 to this utilization.

It's our prime interest to rollout as quick as possible to cover the entire landscape of Germany. I have a program which is called 100%.

Hundred percent means not only covering it by our own infrastructure but even by cooperation so that we use smaller players in the regional areas where we then could hold by [Ph] excess, but we could everywhere achieve the signal of Deutsche Telecom. That's the program behind and that is what we are driving actively these days.

And with 8000 net ads on fiber this quarter, you see that it's getting executed quite successfully. On top of that, is that a risk of churn that we are all driving at the same time?

No, it's the opposite long-term I think we have more happier customers with higher bandwidth with a modern IP infrastructure and with all the services that Deutsche Telekom is offering, in these areas where we have 15 megabit plus. We even sell much better on the TV service.

So business driving our dream, so our net promoters go us rating and at the same time, it's happening as well on the upper side. So I think it is a very clear and consequent strategy and people gaining the speed they are very happy buying the service.

Yes, so as to what Hannes said. First of all, there is 67K on the broadband net ads.

We think it's a good decent number, it's not exiting because there is some impact of churn in there, which we should not confuse is not related to any fiber infrastructure or infrastructure situation but it's simply due to all-IP migration. What happens is basically that in some of the areas and more and more in the areas in the country, we use the prolongation of customers or even the win of customers last year to move them forward into IP infrastructure.

Now we are reaching a situation where we have some customers in the region, which are sooner on the IP and don't want to move and what we are doing is we move them in a forced manner. So we send them a level basically and tell them that we are going to stop the PCN-based service and it was always clear that, was it investment to, was investments we are doing into an IP infrastructure, better customer experience more efficient infrastructure.

We will reach that situation that some of the customers are on PSTN and are now willing to move without the next trigger and that what's taking place right now we address the customers to move towards IP and some them then churn because the way we need to do it from a legal perspective in Germany with first of all and it's actively to cancel the contract and then make them more often to comeback, which is kind of weird situation. But that's the way it is and this is the trigger here, so it's our all-IP migration and not a related to a fiber infrastructure situation thing.

So that was the first question and I think the second question was on B2C on mobile revenue. I think there is a kind of confusion in there and your question was basically why has the trend that reiterated sequentially and the answer is simple, they have not suggest for the regulation and we are showing the same number as in Q1 and even if you go for four quarters perspective, there is a fluctuation of 0.5% in their which is kind of normal B2B was a little bit up, B2C a little bit down but there is not a kind of structural changes at all, it's simply the regulatory impact and that's it.

Yes, thank you, Thomas. Going back to the subject of fiber we have a question from Polo of UBS via email.

So I will read it out for you.

BT has a announced this morning that, it will potentially make significant investments in FTTH. What are the risks that Germany follows the U.K.

and that DT will have to undertake FTTH investment over near to medium-term? How are the German U.K.

markets different in your view? So I think Tim will answer this.

Look the first thing is, we have a clear rollout plan and we have all set the first thing is that we are being sufficient bandwidth to almost every household in Germany and then suddenly we thought about let's say how we speed up because the needs and the used cases of customers easily are all covered with bandwidth of up to 250 megabit under second. Second, we are investing almost 20% of our German sales and so clearly we have you know, we are running full steam on investment in Germany at that point in time.

To be honest, I have let off planning capacities here in my technical PTE organization -- from a technical field organization here because we even want to be faster rolling out vectoring super vectoring. The second I remind is we have the densest street fiber network of any European incumbent much denser than almost any cable network and as a result out of this we have a very high dense and then a very good service, which we could provide to the customers and I haven't uttered any complaints that on the speed it's not fast enough in the areas where we have build out.

Next year, we will launch our super vectoring product and this will give us great boost on speed on top of that, 250 megabits in most of our footprints, and so this is happening as well and maybe there is a technical issues, which we should refer as well; in Germany we have a lot of household where we have more copper lines lying in the ground, while other countries only have one line going into the specific household. So from a capacity perspective, from a rollout perspective, from a coverage perspective and a strategy perspective, it's not our intent to follow this FTTH rollout, if I compare the bandwidth of Germany with the U.K.

I know that we are already doing much better and the amount of households, which are covering in Germany, is already significantly bigger.

Thank you Tim and just to put a number to our investments, we are spending €1.5 billion to see on the FTTC deployment and that's so it's - I think it's quite important to make clear that we are not under investing, we are investing as we previously mentioned the all-IP migration ahead of peers is spending more than any other European incumbent on our FTTC as a fiber-based exits and that's just something to keep in mind. And the next question I have is from Ottavio Adorisio at SocGen.

Hi, good afternoon. I have a couple of questions from my side.

The first one is on towers, it looks maybe that's relatively volatile over the last five quarters. You mentioned that you had some cost for integrating the [indiscernible] towers.

I would be grateful, if you can just tell us what's the underlying profitability you have on the tower business and how much were these costs in the last quarter? The second one is on the wholesale segment.

This quarter report quite good trends an improvement from the last quarter. In the commentary, in the results you mentioned about the contingent although that is gaining momentum.

The question is that how much profitable is a contingent customer vis-à-vis that's simple you have customers you used to have in the past? Thanks.

Yes, so just on your first question with integration cost I mean I think you saw that the EBITDA was slightly down in this first quarter and as we said that reflects transformation expenses but we are not let's say at this point in a position to split that in great and more detail. So we will have to get back to you on this one and then Thomas will talk to you about the contingent model.

Yes, the question about the profitability wholesale versus retail. If you do that more or less it's the same that's the short version of the answer.

Whether it's being, if you look at the transaction on the wholesale versus the retail side bottom-line it's roughly the same result you get obviously on retail there is extra opportunity so to say for instance my agenda items for the up selling path we have in their et cetera. Those things you can't do if you have the customer on a wholesale basis, but the sheer pure transaction per say is roughly the same on house services retail.

Great. Thanks, Thomas.

Next question we have from is from Fred at Bank of America Merrill Lynch. Fred?

Hi, good afternoon. Thanks for taking the question.

Two questions first of all, on the German mobile market. We've seen a number of moves from Vodafone recently, which will take on this in particular the protection of their brand too low at your segments, you think your current price grid is competitive and it clearly think you will StreamOn this is addressing the data offering and second if I can try some generic question.

Not at all need to the U.S. but in a potential murder scenario, what are the parameters for you to retain for consolidation of an asset even if you see it is going down 50%, so if you could explain this from government perspective in particular remind us how you do it in Greece with 40% ownership?

Thank you very much.

Fred, I'll start with the second question. It's basically an answer given by the accounting standard on IFRS you need to have control so either you have control for instance by majority or you have control by a minority share, share but a shareholder agreement which gives you enough control that the accounting standard except that control is in place even if you have below 50% that's the logic.

Your questions how and we think about German mobile market look in the German mobile market there always some ups and some downs in the market and recent months has seen more rational pricing and even at the low end of the market this was very good development. Just you know here referring to the price increase of €5 for the days on that flat including the young segment or let say the price increases on the, our net flat from the high end or even seeing to re-launch of the tariff portfolio of [indiscernible] and so the antiterrorist are less attractive as they was in the past.

So from the low end segment we saw definitely Let's say rational behavior because the network cost and the interest of the and distribution costs are reflected in this a much better. And Vodafone has been a bit more aggressive this quarter than the last quarters and tariff and the young tariff there was the €100 initial bonus given extending the Christmas Promo.

And so this was quite aggressive and then even they had on the subscription of the brand they were giving 100 gigabits for one month as a giga boost. And activation fee for which is very aggressive as well.

And so this might, be due to their commercial phasing and so we will see whether they are still on check with regard to their more for more pricing move whether this is, an ongoing trend but we see it more at least at a kind of seasonal things. So there's always some volatility which in all markets but in overall and you see that with our development the picture seems pretty steady.

We're not getting nervous by one or the other promotion in the market but we always be very concerned if this is a continuous momentum against us which we don't see. We continue and our business to perform pretty well and we're seeing great usage growth our networks has one all as this year.

And last year so we're doing well and you see even this MagentaEINS as a kind of integrate proposition is resignation to a lot of mobile customers as well. We have not even started the 900 megahertz initiatives to further improve the coverage in host so, our focus is on quality, service is stays there, and we are sticking out with our network and in the mobile environment.

So we are confident that we could continue this more for more and this value and create a story going forward. I hope that the rest of the market is the seeing at the same way and behaving rationale.

Excellent and I think the next question we have is from Dominik. Dominik, can we have your questions please?

Yes, thank you and just one more on German CapEx I mean you've been very, Very clear there but I just wanted to check if this new program to connect the 100 industrial zones with fiber to the premise is the beginning of something bigger not in the broad, in the broad market but maybe selectively in the, in the business market. And behind that whether you see economics of fiber to the premise becoming more attractive or you see maybe demand for high uplink capacity growing stronger than you saw previously so, any new thinking there would be interesting and then maybe just a broader question on what you consider the biggest risk to German fixed line service revenues.

Growing over the next two years so, what's the biggest risk from your perspective is that network overbuild is it aggressive pricing from cable or resellers or something else. Thank you.

Look Dominik, as start of something bigger you know I think Deutsche Telekom has never invested more than what we're currently doing 20% of this huge amount of revenues into our business is already big and everything what we're doing is into fiber rollout at that point in time across the country, we almost 500,000 kilometers of fiber build already and we are limited in a capacity from our next planning people and even on some construction company sources in Germany. So there is nothing bigger than what we're doing currently.

Second, I'm do not you are the cleverest people on the world and but at the same time, you're running into the same trap as everybody, there is a discussion that is [indiscernible] which is somewhat coupled or abated good word which is only fiber to the -- pure fiber-to-the-home. For us, there is only good bandwidth or bad bandwidth with the customer.

This is our pitch and we want to convince the customers than what they buy from us is a reliable good quality of service where they could use all digital services at their home and on the move. And for this we're developing different technologies it's anyhow hybrid infrastructure and we have said now look for the commercial area where people and the meter stand is really working on high digitalization where symmetrical Speeds up and down low it's Synchronize speeds are needed that way, in this areas are building fiber makes a lot of sense for this, for this entrepreneurs.

And we have now said look these guys might need higher bandwidth immediately today and in this area we've focused directly on build out through the companies while in the rest of the country we are building the fiber in the streets and we use couple on the under last mile to expected to what we have said so, this is a good initiative to strengthen the industrial backbone of Germany but it's not something bigger it is a pod of something bigger.

And on your second question what's the biggest risk for fixed line revenues to grow and I'm not sure way heading towards what I can tell you is what we showed you in 2015 on the capital market is what our assessment is what's right for roll out, what's right for development of the revenues meaning upselling et cetera. All this as you know remains we're right now on our way to deliver it.

There is no significant change or news on that one has always for fixed an operator the biggest threat is regulation although I think we can say that for all plans we are doing well here but in principle that's always true but there is nothing special, nothing extra, nothing new I have in mind in terms of the fixed line revenue development.

Thanks Thomas. Now we have a question from Steve at Arete.

Steve, can I have your question please?

Yes, yes afternoon guys. Thank you for describing as the clever people in the world but for them it never happened to me.

But I just wanted to come back to us and under the question up front about the synergies that we're offer and I guess I look at solely differently and when I look at Germany in particular I wouldn't do the test [indiscernible] has been spectacular success in fact you and Vodafone are fully benefited more. When I look at Sprint, I look at some of if plus on steroids in terms of you know the handset financing under investment, high multiple and how do you sort of handicap the risk that you know you did a deal and it went wrong, you got the wrong concession you just in the regulator in the U.S.

is very, very different and therefore you would be less exposed to sort of regulator concession risk and the chance to your competitors you know gain all the advantages and you possibly lose them. Thank you.

Look you belong to this smart people but you know I have given the hence already in my statement at the beginning that I'm not you know taking place in any kind of speculations about value or essence of any kind of the market environment and the U.S. It is irresponsible and you know how sensitive to capital markets are reacting on any comments in this face off of, of the environment that I'm not going to give any kind of indication on values or whatsoever, please except that this will be even you know my position for any road shows in the future that we do not make any comment because there is so much speculation up and forth and down and back and that I not will participate in this discussion.

Right. Thanks, Tim; very clear.

So we have a question from [indiscernible].

Thank you very much, gentlemen. My question is also in U.S.

but I don't want to kind of focus on valuation at all. It's more about strategy.

Give then strong subscriber growth that you have in the U.S., I argue that possibly it makes less sense even too look at Sprint. You realistically -- you'll be acting as their savior.

I would argue that possibly it makes more sense to look at content provider such DISH or U.S. cable companies.

So the only thing I am asking a sense of your strategic thinking of subscriber acquisition versus content acquisition in the U.S.? And second one it's all good to write down the value of BT.

And realistically, it has no impact on your valuation. But given that you have clearly different content strategies of acquisition versus aggregation, and I guess we know which one is the right strategy.

I want to know what is the rational potentially to hold down to a state unless were hoping for optimistically for a share price recovery there?

First of all, the logic of the write down in BT is quite simple. It's IFRS counting standards.

They are standards and we apply them. And the logic of those standards say -- clearly tell us when we have to do the write down and you see them through the P&L.

By the way, the other way around is not right or not true, IFRS also said [indiscernible] you won't see it in the P&L. So that's kind of asymmetric accounting logic you have to apply by standard.

And I think the whole thing is not related to you mentioned the different views on content aggregation. For instance, in our situation strategy because I guess the local situation in the markets are very different related to content.

As you know Germany is very extremely -- high free-to-air level and of quality and access to content whereas that's not true for the U.K. or other European countries.

Also some of our countries like Greece where we play a different game on content side. But I think that's not related to any discussion on the valuation of BT.

It's just accounting standards.

Let me first answer the question on BT, and the logic about the [indiscernible]. Okay, sorry, Thomas.

I was just thinking about the first question about how to answer this U.S. issue here.

And look, my answer is now very philosophical or metaphorical. Look, we like geese, we like chicken, we like pigeons.

We like every kind of poultry which is existing, and we look into that one as long it is playing out to be a better for the customer, better for our customer successive experience, and better for creating value in this environment.

Okay. I have one more question via the internet.

And the question is if we can give us -- whether we can give some more color on mobile termination rates and roaming impacts in the next quarter. So I suggest that we agree with this from an Investor Relations department specifically on a quarterly perspective.

But generally this year, we expect on top of the impact we had last year further 30 million of roaming drag in our European business, further -- total 80 million drag in our German business. And we have also termination rate drag which incrementally I think is 60 million also this quarter, right?

This year, sorry; and we had one month of that already in 2016. So -- and then I think the quarterly progression will be fairly pro rata.

Last question we have from [indiscernible].

Yes, good afternoon. Thanks for taking my question.

[Technical difficulty] probably the housekeeping question first. If I got it right, you factoring volume includes by around 0.4 billion in the first quarter.

Can you give us some kind of indication on addition, how this figure should develop for the full year? And then the strategy again on network, looking forward, would anything regarding the German network rollout change if we see a new big government program coming up probably with the next government that would be geared more towards real fiber investment.

Look, I'll start with the governmental question here. The first thing is we have a good program, which was originally 1.7 billion which has now doubled up to 3.4 billion, to cover the rural area in Germany with this subsidization program.

Most of the cases, you have to invest 50% and 50% is coming from the other side. And very important know is while doing this you have to give then wholesale access to everybody.

So for instance, Vodafone is not participating in that program because they do not want to have give anybody wholesale access to their infrastructure. So, in this areas, it is Deutsche Telekom who is mainly participating in this kind of programs, more than 50% at that point in time.

The rest is coming from more or less local players who are putting their towers on this areas. That said, the question about extending this program beyond that, I would answer isn't that stupid.

That our tax money is going then into additional subsidization. Shouldn't the government not first answer the question why is the industry not sufficiently investing on the standalone basis?

Shouldn't it be at the end of the day, a state-owned or let's say build-out infrastructure, or, should it be a competition on infrastructure in our fixed line infrastructure? I think if you talk to the political leaders in this environment, most of them they want to see that the companies themselves are carry out, and the new market consultation which has been started by the [indiscernible] is exactly addressing this topic.

How let's say to create a better infrastructure competition in the environment and how even to unfreeze maybe new kind of dynamic here in this broadband build out for Germany. And I think for us, it is always something which has to do with price hygiene.

And we believe that the price hygiene is not manageable as long if you have a wholesale access regulation at prices below this old price regime. So, that is one of the hopes which we see that we have different prices for different animals here, and I hope that at the end of the day something -- something and something changed in the setup of this industry with the conversation putting additional money.

If there would be additional money coming to that one depends what our role is and how we participate. I would say that even in this environment, Deutsche Telecom would be the one who is investing more than the rest of the groups here.

Look, the Vodafone guys, they are not extending their footprint. They are just extending the speed in the areas where they are working in.

And the local carriers don't have the capacity to go for German-wide build out. So then the road is back to us to use this subsidization model.

And then we have to do the calculation and which price regime is then taking place.

Yes, and on the first question, spectrum on volume, this quarter was 4 million. Last year's Q1 was 700 million, and you're right, we are using this [indiscernible] instrument for managing our receivables.

And obviously, it depends very much to full year on how the operational development especially in the U.S. looks like during the course of the year, so we don't give a full year guidance.

But I guess it's fair to assume that we will see not more -- not a higher level of factoring during the course of the full year. As I said in the first quarter, we are 300 million below last year's level.

Hey, and I think that's the end of our call today. And thanks all for participating on a busy day.

And we look forward to seeing you on the road shows even if we don't comment on certain matters, but I think -- I talk about poultry, yes, we will talk about all the birds in the sky, and these kind of animals. So, we have now come to the end, and I would like to ask you that if you have any further questions to contact our Investor Relations department.

And with that, I give back to the operator. Thank you.