Deutsche Telekom AG

Yes. Good afternoon, everyone, and welcome to our third quarter and first nine months 2016 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 nine months, followed by Thomas, who will also talk in more detail about the quarter’s financials.

After this, we have time for Q&A. Before I hand over to Tim, please pay attention to our usual disclaimer which you will find in the presentation.

And now it’s my pleasure to hand over to Tim for his highlights.

So thank you, Hannes, and a warm welcome as well from me. Let’s start today’s call with my summary on the first nine months of 2016.

Strong momentum continued also in the third quarter. I think strong momentum with investments, strong momentum with customers and customer growth, and as well with earnings, back to strengthen and focusing well on the EBITDA line.

We are very happy with our year-to-date performance and we remain on track for our Group target we presented to you at our Capital Markets Day last year. We also reiterate our guidance for 2016.

The first slide is our usual quick reminder of our main strategic building blocks. These remain as valid as on the first day.

Slide 5, you see summarize some of highlights for the year-to-date. We enjoy a healthy commercial momentum in our European businesses as we will discuss in more detail later on.

Most prominently, the demand for our fiber products remains very strong. We now connect 6.1 million German homes and businesses with fiber.

We added a new record of 1.8 million fiber customers in the last nine months alone. In the U.S., we gained 6.1 million subscribers so far this year, and we raised our full-year forecast yet again.

We strengthened our position in Europe and in the U.S. by investing more than €8 billion in our networks, and more than €2 billion in spectrum, and we are seeing the results.

Our strong growth continues. Our revenues grew over 4% so far this year, while adjusted EBITDA is up 9.4%.

Our free cash flow is up 14% in the first nine months, on track with our full-year target of €4.9 billion, which remains unchanged. The next page shows some examples for the strong momentum we are seeing with our customers.

We continued to see good momentum with our MagentaEINS convergence products. We now have 3.9 million converged subscriptions in Europe, of which over 2.6 million is coming from Germany.

I already mentioned our success with fiber in Germany, where we added a record 2.3 million homes in the last 12 months. 30% of our retail broadband homes are now on fiber, up from 21% one year-ago.

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

In the cloud and the B2B area, we grew 13% so far this year and remain on track for our ambition level. On Slide 7, let me highlight some more topics.

On Friday last week, we disclosed our agreement with Vodafone to acquire their Dutch fixed-line network with its infrastructure asset and almost 150,000 customers. This provides us with an opportunity to offer a converged proposition in the Dutch markets.

After the many exciting technology and product launches earlier in the year, the last three months were again focused on bringing innovative products to the mass market. We launched a number of proposition at this year’s Berlin Consumer Fair.

For instance, we further strengthened MagentaEINS by including mobile TV for free for our Magenta ONE customers. We now offer Apple Music for free for six months.

We added 73,000 customers to our Smart Home platform so far this year and we are getting very positive customer feedback. Our more-for-more tariffs were well-received, and after six months, already account for more than 10% of the base.

German data usage growth continued to accelerate this year. Together with Huawei, we launched the world’s first commercial network build on the new Narrowband IoT standard.

We installed the first LTE base station for our pioneer European aviation network, and as disclosed already by our partner Inmarsat, IAG intends to equip 342 short-haul aircrafts. The project is on track for a commercial launch in 2017.

In the U.S., we led the market by launching T-Mobile One, which builds on the positive Binge On experience. On the technology side, T-Mobile Austria was able to demonstrate two-gig speeds in an LTE-advanced Plus network.

Supporting our network leadership, our CapEx grew 5.5% so far this year. We also spent €2.2 billion on spectrum, half of which in Poland, half of which to further extend our low-band spectrum footprint in the United States.

As all of you know, regulation was a big subject this quarter. At the beginning of September, we confirmed our intention to connect six million German Nahbereich homes with vectoring.

We will work as hard as we can to make up for the delays caused by the much longer than expected approval process. Also well known to you, the German regulator has announced plans to recalculate interconnection fees based on long run incremental costs.

Depending on the size of the cut, this will of course impact reported service revenues, both on the mobile, and also but to a lesser extent, on the fixed-line side. While on the mobile side, the impact is broadly EBITDA neutral, on the fixed-line side, it is somewhat negative, so please be aware of that.

Moving on to the European regulatory debate, we know the current discussions regarding the implementation of the roaming fair usage policy and holds their roaming charges. Together with our industry peers and supported by the national regulators, we worry that if the implementation is not fully thought through, the European industry, and with it, Europe’s consumers could be harmed in the longer term.

Finally there is of course much to say about the European framework, which was revealed at the beginning of September. While this is clearly still work in process, we welcome some of the proposals, especially regarding spectrum.

But at this stage, the draft is still overly prescriptive and so far does not mark the clear step towards deregulation that would encourage greater investment. Importantly we believe the current draft is consistent with our plans.

So whatever the current debate, we continue to execute our plans to roll-out our very dense fiber network to as many homes as quickly as possible. And clearly our plan is working; six million homes in Germany on our fiber, 2.3 million more than one year ago.

We think these numbers speak for themselves. Moving onto our Group financials on Slide 8.

We are happy with our performance in the first nine months of 2016 and we reiterate our stated guidance for the year. We also reiterate the Group target that we stated at last year’s Capital Market Day.

Our headline revenues grew by over 4%, comfortably ahead of our medium-term guidance. Our reported adjusted EBITDA grew 9% year-to-date, 5.4% on a comparative basis.

And despite our high investments, we delivered double-digit growth of our free cash flow. To sum it up, our main Group financial metrics are well on track for what we committed at last year’s Capital Market Day.

And with this, I hand over to Thomas, who will discuss our third quarter in greater detail.

Yes, thanks, Tim, and a very warm welcome from my side as well, and let me start with the financial highlights of the third quarter. As the slide shows here, the financial highlights of the Group as a whole.

As already mentioned, our financial momentum remains strong in the third quarter. Our revenue growth reaccelerated to 6% this quarter, largely driven by double-digit service revenue growth in the U.S., and also benefiting from the rollover of last year’s introduction of handset leasing by T-Mobile U.S.

Our adjusted earnings were almost stable year-to-date, and adjusted EBITDA grew 7% in the quarter. Our underlying free cash flow grew very strongly this quarter, taking us a long way towards our full-year guidance of around €4.9 billion.

But to be clear, the strong free cash flow reflects phasing and quarterly volatility and we reiterate our stated guidance for this year. Now a closer look on Germany.

Moving onto Slide 11. In Germany, our sales were down by 0.8% this quarter.

If we adjust for the direct from roaming and for a positive one-off we reported in our wholesale division last year, our German revenues were slightly up year-over-year. Our German EBITDA was slightly down year-on-year this quarter, but as always, there is a bit of phasing in this, and we remain well on track for our unchanged guidance for the full-year.

Our mobile service revenues improved again and grew 0.2% this quarter, despite an increased roaming drag. This growth results from a steady commercial performance by our consumer division, and an improved performance by our B2B division.

Our fixed-line service revenues slowed sequentially this quarter. Adjusted for last year’s one-off in the wholesale division, our fixed-line service revenues would have been down by 0.6%.

Adjusted for the one-off, combined fixed and mobile service revenues, were almost stable year-on-year. We gained 609,000 contract customers, but this was impacted by a seasonal volatility and lower value service provider costs.

I think more importantly, our own branded customer base grew by 145,000, broadly in line with the trend in previous quarters. And we now have almost 11 million LTE customers, up more than three million in the last 12 months.

Slide 14 details some of the factors impacting our reported mobile service revenues. As already mentioned, our performance further improved to 0.2% year-on-year this quarter, mainly due to an improved performance on our B2B division.

We also benefited from a positive customer response to our new more-for-more tariffs, as Tim has already mentioned. This quarter’s improvement came through in spite of a sequentially higher roaming drag, which was somewhat expected in the summer quarter.

Without the impact of regulation and convergence accounting, we would have grown by over 3% this quarter. But before we get too excited, as before remember the first half 2015, a lot of people got very excited about the development.

We remain committed to our guidance for 1% annual CAGR in our mobile service revenues before the impact of regulation. Slide 15 shows the progress we are making on our conversion propositions and data monetization.

Only two years after launch, MagentaEINS already accounts for over 30% of the relevant customer base. And we achieved this milestone while keeping our consumer mobile service revenues stable.

I think it’s a clear evidence of our successful up-selling. Benefiting from our more-for-more propositions, data usage growth further accelerated this quarter to over 80%.

Now moving onto fixed-line on Slide 16. We added 64,000 broadband customers, as in the prior quarter.

For the year as a whole, we still expect similar broadband net adds as we did last year, which basically means we will improve in Q4 versus Q3. Line losses improved sequentially, and we still expect the full-year loss to be a similar magnitude as in 2015.

It was another strong quarter for fiber growth. We added 526,000 fiber customers this quarter compared to 425,000 one year ago.

The majority of these new fiber customers were on our retail platform. Our broadband revenues grew 1.6% this quarter, which is a slight sequential slowdown.

This mainly reflects the slowdown in TV net additions prior to the launch of our new Entertain platform. However we see this mainly as a phasing issue and remain confident that we will deliver the 2% growth, as promised, at last year’s Capital Market Days.

Our retail revenue momentum was also impacted by a faster erosion of variable core revenues in this quarter. As you’ll recall, last quarter we achieved slight fixed service revenue growth.

This quarter, both retail and wholesale revenue momentum was a bit slower as already mentioned, but we remain confident of improving retail momentum. And in wholesale, this slowdown mainly reflected a one-off in the third quarter of 2015.

Adjusted for this one-off, our fixed-line service revenues would have declined only by 0.6% this quarter. So a short view now on network and transformation on Slide 19.

You can see that we could add another one million German households to our fiber footprint and now cover 59%. We remain on track for our milestone to cover close to two-thirds of German homes by end of this year.

49% of access lines are already on our IP platform, so we’re almost halfway there, and we continue to work towards our target of migrating 100% of our access lines to all-IP by end of year ‘18. The migration of B2B customers is more complex and more time-consuming but we’re making progress here too, and have migrated over one million German B2B lines, which is about one-third of the total.

So moving onto our usual two slides on T-Mobile U.S., who already presented very strong numbers two weeks ago. We won 969,000 branded postpaid customers.

We also added 684,000 prepaid customers. Strong subscriber growth and slight ARPU growth combined to 13.1% mobile service revenue growth after 12.5% in the prior quarter.

And we saw another quarter of very strong EBITDA growth. As you know, we raised our full-year branded postpaid subscriber guidance - growth guidance once more, and now expect 3.7 million to 3.9 million branded postpaid net adds this year in the U.S.

On the next page we show some selected performance metrics for our U.S. subsidiary.

Our branded postpaid phone churn improved year-on-year, as did our bad debt expense ratio, as did our cost of service. To sum it up, another great and fantastic quarter for T-Mobile U.S.

Now back in Europe on the next slide. We were able to improve our customer momentum in most of areas in this quarter.

220,000 contract net adds mark a substantial improvement compared to the prior year. In the Netherlands, we have now grown contract net adds for five quarters in a row, 54,000 this quarter.

Our convergence momentum remains strong with 144,000 new additions. Meanwhile our TV and broadband momentum remains strong and steady, despite some impact from additional taxes in Greece.

Our organic revenue momentum was stable this quarter, despite a roaming drag of 0.5%. Organic EBITDA was down 4.7% this quarter.

This mainly reflects revenue mix effects, the impact of European roaming and increased market investments, as evidenced in the improved customer momentum. As before, we are seeing weakness in the Netherlands and Poland, while our operations in the other markets are doing well, for instance, in Greece, in Hungary and Austria, or in our recently-combined Czech and Slovak operations.

And here a short look at the IP migration and technology as well on Europe. As chart 24 shows, in Europe, we now have migrated well over half of our homes to IP, and our LTE coverage now stands at 78%.

The performance of T-Systems this quarter was negatively impacted by headwinds from a number of large legacy contracts. Unfortunately some of these headwinds will continue to weigh going forward.

We are clearly still in transformation mode here but there are also many bright spots, such as our new cloud initiatives, which will progressively offset these nearer term headwinds. The unit’s EBITDA performance was also been impacted by all-IP transformation costs, as the business customer migration is stepping up a gear here.

So we’re making progress, but it’s a bit slower than we would have hoped for. Free cash flow was up year-on-year both on a headline and even more so on a comparable basis, taking us a long way towards our full-year guidance.

But as mentioned, the strong free cash flow reflects phasing and quarterly volatility and we reiterate our stated guidance of €4.9 billion. Our net debt was impacted by spectrum payments due this quarter.

Talking about net debt, the next slide shows our financial metrics. At 2.3x, our net debt remains well within of our comfort zone of 2x to 2.5x adjusted EBITDA.

As you surely saw last week, we have prolonged our existing $4 billion funding agreements with T-Mobile U.S. beyond November.

And previous stated, we remain open for sensible extensions on a case by case basis. So my final slide, as always, summarizes the strategy we’ve presented to you at last year’s Capital Market Days.

We continue to execute well against our targets, and we remain confident that we will keep delivering them going forward. And with that, I will hand over back to Hannes.

And Tim and myself are ready to take your questions now.

Yes. Thank you, Thomas, and thank you, Tim.

And as Thomas has said, we are ready to start with the Q&A section of the call.

[Operator Instructions]. And alternatively, as usual, you can also send us questions by webcast or you could also email us.

And please would you kindly restrict yourselves to no more than two questions at a time, and then we see where we are and maybe can do another round. So thanks very much and please can we have your questions.

So I think we have a couple of questions already. Let me start with Ulrich Rathe from Jefferies.

Ulrich, can we have your question, please?

Yes, thank you. My first question would be on the B2B mobile business.

I mean, you’re sounding in your outlook by reiterating that 1% outlook and put that in sort of in the forefront now. You sound a bit as if that quarter was a particularly strong one and you don’t want to get people to get too excited in your words.

Could you maybe explain what element of that B2B performance might not come back and what the volatility - what might expand the volatility of that sort of being very strongest quarter and maybe not so strongest future quarters? I’d be interested in that.

My second question is a very technical one. T-Mobile U.S.

raised the guidance for their Data Stash and handset leasing impact by 200 million. You’re reiterating the outlook for that.

I’m just wondering why that is, because obviously with another 200 million of non-cash sort of inorganic item coming in from the U.S. that would devaluate the quality of the EBITDA, if it were showing in the DTE corporate accounts as well.

Thank you.

Yes, Ulrich, this is Thomas. Thanks for your question On B2B mobile.

First of all, I guess, what we’ve told the market during the course of the last four to six quarters was basically that our B2C - so the consumer market is very stable - sees a very stable development and is a very stable line and that the volatility in our reports is driven more or less completely by B2B. And I think what we have observed is first-half of the year, the market got a little carried away by the positives, which was driven at that time, again mainly by B2B and then was three or four quarters of a kind of frustration, because there was impact of loss of big deals and some pricing impacts there.

And again now we see the positive results. I guess the key message is if you don’t look at it on a quarter-by-quarter basis, but more on a mid-term perspective and you exclude those volatilities you have by big deals in B2B normally, and is sometimes an up and sometimes a down.

You find on a mid-term perspective, back to our guidance, which is that 1% growth, ex the roaming and the regulatory impact. And the only thing I’d like to do is urge everyone not to extrapolate if you see those peaks and dips.

Basically sometimes you have a big deal coming in into peak sometimes you have a dip by losing one. But on a mid-term perspective, it doesn’t matter.

It’s just volatility you have by those developments.

Yes. It’s Hannes here.

So let me maybe add that we feel good about the current run rate. So it’s not like we trying to suggest that it’s going to turn around the next quarter.

But as you know, mobile market in Germany has lot of participants and so visibility here is not set that we can, say, extrapolate 3% or so. That just would not be reasonable, but we’re feeling good about where we are.

And let me now just say something about your question regarding T-Mobile U.S. You have rightly pointed out that they have increased their adjusted EBITDA guidance, reflecting a greater impact from leasing and Data Stash, although when you look at the core EBITDA guidance, and that’s a core point, the most important point, there is no change.

So the core EBITDA that surely you will be focused on, and I guess, the majority of people are focused on, there is no change, and therefore there is no dilution in the EBITDA quality or so in this sense. Okay.

So let’s move onto the next question, and I’m happy to take question from Andrew from Goldman. Andrew?

Good afternoon, everyone. Thank you for the question.

Just firstly on your vectoring approval, which you just - which you received a couple of months ago. Can you give us an update on your rollout plans and what this means for CapEx in 2017?

How much higher should we expect CapEx to be as a result of this, of your ramp-up? And then secondly, just maybe capturing at the question on your TMUS ownership plans, but more specifically I wondered if you could talk through what you see as the implications from the potential AT&T-Time Warner deal?

Thank you.

Andrew, I’m going to start - it’s Thomas. I’m going to start on the CapEx profile.

First of all, I think last year at the Capital Market Days, our expectation was that we will get an earlier approval of the Nahbereich, so our original plan was to have a little bit more kind of frontloaded, meaning ‘17 CapEx in Nahbereich. Now what we’ve seen is that the approval, due to a long debate in the EU and on the German regulatory side, it shifted a bit.

On the other hand, the government has increased the amount of CapEx they are willing to give for the very rural areas for subsidization and support that rollout there. And I guess overall there is kind of decrease by later Nahbereich rollout versus the original planning, and a little bit higher rollout on very rural areas.

So that are the basic two dynamics we will see. Obviously, we will give the concrete guidance for ‘17 in end of February, beginning of March, talking about the ‘17 guidance.

But we remain clear and confident about our 10% CAGR on the free cash flow side on 2014 to 2018. And for the U.S., I hand over to Tim.

Look, we like the U.S. business.

We like our management there. We like our story there and the track record, and we do not see that there is any weakness on the overall story.

So is there any plans with regard to the change of our ownership? No, it’s not.

But we want to be open-minded to further consolidation steps in that market, what might come up there in the next years and therefore we are not changing our kingmaker strategy there. The U.S.

market is quite attractive and the outlook is quite encouraging and the share price is reflecting this. This is the right market to be in.

With regards to Time Warner merger, it’s an interesting deal and it shows that AT&T continues its strategy of diversification away from the wireless area. And it is exactly the area where we are doing very well.

And for me, this merger looks like it could be a major distraction. And beyond financial arbitrage, the benefits for me are not so clear when it comes to this content integration.

But who cares? We are focused on mobile and on the connectivity where we’re very successful and where we are gaining market share.

Thank you, Tim. And for the next question, I would like to call Polo from UBS.

Polo Tang?

Is on the portfolio overall. So how strategic is your stake in BT?

But also I just wanted to pick up on your comments in terms of the Netherlands. So given the purchase of Vodafone’s fixed-line assets, is the Dutch business core or non-core going forward?

But also the second question is really just in terms of regulation and the European communications code. Does it imply more fiber-to-the-home rollout longer term in your view?

Thanks.

The first question with regard to the portfolio. Look, there has been some speculation in the press about our shareholding in BT.

For us there is no internal discussion on that one, and why should it? We are very much looking to support BT wherever they want us - need or wherever they like our support.

So that’s the way going forward. Second thing is we anyhow are sitting in a situation where we’re not able to consider sell of the stock due to the quiet period and we are in the stand still which we have negotiated.

Looking to the BT on itself, I think the portfolio of the operation, performance of that business is quite impressive when it comes to the netted shares, when it comes to the operating margins, when it comes to the cash flow generation. The EE is doing pretty well at that point in time.

It’s performing nicely. The network is outstanding, and the integration looks like everything is on track with them.

So it doesn’t speak for any kind of requirements to change our strategy. Now there are three elements of the story at BT which are more concerning for us.

The first one is the Brexit situation, the uncertainty which is coming with that one. The second one is the pension funding discussion, due to the low interest rates.

And the third one, is for me, the most concerning one, which is the discussion about the separation, and driven by the regulator and by some competitors. So this is something where we have to be very open-minded and awake on looking out what that means from a way going forward.

But at that point in time nothing to change with regards to our shareholding here. With regard to the Netherlands, especially on the mobile assets and smaller assets, so always I’ve said there is nothing sacrosanct in our portfolio.

If the company is not creating performance and accretive to the profitability and the cash flow, everything is core or non-core, however you take that. Now I think we are moving forward.

We were lucky on this buy on the remedies here, that helps us to counteract the fixed mobile converged offers of our competition. This is at least a good way forward for our competitiveness in this market.

We have reduced the headcounts and the cost side is improving. We have changed five people out of the management team, sent very experienced manager from Deutsche Telekom into this, our organization.

We have changed the set-up of the governance for this organization so that it’s not totally in the discipline of the European organization. They could take whatever they want.

At the end of the day, they have to find, in this mobile space, a plot to increase the competitiveness. The net adds are looking quite encouraging so far, but we expect more to come.

So it’s now a value creation story within the Group, which we’re trying to drive. But I would not discuss non-core or core business at that point in time.

It’s about value creation, and we have a clear number in mind what we want to do. With regards to the third question, regulation in Europe and more fiber-to-the-home rollout expected.

Look, in general statement, we have no intention to further increase our CapEx envelope within the Group. That is not only by financial reasons, this is as well by technical reasons of - if network architects within the Group, but as well construction capacity, which we find in the German market.

On top of that, we have agreement for Germany that we are now, beyond our original plan, are deploying the Nahbereich areas. For this, we have an additional of €1 billion CapEx, which we have included into our CapEx envelope.

This is part of the guidance and we could reiterate the numbers. Again for all of you, to just remind which kind of numbers that would incur, for this year - last year, it was around €4 billion.

This year it’s higher, in the vicinity of up to €5 billion overall for the German market only. And we’re going to be able to increase our fiber build out up to 80% of the households by 2018.

With the delay, it is going to be partially going into 2019. That is due to the delay of the approval phase.

So again, we expect that there is no additional envelope needed for anything else. There are no capacity available at all, and therefore this is now the step one.

Then after 2018 or ‘19, we then have to discuss what’s then the next step towards more broadband could look like, but there is nothing we are discussing at that point in time. We are fully stretched and fully, let's say, challenged by the requirements laying on the table at that point in time.

Yes. Thank you, Tim.

And now I think we can see the success of our strategy very clearly. Six million customers, that’s a very, very strong number.

We’ve passed 25 million homes. And those numbers are I think quite leading in any context.

So when we look at - talk about CapEx in Germany, I think Tim referred of course a lot of the CapEx here with the €5 billion for the segment, Germany. But for Germany as a country, which of course includes other segments in which we operate.

So the next question please from Dominik. Dominik Klarmann at HSBC.

Yes. Thank you.

On German fixed-line revenues and what’s going to drive the improvement, as you say. On pricing, you launched your [indiscernible] promotions in August.

And then in October, I think you also started to give Entertain for free for the first 12 months. So are there other promotions you have reduced to offset those, or is it primarily just a reacceleration of fiber migrations that drive revenue growth?

So is it volume rather than pricing, what are the moving parts there? And then more strategically, what’s the reason in your view that you need those discounts?

Is it cable competition, is it reseller competition, is it something else? Thank you.

I think, Dominik, first of all, I think it’s important to remind ourselves that on a longer term perspective, two or three years ago, situation was minus 2% in retail and minus 5% in wholesale. We said we’re going to invest to turn that around, and that was basically what we did.

You look at wholesale, it’s somewhere - if you take the one-offs out, it’s like 2.5%, 3%, that’s the vicinity. And you see around 2%, not exactly, 1.7%, 1.8% on retail.

So first of all, it works. Secondly, what we did last year three times tried to increase prices, and the last step at least was too aggressive.

We changed pricing and brought it back more or less to the same level we had on Capital Market Days in ‘15. I think the way we’re doing it right is clever, because one element of up-selling is obviously you want to give the customers in an ideal case, the best speed they can have.

But guess what? What we’ve seen is wherever 100-megabit was available, 80% to 90% of the people choose 50.

And we want to make sure that people enjoy the 100-megabit, and the current pricing suggests you start with the highest bandwidth you have and then you can decide to go back instead of up. And I guess what happens is that the six million, Hannes mentioned on fiber infrastructure, a huge chunk of that was done in last 12 to 24 months.

And so as you know, there is always promotional elements in pricing for the first month. The full impact of that up-selling will kick in over time.

So there are always ups and downs per quarter. But from the longer term perspective, what we wanted to achieve and what we see right now, I think we are spot on.

By the way, we’re also seeing an acceleration in number of households moving to broadband, or not always on a quarterly basis, but at least on the yearly basis, which was another element we targeted. So I guess, we think we are in a good shape.

As you know, we are not satisfied per se with our broadband net adds. That is something which we wanted to improve and will improve in Q4.

But other than this, we’ve turned around from negative into positive territories by investment, and we’ll keep going and see more and more positive in terms of up-selling kicking in from those six million customer base in the fiber infrastructure.

Thank you, Thomas. The next question comes from Stephane Beyazian at Raymond James.

Stephane?

Yes, thank you. Just regarding the - I guess, the mobile business and the dynamic of ARPU.

Can you talk a little bit on the speed of migrating the customers to the more-for-more plan, and if you could update us on where they come from? And my second question is just coming back to the Dutch business.

How much time do you think you need to integrate the new operation commercially and technologically before really getting back into the market with, let's say, a stronger one player proposition to the customer to - sorry, to the market? And I can see that the customer trends were a little bit better in the third quarter.

Are you already seeing some improvement in the underlying trends of the business and the commercial propositions? Thank you.

Look, we had long debates about mobile and the mobile markets and the development in the mobile market. And if you look to that quarter, I think especially the mobile environment with Deutsche Telekom was quite strong, both from a customer perspective showed good, sound net add market share growth, despite the fact that we have - with more-for-more increased prices.

And secondly with regards to the development of our ARPU and the revenue as a total, which was positive. Now considering the - if you go to the Magenta more-for-more volumes, we have 870,000 in net adds.

That is, let's say the total numbers, which we have as a total, we added 490,000 in the fourth quarter on that one. The ARPU development in this one is slightly increasing.

But I thought more impressing is that the data monetization is working because what we see is a strong volume response to the more-for-more tariffs. In Q3 ‘16, we had always gig usage on an average consumer data usage, and just one year ago, we had 550-megabit per second.

So what you see is that we have a significant increase of the uplift of the data usage within this program. This is mainly driven by the smartphones.

iPhone 6S plus has the highest, and the 5S second highest. So what you see is that there is - with the handsets which we are driving to the market, we as well accelerate the data consumption, which as a consequence of that one requires higher data bundles, which is helping us on the more-for-more proposition, which is creating higher revenues per customer, and at the end of the day, higher contributions to margins for the company.

And that is something we have seen throughout that quarter.

Yes. And on the Netherlands and the timing on integration, I guess, your question is regarding the fixed-line part of we acquired recently last week.

First of all, I think the order of activities and the relevance is simple. It is ensure that we, first of all, ensure that the commercial attractiveness of our product in the marketplace towards the customer increases - and I’m talking mobile now.

It’s very important to us that we stabilize the trend in the market and be more attractive to the customer, and get the net adds in a continuous positive shape and manner in Netherlands in first instance. And also, as Tim mentioned, be aggressive on cost reduction in parallel as well.

And then secondly, integrate the business. So I guess what you shouldn’t expect is very aggressive and short-term integration, but more kind of mobile-centric and focused activity during the course of the next two or three quarters and then later on more and more type of integration.

And improvement in the underlying trends. Yes, as you see, net adds have been negative for quarters for very many quarters.

They are now since five quarters positive. Is that already a turnaround?

No, it isn’t, but it’s first leading indicator of getting the attractiveness in the market back, back to attractive proposition in the marketplace, and as I said, that’s where we’re going to focus on.

Thank you, Thomas. And the next question I would like to invite Mathieu at Barclays.

My question. First in terms of the fixed business.

I just wanted to understand, when I look at the numbers, it seems that part of the weakness if we ignore wholesale issue to the traditional voice business, which has deteriorated. Is that a reflection of a lack of price increase which is really assigned to that revenue line, or is there anything else going on there?

And more generally, is there any potential to offset that by price increases here? I understand you don’t want do it on the double or triple-play, but maybe on the single-play.

And then second question with regards to content. I think you said quite clearly that in the U.S., you don’t need content in your own [ph] strategy, but I was wanting to understand, in Germany, can you remind us what is your view on content?

I mean, do you feel being an aggregator is really the route for you, or do you think that exclusive content at some point could make sense? Thank you.

[Technical Difficulty] minutes and the impact there. I think there is a kind of natural impact we have because we’re talking about variable voice minutes, price voice minutes, and they decline because more and more people moving in complete packages being it double-play, triple-play packages.

By the way, MagentaEINS is also a complete package. That’s what we want to do.

We want to give the customer worry free, which doesn’t mean you have it in the package instead of priced per minute. And so you see a kind of natural development of this revenue stream declining.

Is there a room for price raises in single-play? We’re considering that, and we’ll keep you updated.

Mathieu, with regard to content. For the integrated markets, especially for fixed-line markets, having attractive content is definitely something which is driving the usage at home.

Now with that said, our strategy is to be the content aggregator and with our Entertain platform to have, let’s say, the most attractive content with a fingertip directly and we are willing to partner with everybody to sort of creating an open platform in this regard. This is our strategy and stays our strategy.

Does it exclude that we have some additional content exclusively? No.

As you know, in Germany, we have some of the long tail content like the basketball league or like the ice hockey league, where we find a group of customers being interested in. Does it mean that we’re now going into €1 billion investments per annual on football rights?

No, because from a market here in Germany, that would not be commercially viable and attractive. So I think it is a little bit opportunistic with regards to some exclusive content, which we put adjacent to our aggregation strategy.

Thank you, Tim. The next question I have online from Vitaliano Paridi at Eurizon.

He asks - thank you for your question. He asks the customer migration from DSL to fiber and considering our target, how many of our current customers could you migrate to fiber, and what is the ARPU uplift in our view regarding the coming years?

So, Thomas?

Yes, I’m going to take the question. First of all, let me remind ourselves that we’re not talking about migration.

We’re doing but customers choosing it, so it depends obviously on the attractiveness of the proposition, number one. Number two, as you see, the run rate on people moving into the fiber infrastructure is around 500k-plus a quarter, which is, I guess, amazing.

But we always said, as we use promotions to attract customers to do that, to move into the new propositions and those promotions very often have pricing for six, 12 months on a lower level, we see a delay in the ARPU uplift kicking in. So the guidance we’ve given of at least 2% fixed-line broadband revenue growth is obviously assuming that coming from a 1.7%, 1.8% we have right now, that there is in the future a stronger support by customers moving into fiber infrastructure and a certain additional uplift than the one we’ve have seen it.

On the 90% on ‘18, that was part of the question as well. Again, let me remind everyone that due to some delays we had in the approval process on the Nahbereich, we will shift, obviously not - we will not finalize in ‘18.

We will shift it to ‘19 here as well, just as an additional remark.

Let me add something, Thomas. I think in the past, Deutsche Telekom’s strategy was always to own 100% of the network and trying to deploy, let's say, our signal in areas where we have our own infrastructure.

I think what we are - is changing in the way how we’re approaching the market is that it’s our interest to bring our signal, our content, our TV offerings, our - whatever you associate with Deutsche Telekom to the customers, to 100% of the customers. But not always trying to use 100% of our own infrastructure.

So we’re open for infrastructure collaborations to complement our extensive and successful own deployment, which we are driving on the one side. Second, if there are partners who are offering stack fiber services, we are willing even to rent that or to deploy that in our infrastructure.

But this however takes more than one for a collaboration. We need the partners on the one side, and we need the regulatory support on the other side.

It cannot be that we might have a partner, but that moment where we partner with them, this partner is driven into wholesale bit-stream access from a regulatory perspective. So these are some commercial or regulatory prerequisites which we have to change.

But I’m very clear that Deutsche Telekom is not able and not willing to deploy the full country with its infrastructure, and we are open to reduce our investments by joining forces.

Thank you, Tim. The next question I would like to take from Jon Dann at RBC.

Jon?

Hi there. On all-IP and Central and Eastern Europe, is there an update on the plans, and for example, perhaps some tangible ways in which you can cut costs perhaps merging - some of the operations merging some countries to take out overhead?

I think first of all in terms of the phasing and the timing we have announced by country, there is no change. We will deliver what was announced on Feb ‘15, in terms of the completeness of the country.

So for instance that is this year is the bigger one is Nokia [ph] kicking in. That’s number one.

Number two is obviously part of our plan to use cross-country synergies here is the Pan-European infrastructure. We’ve set-up some first - technology-wise, some first services.

Is that already relevant for a customer to choose the product or not? It’s not, but it’s the first impacts we see in here positively.

So the first service and applications on a Pan-Net infrastructure are now available. That’s number two.

And I think number three is also that there is obviously some upsides in sharing SG&A costs across the country. So for instance, in Czech and Slovak, we are right now exactly heading towards that that we - instead of having complete set-up of SG&A in per country using cross-country, partly in one country and partly in another country, we want to set up.

So that’s all going on. But let’s be open and clear.

On Pan-Net, it’s the first services. It’s like two or three out of 90.

So it’s the start. It’s there.

It’s existing, but the magnitude of impact today is limited, and the same holds true for Czech and Slovak. But I think we are on the track we’ve announced on the guidance we’ve given here.

Yes, thank you, Thomas. And the next question we take from Robert Grindle at Deutsche Bank.

Yes, hi there. Thanks very much.

My question is about T-Systems. You mentioned that there are some large legacy contracts which are less profitable and may drag.

Is this is all about actual real-time cost and revenue performance, or are you sort of changing your view as to the future profitability of some of the large long-term contracts you have in the business? And what are the actions you’re taking to resolve this profitability issue, and when you say they’re going to drag in the future, does that mean that profitability isn’t going to improve, or could it deteriorate?

Have you looked at all your future contracts and would they lead to - are you accruing the right level of profits? Thank you.

Yes, I guess, first of all, the conclusion is, as I said in my speech, we will see improvement on a year-on-year basis. You will see that this year.

You will see it next year. But unfortunately, it will be slower than we’ve originally expected.

And one part of the restructuring effort we took last years on T-Systems was getting the legacy contracts, get the profitability improved, and that has been achieved, but as I said, not to the extent and not with the speed we originally planned to. And that’s not like transactional business, like Europe or segment Germany that is long-term contracts, and this is where you see, A, a longer lead time to change things, and B, also a longer period of time the effects will kick in.

So that does mean there is no fundamental change in our perspective. It’s a matter of speed, how fast we are able to change that.

That’s number one. And the same holds true by the way for the new important services.

If you look at cloud services, etcetera, we are still convinced we will grow above market level on a yearly basis. But we’ve seen, for instance, especially if you look at Q3 and Q4, we will see some delays in certain cloud services here as well, by the way related to the systems like, for instance, dynamic workplace.

So a workplace out of the cloud, you provide with big customers those type of things. So in principal, the key message is, it takes longer, it is delayed, but it’s still a sequential improvement year-on-year.

Okay. So the next question I would like to take from Fred at Bank of America.

Fred?

Hi, good morning, or good afternoon, everyone. So a quick question on the cost side.

Could you share a little bit what your thoughts are when we look at your 2018 margin target for the Dutch business - sorry, the German business. So right now we’re clearly in an environment of stable EBITDA.

Can you detail a little bit about the concrete actions that will drive improvement in profitability in the coming years? Thank you.

Yes, first of all, on the German business and the 2018 target in terms of profitability. There is no change.

We gave the guidance of over 42% EBITDA margin, and I guess the market has an understanding about the level of EBITDA that should mean for 2018. There is no change at all in here.

By the way, there is also no change for - as I said, for the full-year this year, which is the stable EBITDA. There is changes in the mix of what’s going on beneath that key message is, so for instance on the IP migration in B2B, it takes a little bit longer on what we’re doing there.

There is some more costs. The more B2B customers you get involved, the more load you have in here.

But that’s all elements below the top level, and the top level is quite simply no change in EBITDA on Germany in ‘16, as well as in ‘18 guidance.

Thank you, Thomas. The next question I would like to take from Mandeep at Redburn.

Mandeep?

Thank you for taking the question. I really wanted to come back to an earlier question on BT.

Unless I’m mistaken in how I interpreted what you said, you’re clearly not thinking about it at the moment but you outlined three areas of concern and the biggest concern was what’s going on with Openreach. And you said you would be open-minded.

So if - I mean, what I’m really try to get to is, if those developments on those 3 points were adverse, you’re not saying that you’re committed to this holding regardless?

Look, I’m not speculating about any kind of, let's say, investments Deutsche Telekom is doing, especially not around M&A. And so I was very open about, let's say, how we are looking at an asset, and especially in a shareholding like we have in BT.

I think it’s our duty, as managers, to consider everything within this portfolio, and the money which is implied and to see, let’s say, what kind of risks, and what are opportunities we might see in our asset base. Now that said, on the one side, we see huge upside potential within BT, especially from the integration and the synergy potential within the company coming from the fixed mobile integration.

But there are as well some downsides as well. So there is nothing which we conclude, nothing which we see at that point in time.

But I only wanted to make it clear to everybody that we’re not let's just - letting it in our portfolio without supporting it, without serving it [ph] and without looking into, let's say, the overall profitability and how this develops.

Thank you, Tim. And the next question we take from Matthijs Van Leijenhorst at Kepler.

Good afternoon. Two questions.

Firstly on the mobile towers in Germany. Is there - can you comment whether this - whether you are still investigating to sting off this essence, also taking into account the postponed IPO of Telefónica’s mobile towers?

And the second question is on fixed broadband in Germany, it came in, in my view a bit soft. Can you comment what is the reason behind it, especially considering this proposition you made in August which in my look - in my view seems pretty effective, and can you give me some color on the trends for the quarter and also taking October into account?

First of all, I guess your first question is on the towers in Germany. I thought I was clear in the last quarters that we - on two ends.

The one is we’re looking into it, and the second is, we’re not in a rush. Or take it the other way around, it was not top on our list in terms of priorities.

It was something we believe there is more, there is upside and we’ll have - we were going to find those upsides. And I think what we’ve changed now, and it was announced some weeks ago, I guess, is that Bruno Jacobfeuerborn, our German and Group CTO, he will, in the future, head that entity, will become the new CEO of that company, because he is extremely experienced in all technological perspectives in the question about the relevance of towers in 5G, as well as in the tower business per se, in terms of how to monetize potentially those assets better as well, and so on.

So what we’ve changed is not having it at the top end of our list. We took a top manager and put him on here and now seeing where we go.

But again, it’s not like - I don’t feel in a rush at all here. That’s number one.

Number two, on fixed-line broadband. First of all, there is one big difference between mobile and fixed-line.

The mobile you order a SIM and a second later, it’s active and it’s in your base. If you order a fixed-line, sometimes customer gives you a date when to deliver the product and the service, and sometimes there is also delays simply because there needs to be physical installments in the network, etcetera.

So you always have a kind of delay from selling the product and having it provisioned in a complete technological manner, and seeing it in the numbers. That’s number one.

And number two is, we’ve changed our pricing in August, which is by the way summertime and holiday season. And number three is, in Q3, basically you don’t have the full impact of those activities.

I guess what I’m telling you is that we are relaxed about the activities and the propositions and promotions we started there, because we assume and expect higher numbers in Q4. And obviously, I would not tell you without having kind of good backing from October numbers in here as well.

Thank you, Thomas. The next question, please from Stephen at Arete.

Stephen, can we have your question?

Yes, hi guys. I’ll go for a couple.

I might try and sneak one at the end as well. Just firstly, on the CapEx profile.

Can you just outline exactly the MBSE [ph] CapEx lines for the next three years, and confirm whether they are sort of baked into your overall free cash flow guidance? That’s one.

Secondly, on sort of implied €6 billion of free cash flow in ‘18. Can you confirm, when you originally said that you were anticipating €500 million or €600 million of U.S.

tax spend that’s not going to be there now? And if it’s not, why hasn’t the guidance gone up and where is that money being spent?

As you implied, it’s still at €6 billion? And then I’ll just try and sneak one in the end on the U.S., and then just come back.

I guess the share price reaction to Sprint and T-Mobile yesterday suggests that you had some [indiscernible] the deal between the two, is more possible under a Trump Administration. Can you just maybe update your thinking, how that’s evolved over the last couple of years and sort of the preference for a possible tie-up on the mobile side versus, say, getting together with a cable operator and your sort of overall thinking around the kingmaker position?

Thanks a lot

Okay. Thank you, Stephen.

So the first - it’s Hannes. The first question on the German broadband subsidy plans.

I think you’ll recall that when the first big tranche of that program was announced in November 2015, we said that we might spend up to €1 billion on this subject to our success rate and participation. Now the program has been increased by 50% and to €4 billion, and so correspondingly, we will also have a greater spending related to this program.

So if previously we said, it could be up to €1 billion, I would say it could be €1 billion or a little bit more than that. Now that being said, there is lots of - first on the CapEx side, there is lots of moving parts, and then when you talk about free cash flow, and that’s your second question, that also have moving parts.

So first on the CapEx side, I think in the mix, yes, we spend - we will have some spending related to this, and the phasing will be - a little bit of that is already in this year’s number. The peak is 2017, and I’m talking the initial program.

And in ‘18, there will be some leftover. So the new program was announced about six months later, so you would expect a slightly delay, overlapping delay, but superimposed on the previous thing.

So you have a little more in ‘17, and then a bit more in ‘18 than we previously announced or expected. So at the same time, we talked about the delay in the German near-shore vectoring Nahbereich spending and a build out, so that could give us a little bit back in 2017.

So I don’t - I think it would be wrong to expect that our spending will be completely different from what you find currently in the consensus assumptions. And the other point here to make is with regard also to your second question, there is lots of moving parts.

So, yes, you are right. In the U.S., you wouldn’t - you don’t have - you a tax relief in 2018, which is quite meaningful, and it will continue in subsequent years.

That was very good news for our shareholders and T-Mobile and our cash flows going forward. At the same time, of course there are other areas like the increased spending in German broadband, so related to the government subsidy program.

So in a way, your first and your second question, taken together, kind of almost belong together because let's say we can save some taxes in the U.S. and then from a cash flow point of view, then we also spent some more in Germany.

And from a free cash flow point of view, it’s kind of - could be a wash in certain years. But there are many, many other moving parts.

When we gave the guidance, we still had EE. Now we have BT.

And there are other parts like the interest environment was a different one, the currency environment and so on and so forth. So I think we are very happy to reiterate our 10% free cash flow guidance, and this year it implies that we will have two consecutive years that correspond to the 10% CAGR and this gives you an idea of how we are thinking about the free cash flow.

Look, with regards to the election and the change in the administration in the U.S. I’m not doing or participating in any speculations.

It’s by far too early to say, look, this is good or this bad for Deutsche Telekom and for T-Mobile in the U.S. Definitely the market reacted yesterday heavily on that one, both on Sprint side and as well on us.

We’re at all-time high, as you know, and therefore this is, let's say, how the market took it. I think for us, we do not know who is in the office.

We do not know how they’re looking at markets. And we do not know whether they take this tight market definition of mobile- only, whether they look into a more broader picture.

We do not know how they look on the Time Warner and on the AT&T deal, which is to a certain extent already a high market concentration in this regard. Now that said, so I do not see any correlation.

But what was right, stays right. We remain open-minded regarding opportunities to benefit in a possible consolidation of the market.

I was always clear that a mobile-mobile merger with heavy big synergies could create huge benefits for the consumers, because we could be much more aggressive on the consumer side, and as well we could generate very significant cost synergies here. So that makes a lot of sense from a value perspective for customers and for shareholders.

But again, it’s too early to speculate about, let's say, how an U.S. administration would look like into a Sprint-T-Mobile merger, which you are asking.

Thank you, Tim. Next question from Justin.

Justin Funnell?

Hi. Thank you.

Yes, I have two questions, please. It’s just a follow-up really.

On the domestic business, I think you’ve mentioned during the call that we should just watch out for a negative EBITDA effect from MTRs coming down and you also mentioned that roaming - you’re obviously still waiting for the final outcome, but obviously some downside risk there. Do you think these regulatory headwinds potentially jeopardize EBITDA growth in the domestic business in 2017 and you can still grow EBITDA next year, or should we be being a bit cautious in assuming flat and sort of more back-end loaded progression [indiscernible] let's say, hit your full-year guidance?

And then, I mean, just a little one at the end, OTE. One of your better businesses now, 10% broadband growth, 3% revenue growth.

You’re going to - is the 30% stake, how your position is going to remain for the foreseeable future, or are there scenarios you might have to increase that stake at some point? Thank you.

Yes, Justin, I’d take the first - Thomas here. I’d take the first part of the question, domestic business.

I think there is a misunderstanding. The impact on MTRs and roaming is obviously on revenue, it is not due to the balance we have in our fixed-line mobile.

It is solely on revenue. It’s obviously not on MTRs.

So MTR effect is solely revenue, non-EBITDA. And roaming is like expected.

There is impact, but it’s not unexpected. And so the quite simple message, I guess, for ‘16 for German EBITDA was, like we said, will be stable EBITDA.

For ‘18, I reiterated already the guidance. Now you’re asking for ‘17, that’s the missing part for the next 2.5 years, and I guess, we will be in line here with the expectation what we said as well.

To clarify, there are three regulatory - before we go to OTE, just sort of three dimensions of the regulations so that are of varying significance. So roaming, we have guided, because we have a fairly clear indication, where this is going, we haven’t got a clear indication.

Of course it’s about the wholesale roaming discussions, and how that might impact things, because there are no conclusions related to this. But the roaming drag, we said €70 million to €80 million this year.

We said there is an EBITDA impacts related to some components of that but generally it’s definitely a manageable EBITDA impact. On the mobile termination rates, no EBITDA impact for our fixed-line exposure, and how big the impact will be will depend on what the regulator decides.

But our exposure is around 3% of our mobile service revenues, and that surely will not impact our EBITDA guidance for next year. And then we did mention one area that will also be impacted by the change of the regulator towards long-term incremental costs, which is fixed-line interconnect.

Fixed-line interconnection could also be a cut that would have a small EBITDA impact on us. But it’s again - my favorite phase is, lots of moving parts, so it’s a case of lots of moving parts and it’s not - magnitude-wise, it’s not meaningfully impacting the outlook for 2017.

OTE, Tim? Thomas?

Look, first, our stake is 40%, not 30%, and there is a remaining stake of 6% to 10% from the Greek government which might be available and it’s planned that the Greek government transfers these shares to the Hellenic Republic Asset Deployment Fund. So that is, let's say, clear intention to privatize this leaving piece.

DTE has the right of first refusal, agreed in its shareholder agreement. And the revised shareholder agreement secures these rights and removes the need to agree future changes to the shareholder agreement with the Greek Parliament.

In case, the Greek State decides to sell the OTE shares, Deutsche Telekom is open-minded and look at these kinds of opportunities, and this will be on a case-by-case basis. As you know, it’s always dependent from the track record and the bid-ask spread, which we might facing.

That said, whatever we negotiate with these guys, this is not triggering a public tender or a bid for the public minorities. So whatever we do with the Greek government is not affecting minority shareholders.

Thank you, Tim. The next question is from Sam McHugh at Exane.

Sam?

Yes, good afternoon, everyone. Thanks for the question.

Just on the Dutch business again, how do you think about it? Do you think about it as sort of a defensive tool with fixed broadband to protect the mobile customer base, or could we see a more aggressive strategy?

For example, is there anything stopping you from going unlimited mobile and putting that together with fiber broadband, which would be a pretty compelling offer to consumers? And then just secondly on the U.S.

What do you think is a fair market share for T-Mobile if it were a standalone business in kind of a three to five year view? Thanks very much.

Look, with regard to the Netherlands, we have taken the Dutch business out of the, let’s say, the European governance and put it under - towards [indiscernible] governance for corporate development. We have a private equity approach towards this asset that we have said, look, we are more interested in the value creation of this asset and rather than - and being very focused on a very stringent development on networks and the likes.

This management is incentivized. This management will invest their own money into the business, but if they are able to create an upside on the Dutch environment, they are participating.

So this team is quite free in the way how they approach the market and the environment. We are facing a very, very tough competition from fixed mobile convergence.

Anyhow this market is not an easy one. We have an outstanding infrastructure network build, just rated the Best Network in the Netherlands, and it’s a little bit a situation similar to the U.S.

Now the management should find the right mechanisms and the right answers. I think it is going to be more aggressive than what you have seen so far.

Because we do not see that KPN or I guess Vodafone are really, let’s say, to give their turf without, let's say, a price. But what we are doing then and how we are creating the value in the Dutch countries is something which you will see in due course when we’re announcing our propositions there.

We want to regain momentum. We want to come back to growth in this environment, and I think we have the right weapons on hand.

With regard to the U.S., what is a fair share for T-Mobile U.S. if it was a standalone business in a few years?

We currently cover, say, third of the U.S. and our current gross add share in the U.S.

of the coverage where we are, is around 30%. We have the A-Block, which is covering 100% of this environment and the gross add share is going to be in the same magnitude of this, as I’m not sure whether I 100% understand your question here.

Are you asking for the market share of T-Mobile U.S. in the respective areas, where we are operating, or what is, let's say, the 100% question?

Maybe we can have your question again, Sam?

Just wondering on kind of a medium-term view, hope you said in most places you are 25%, 30% market share. Do you think you can get to that kind of level on a national basis on a five to six year view?

Well, I think it’s - first, we should not really provide this outlook here because it aids a very, very long-term way of thinking. I think the basic mechanics that you described, obviously our management has - of T-Mobile U.S.

has talked about. They have said we currently cover roundabout 75% of the market.

We will, of course with the A-Block spectrum that we have, further expand this. And in the first step, so with the A-Block spectrum we already have, they’re talking about 30 million to 40 million more POPs that will be covered.

And that coverage, given the way the U.S. market works, should allow us to take a fair share.

And you have set yourself just now what our fair share is. So ideally we get close to that fair share in those new areas.

But to extrapolate and to say we will then get the fair share everywhere where we operate is also quite - I mean, it would be great, but it’s very difficult to assess from today’s perspective because in the areas where we operate our fair share, therefore it also needs to stay the same, and it’s a very high fair share. So it would be great obviously to add instead of eight million customers a year than on an extrapolation basis, maybe 10 million or more, but I think we will see to that when we get there.

So maybe the next question from Guy Peddy at Macquarie. Guy, can we have your question please?

Yes. Sorry to keep harping on about this CapEx question, but just wanted to clarify what you meant by your CapEx envelope that you were talking about earlier?

Was that at the Group level, or was it at the domestic level of €5 billion for all the domestic business? Thank you.

To clarify again, I guess, first of all on the Capital Market Days last year we said we will have a continuously growing CapEx envelope. The key driver of that growth will be the U.S.

The CAGR we’ve given was 1% on 2% on the ‘14 to ‘18 basis. Key driver of that deal was the U.S., but also Germany being part of that growth but to a lower extent.

So that was first of all the message on ‘15. Now the subsidy is kicking in, as Hannes elaborated, subsidized rollout.

And on the other hand, there is a kind of delay due to that approval process on vectoring. And that’s why that number you mentioned is right for the German footprint.

Okay. And so I think we have two more questions now.

And one is from Ottavio at Soc Gen. Ottavio, please?

Hi, good afternoon, gentlemen. A couple of question.

There has been a lot of questions in this call than the previous one on the Dutch business. And the Dutch, like the Polish business in the consumer side, you basically suffered from not having the ownership of a fixed-line infrastructure but you have another business that has that particular issue, Austria.

But over the last few quarters you actually delivered pretty good results on top line and EBITDA. Now granted that the markets are different, I was just wondering if there is anything from the Austrian experience that could be leveraged upon for Netherlands and Poland?

And the second one is on the balance sheet. You’ve been very consistent with your ratios, net debt to EBITDA around 2.3x, been roughly stable.

It’s very likely the next time you report numbers will be after the end of the auction in the U.S. Your comfort zone is 2x to 2.5x.

It looks like potentially it can go above that. Therefore my question is how stringent is that comfort zone?

And second, are you already start talking to credit agencies to see even if that comfort zone is their comfort zone as well? Thanks.

So the answer on the balance sheet and the comfort zone is quite simple. We are stringent in terms of a mid-term perspective.

We are not on a quarterly by quarter basis. So last year, you’ve seen we’ve - I guess, it was one or two quarters we exceeded the 2.5x - it was one quarter, I guess, we had 2.6x, after we acquired some spectrum in the U.S.

The same might be the case in 2017. But I guess on a year-to-year basis on not looking at quarters but more on a yearly basis, it is a very stringent understanding we’re having here.

So quite clear, not on quarterly but on a yearly basis, it’s stringent.

Look, your idea with regard to what can we learn from Austria in the Netherlands and the Polish environment, a good approach, and what we do is definitely that we have the best cases, learnings, which we transfer from one country to another. So that is what we do anyhow.

And we have learned already a lot from the U.S. market, which we have implemented in some of the Eastern European environments or in Austria already.

So this is a continuous best in class approach which we are driving now. Why is Austria doing better?

Because every market is different, being it Netherlands, being it Poland, being Austria. In every market, the competitive landscape is totally different.

In some markets you have a fixed mobile converged player, who is aggressively driving that, subsidizing the mobile business. In some markets, you do not have a fixed mobile offers set in the marketplace.

And in other markets all of the competitiveness is very much around the mobile play. So it is - every market is very different, and you have to find the answers tailored to this environment.

The second one is execution. In Austria, we have a great execution.

The team is doing an outstanding job. They were very, very disciplined and smart in the way how they approach the market environment, and so it’s good execution as well.

While I have to admit that the execution in the Netherlands and Poland, and that is something where we made mistakes weren’t the best. We lost a little bit of our differentiation in both of these markets despite the fact that we have invested into infrastructure, and especially the positioning in Poland, we were not reacting appropriately to play in this market early enough.

Now with the mobilizer strategy in the Polish market, I think we make the right attempt to see that, with the positive net adds, which we have seen in this quarters, but there is still a way to go. Srini, our new Board Member for Europe is very much on this Polish activities, while in the Netherlands, the new teams are working on its proposition.

Maybe Netherlands, nothing during the course of this year. Beginning of next year, you could expect, let's say, the positioning.

The mobilizer strategy in the Polish market is already up and running, and we’re hoping to see continuous improvement now quarter-by-quarter.

Great. So the last question for today is from Paul at Berenberg.

Paul, can we have your question, please?

Yes, thanks very much for taking the question. It’s two questions really.

Just back to the roaming question. I wondered if you felt that there was the potential for the development of kind of like a balance of payments problem in roaming between Northern and Southern European operators.

Do you feel that mechanisms for addressing the abuse of fair usage maybe don’t allow for you to control the potential for kind of balance of payments problem developing? And then the second question was back to the U.K.

Just I’m interested in your understanding of the framework that the EC operates under, with respect to national telcos. Is the dispute between BT and Ofcom goes to the EC, do you see any scope under the EC framework for the EC to support the enforced separation of an incumbent operator into the network in the retail business?

Thanks.

Hi Paul. Just on your two questions here.

I think starting maybe with the second one. I mean, it is very difficult for us to take a view on how the European Commission would assess Ofcom proposals, and this is not, at this point, I think a situation in that we are looking at.

At this point, we are clearly very much of the mind, of the view that I think Ofcom will also understand that a structured separation of the BT Openreach makes no sense. And that’s the position that we have taken in our contributions there, and so I think let’s worry about that when we get there.

And I don’t think there is any - there is much reason why we should think that we should be getting there. The first question on the roaming side, as you know, there is a process going on between the parliament and the commission and the council, and I think what - this is Europe, so I think there is different interests on the table.

If you are northern operator, you have a different, let's say, balance of inbound and outbound roaming, and then our balance is fairly even, and - because we - yes, we’re German, but we also have European businesses and some very attractive tourist destinations as part of that. And I think there needs to be a good compromise, but I think also the northern European operators should - would surely not be interested in coming to an outcome that undermines investment incentives in Europe by, let's say, undermining retail pricing in their own markets.

So that’s how we would look at this at this point in time.

So with that, I think we have come to the end of today’s call. So I think - we thank you all for your participation, and if you have further questions, then of course as always, we ask you to contact the Investor Relations department.

And with that, I wish you a good rest of the week and pass back to the operator.