Deutsche Telekom AG

Yes, good afternoon, everyone, and welcome to our second quarter 2019 conference call. With me today are our CEO, Tim Höttges; and our CFO, Christian Illek.

As always Tim will first go through his highlights for the year-to-date, and then, Christian, will talk about the quarter in more detail and then we have time for a Q&A. Before I hand over to Tim, please pay attention to our usual disclaimer, which you'll find in the presentation.

And now it's my pleasure to hand over to Tim.

Welcome everybody here all from my side. Thank you, Hannes, for introducing and let's wrap up where we stand.

Look from a summary perspective, I can tell you first half year all hands on Deutsche Telekom and just as a preliminary, I can't remember a quarter during my 20 years at Deutsche Telekom which has shown numbers like this. You know we had 7% growth on revenues, 8% growth on EBITDA, 24% growth on the earnings.

We had a lot of willingness to transform within the company. We have announced changes in our shop footprint.

We have announced changes within two systems portfolio. And even on the unorganic side, we made a lot of progress with integration of Tele2 and UPC.

And on top of that we had this good step forward in our approval process within the U.S. So I think a lot of things are heading towards the right direction and I'm very happy about where we stand after half-year.

All our operating segments are growing on both sides of the Atlantic. Our EBITDA AL after leases is up almost 8%, year-to-date, organic sales are up by 3.2%, organic EBITDA AL after leases grew by 3.7%, and our ex-U.S.

EBITDA AL grew by 1.8% in the first half. Our free cash flow is up by 9% like-for-like and adjusted earnings grew by 3.9%.

So the things are moving. CapEx in the U.S.

was front-loaded as to our guidance, while ex-U.S. CapEx was partly stable as we promised.

We are well on track for our 2019 guidance and every key metric and for every segment and we are well on track for the long-term growth guidance, we gave at last year's Capital Markets Day. Moving on to Slide 5.

The foundation for our strong growth remains our good investments in networks. In Germany we already passed over 22 million homes with super vectoring speeds up to 250 megabits per second and we are on track for our 28 million customers or households being approached by year-end.

This year, as outlined at the Capital Markets Day, we are completing our German FTTC footprint, and we are beginning to ramp-up our FTTH deployments. Initial focus here is on the subsidized build-out in white spots in the business parks and on collaborations.

We made further progress with our IP migration reaching 93% of German lines, so up from 90% last quarter. So we are well on track to finish the German B2C migration this year and the B2B migration next year.

German LTE coverage close to 98% full-year target, our Telco added another 1,400 new sites in the last 12 months. This is on track with our ambitious plans to increase our site footprint by one-third by 2021.

This quarter was of course big for spectrum auctions not just in Germany where we could all watch the daily drama on the bonus NETS again to our website. In Germany we acquired 130 megahertz of additional spectrum at a cost of €2.2 billion, 110 of the spectrum are additional to our current footprint, 80% of our base stations are already ready for 5G.

We have all the ingredients for leading the market in 5G and this is clearly our goal. In the U.S., we successfully participated in the 2 millimeter wave spectrum auction.

We were able to boost our nationwide average holdings to almost 500 megahertz at a cost of only $840 million. While we are busy building our low-band 5G network at the end of June we also launched our first 5G offerings based on millimeter waves in six American cities.

Moving on to Slide 7 and our momentum with customers remains very strong. More than 13 million German homes already subscribe to our fiber products, 2.4 million more than a year-ago.

In Germany, and in our European markets, we added 2 million converged customers in the last 12 months. We added 3.1 million mobile contract customers of which 1.7 million organically.

And T-Mobile continues to grow strongly, you know the numbers and raised this guidance for 2019 blended post-paid net adds again tell us a new range of 3.5 million to 4 million. This compares to an initial guidance of 2.6 million to 3.6 million net adds.

T-Mobile also raised its 2019 EBITDA AL guidance to $12.9 billion to $13.3 billion up from an initial $12.7 billion to $13.2 billion. T-Mobile also said they expect CapEx at the top end of their previous range.

At the same time, we are happy to confirm our $13.4 billion 2019 EBITDA AL after lease target for our ex-U.S. operations here, so the European footprint.

However we only confirm but don't raise our Group guidance at this stage. The reason for this is a higher than expected U.S.

GAAP IFRS translation mainly related to the so-called power purchase agreements. These are essentially forward swaps related to our complete shift towards renewable energy.

Because of this swaps, we now expect the U.S. GAAP IFRS translation at around $0.7 billion this year instead of an initial $0.6 billion.

This pretty much offsets the T-Mobile EBITDA AL guidance hike at the Group level. In the Appendix to this presentation, you can also find the guidance for each segment which we again confirmed this quarter.

While we're delivering on the financials, we remain busy working on the portfolio. This remains a key focus.

Let me start with the big news we had two weeks ago when T-Mobile entered a Consent Decree with the U.S. Department of Justice.

We also announced several agreements with DISH. These agreements mark further important steps towards final approval of this transaction.

We continue to see this as a major win-win for U.S. consumers and our investors.

You can find the details in the various filings. We reiterate our $43 billion synergy target.

But we are particularly pleased that the agreements protect our plans to supercharge Un-Carrier as we intended it. We will spend an unprecedented $15 billion to aggressively leverage a unique combination of frequencies, a market leading 300 megahertz in total.

We will create a totally transformative and superior 5G network. So we're ready to successfully compete and U.S.

customers stand to benefit whichever way you look at it. We have now gained many important approvals and we remain confident and optimistic about the remaining regulatory steps in the U.S.

Back in Europe, we have fundamentally strengthened our operations in Austria and the Netherlands, while we have exited Albania. We have carved out our Dutch Towers and are working on our Austrian towers and by the way our German Tower has been legally separated since 2002.

I was surprised about the excitement that Vodafone you know announced separating their Tower business in Europe but anyway. And the next step in our T-Systems transformation, we have announced to transfer our telecommunications and classifieds ICT portfolio unit Frontier Systems into the German segment by midst-2020.

We might discuss this in more detail later on, but this is an important step to focus the business more towards the customers in the respective area of telecommunications. This will create a more efficient and customer friendly setup.

And we have decided to carve out the T-System Security and IoT portfolio units to make them more agile and competitive towards the different customer groups which we are ending. With this, you see that Deutsche Telekom is working hard on all fronts within the very competitive landscape we are facing.

I would hand over to Christian who would give you more details on the financials of the second quarter.

So, thank you, Tim, and welcome from my side. So let me start with the Q2 financials displayed on page number 10.

Reported revenues this quarter were up by 7.1%, organic growth was 2.9% very similar to the last quarter. Reported EBITDA after leases grew by 7.1% and that would have been 3.5% organically.

So how do we grow outside the U.S.? EBITDA growth DT ex-U.S.

was up 2.9% this quarter and that would have been 1.5% growth on an organic basis which is a little bit below the guided run rate but it's very much due to phasing in the DHS and we're absolutely comfortable to meet our full-year guidance. Free cash flow was up by 5.4% this quarter, a bit below the full-year run rate.

But you know that our cash flow is quite volatile and you can see this if you make a comparison on the first half-year results where free cash flow grew at 11.4%. Adjusted net profit grew by 7.4% or roughly $100 million and the strong increase in the reported net profit obviously is related to the Toll Collect settlement which we faced in the second quarter of last year.

Let me move to the operational performance by segment and let's start as usual with Germany. Total revenue grew by 1.2% very much driven by total service revenue growth but also by increased handset revenue growth.

EBITDA after leases grew at 2.4% this quarter same number as you have seen in Q1 and is very consistent with the full-year guidance. As we're moving to the service revenue, you see that the service revenue overall grew at 0.6% this quarter and that was very much driven by the performance in the mobile service revenues but also wholesale.

Headwinds obviously we're facing also due to the IP migration in the fixed retail revenue side, fixed retail revenues declined by 1.4% which is a bit worse compared to the last quarter. Wholesale grew at 2.1%.

And in the mobile side we had a service revenue growth of 2.4% and that includes a negative impact of 0.6% coming from regulation. Don't be too optimistic for the next quarter.

Next quarter we're facing two negative effects on the mobile service revenue. Obviously we're going to see the full-quarter impact on the international calling regulation which we haven't seen in the second quarter and this will coincide with a tougher comp effect next quarter mainly related to the visitor revenue phasing from last year.

So that will probably weigh a bit on next quarter's service revenue results. But overall we're absolutely confident to meet our 2% CAGR guidance which we have given to you at the Capital Markets Day.

So if you move into the next page, you see the steady performance on the mobile site. We had another 150,000 -- 140,000 net adds which was fueled both from B2B and B2C.

On page number 14, you can see that the mobile data usage continues to grow. And the last quarter it was 3.2 gigabytes, up from 2.8 gigabytes in the previous quarter.

And also we see a steady growth in the convergent offerings now in the last quarter 54% of all Magenta-branded mobile contracts a part of convergent relationship. That's an increase of eight points compared to the 46% from last year, and 23% of the broadband households are now in a convergent contract that's another increase of three points compared to the 20% last year.

Moving over to the German Fixed performance. As you can see we had quite a bit of a soft increase on the mobile broadband net adds.

This is driven by a couple of factors. One is overall we're seeing a slower market increase overall in the German broadband market, while at the same time the IP migration impact continues to be fairly stable.

If you exclude the IP migration, we would have been well above 30% in net add growth but to be honest we're not satisfied with that result and all operational teams are now, we have all hands on deck and actually to basically increase that momentum going forward. We had the 15th consecutive quarter where we have more than half a million fiber net adds.

This is a very strong performance as you can see. We have seen some softer performance on the wholesale side in the recent quarter but that remains a steady growth engine to us.

Finally, we added 58,000 TV customers consistent with a better growth which we have seen in the recent quarters. Taking a look at the revenue trends on the fixed line side.

As I said earlier on our retail revenues fell by 1.4% very much driven by a weaker single play and other revenue performance. On the other hand, the broadband revenue growth remains to be fairly stable with 2.3% growth also in line with what we have seen in the last quarter.

Let's move onto our usual slides from T-Mobile U.S., who have already presented their great results including another guidance upgrade two weeks ago. We won 1.8 million new customers.

This is now the 25th consecutive quarter with more than one million net adds. Our EBITDA growth under IFRS was 6% slightly below the 7% reported by T-Mobile on the U.S.

GAAP and Tim explained it. This is very much driven by a negative impact on IFRS driven by the power purchase agreements.

Taking a look at the performance metrics for T-Mobile, a stunning postpaid churn rate with 0.78% compare this relative to the recent year-end 2018 or even 2017. I think the commercial results as we have seen that also in the previous quarters underpinned by a very strong network performance and the cost of service were slightly higher compared on a year-by-year basis because we received some hurricane-related reimbursements back in the second quarter of last year.

Moving onto Europe, page number 19. 300,000 additional mobile contract net adds 330,000 new converged customers that brings us to a household penetration in Europe to 45%.

This is an increase year-over-year of 11 percentage points. Steady broadband performance was 63,000 net adds and a slight increase on the TV side where we have some pretty hefty competition in Romania here.

So this strong commercial performance obviously continues to fuel the financial growth which you can see on page number 20, reported revenues were up by 2.8%, EBITDA on a reported basis was up by 5.9%. If you basically make a comparison on an organic basis which means take UPC out of the equation, revenues were up by 0.4%, and EBITDA was up by 2% which is slightly better than the last quarter.

This is why we remain absolutely on track with our full-year guidance and also with our Capital Market Day targets which we have been to. Next slide Page 21 is T-Systems.

On T-Systems, I think we're making good progress on a very ambitious transformation plan. But let me clearly state there is still a way to go.

Our order book continues to develop positively. You see that we have a 15% increase year-over-year; revenues are fairly stable and on EBITDA side, let me draw a comparison on a half-year performance.

On a half-year comparison basis, EBITDA has increased by 19% and that also keeps us very confident that we're going to reach our full-year guidance of $0.5 billion EBITDA and also we'll be committed to our Capital Market Day targets. Next segment.

Group development obviously the results here are impacted by the consolidation of Tele2 Netherlands and we have an interest segment transfer of Dutch Towers from T-Mobile into DT Towers as of January. The organic sales grew by 2.1% and EBITDA grew by 6.3%.

The underlying Dutch mobile service revenue growth accelerated to 3.3% based on steady commercials. And as Tim already said, during the last 12 months, we have added 1,400 physical sites here in Germany, so we are well on track with our footprint expansion of 9,000 sites in between 2018 and end of 2021.

On the Tower side, the recurring rental revenues grew by 3.4%, while EBITDA after leases grew at 2.9% everything's on an organic basis. Let's get to the last two financial charts.

One is dealing with free cash flow, net debt, and net income. And then we get to the balance sheets ratios.

As I said earlier on the free cash flow grew at 5.4%. This was mainly driven by higher operating cash flow while which was overcompensating the front-loading of the CapEx spend in the U.S.

From a guidance perspective, we're fully on track with the guidance which we have given. The net debt has increased by $3.8 billion Q-over-Q.

This is very much driven by three factors. One is the payout for the group dividend.

The second one is additional tower leases which we contracted in the U.S. And the third one is driven by payouts especially for the millimeter wave auction in the U.S.

and that drove net debt to a $3.8 billion higher level compared to Q1. Net income, as I said earlier on, was up roughly $100 million.

That was very much driven by a stronger EBITDA performance despite the fact that we had to face higher depreciations and also higher payouts to minorities. Therefore moving to the final chart which is basically showing the balance sheet ratios, you see that all of our ratios whether it be in rating or whether it be in the leverage are still green.

However one has to mention that we are really at the upper, upper end of the corridor, when it comes to leverage. We have given ourselves a target of 2.25 to 2.75 and now our leverage ratio is at 2.74 but we expect a slight improvement towards the end of the year.

So if I sum it up, I would say it was another good to very good quarter in Q2. We're delivering against our 2019 guidance.

We're in line with what we have said at the Capital Markets Day. And with that Tim and I are ready for questions.

Thank you.

Yes, hi. Just a few questions.

Just in terms of German Mobile, now the German spectrum auctions over. What are your thoughts about the prospect of network sharing in Germany the way your latest thoughts about the risk from a fourth mobile network build?

And my second question is really just following up in terms of the German broadband market and the commentary that you obviously highlighted that there's a slowdown in terms of the broader market. We've also heard it from some of your competitors.

But what is your perspective on why the market is slowing down, the German broadband and has that continued in terms of July and August? Thanks.

Hey Polo, this is Tim. So let me start with the network sharing agreements and discussions which we are having.

I think we have said publicly that we are open to collaborate and in order to improve the capacity utilization of the existing sites. I think Vodafone also stated their willingness to collaborate.

There is an obvious place for sharing which relates to some of the coverage obligations which we are having especially from the 5G auction which has been defined, especially the white spots or the waterways where it make totally sense to collaborate. Now that said, you should know that our tower costs, which we have established 2002 we have already quite a few tower locations.

The ratio is today on all towers is 2.3 times. So that we have to find out where this kind of collaboration and tower sharing is in addition is possible.

We're exploring currently share options from a technical and from an economic perspective. So it's too early to say where we are heading to.

But in any case let's shift a little bit the principles how we are approaching these negotiations. We are talking about reciprocity.

So our Deutsche Telekom is coming but the second even more investments and amount of towers in the German landscape. And therefore it's not that I give you one sly tower and you give us the access to the rest of the towers that doesn't make sense, so they should be following the principle of reciprocity.

So 10 from me, 10 from you. That makes totally sense.

Then we have a benefit out of this. This is the one idea.

The second one is we haven't decided on the way how we are sharing. There will be definitely a sharing based on the passive side.

That's an easy one. But whether we go into one sharing and other sharing and capabilities, this is from a technically based not so easy and we have to really understand whether this is feasible.

One last sentence tower white spots. There is an initiative from the government to build sites in rural areas.

I think the idea is here to build a passive infrastructure with connectivity which we can use then for our antennas. And we definitely support this idea because these are areas and the very rural areas in the countryside and even in natural reserve areas where it is very difficult for us to get any air sites so that the government is then supporting us on this makes total sense.

This will help to reduce the build-out costs and it will give them full coverage everywhere prospectively and that is something which we are supporting as well. So we have a good dialogue with the Ministry of Infrastructure and on this subject as well.

Let me continue with the German broadband market. So what we're seeing right now and if you compare the net adds of the other competitors in Germany is that the overall market growth is slowing down.

One of the arguments which we are getting is we had a -- let's say an artificial migration impact in Germany coming from people from the outside entering Germany which has slowed down significantly. This is one of the reasons.

At the same time as the market slows down our forced migration rates keep at the same level. So the impact of forced migration becomes higher.

What we also see is that most of our competitors continue to offer longer promo periods compared to us and therefore obviously we have to think thoroughly through on how we basically change that momentum in order to increase our net add share. Do we see anything longer-term July, August I think it's a bit too early to tell.

I would say the only thing which we can influence is our place. So we have to optimize our go-to-market.

We cannot do anything on the market development. We'll see that but expect us that we're working on our net add share and I think everyone is basically in sync here.

Polo, I think I missed one part of your question which was with regards to Eins & Eins and the mobile network build-out of the next operator which has been seen. Look the first thing is we have now an incoming fourth network operator.

But on the other side Eins & Eins Drillisch is not a new player. It's already an established player in the market with over 9 million customers and so therefore he has already let's say a base which he can use to try to utilize a perspective infrastructure.

He's going to build. As part of the merger remedies Eins & Eins has national roaming rights on the Telefonica Deutsche network.

So he's even enabled during the phase of building his infrastructure to use existing capabilities off one of the operators. And therefore we take that very serious.

I think they have there is a decision for new operator being made and we will react accordingly here from our perspective without going into the details on this one. But we take him quite serious with his ambitions to build out on infrastructure.

Given his 25% build-out requirements by 2025 and the spectrum he has acquired we expect that at the beginning he will act regionally limited, so in specific areas. He will combine that then with a national roaming he has announced on the Telefonica network to offer country-wide service.

I think all things considered, we will see some impact on the market from this player. It's good to have him because it will even help in the rural areas and to have another kind of pillar for building sites and building infrastructure.

So I hope that the better government and the political leaders have made at the end of the day pays off.

Okay. The next question is from Mathieu at Barclays.

Yes, good afternoon. Thank you.

First coming back to tower and actually network sharing, so do you see I think just the statement of objections to your planned network sharing agreement in the Czech Republic. I was wondering if you think this is a very special situation or special case or actually you think we should make some read across for similar deals in other countries and you were just mentioning Germany.

So I was wondering how you read that statement in the context of Germany? And the second question I'm sure you have a little bit of spectrum auction fatigue but I guess that the outcome of the spectrum auction wasn't exactly what the regulator and the government expected.

And I wanted to see if you thought they could be thinking differently for future renewals say maybe 800 megahertz in a few years time in order to try to provide the kind of outcome we got. Thank you.

Okay. So let me start with the Czech situation.

So first of all let me note that the state of objection is not a final ruling. And obviously we're strongly opposing the preliminary conclusions which have been drawn by the EC.

We strongly believe that the network sharing has vast benefits when it comes to innovation, when it comes to better efficiency by retreating cost synergies and so forth and obviously providing better, better quality. To your question whether we've seen a read across.

No, we don't see a read across different countries. First we have to see how the final ruling will look like in Czech.

Secondly we're taking things. Also we have that discussion on M&A for example in the Netherlands on a country-by-country basis the EC has been very clear about this that they're taking everything on a country-by-country on a case-by-case basis.

So we don't see a read across on this one.

Look I would not call it a spectrum fatigue which we are having here. I think this is not a cause of business here and there are auctions going easier.

Others are more difficult. I just want to draw your attention to what's happened on the millimeter wave auction in the U.S.

I think it's a fantastic outcome for the U.S. market and even for deploying high bandwidth in for the U.S.

citizens. I think the German auction wasn't as easy.

And I was clear what it was coming out. I was announcing that even publicly.

But at the end of the day the auction was chosen. The methodology was chosen as we know it.

I think the design has contributed to higher costs. At the end of the day because shortage was created on spectrum and that was why it took longer.

Now on top of that I think reducing the increment as they did it during the auction was even another failure of Bundesnetzagentur, in the way how they designed it which ended in a very long process of uncertainty. And on top of that, I think even you know taking 100 megahertz of spectrum out where it’s totally unclear how this is getting allocated to the industry and to the players and maybe being fully unused at the end of the day in most parts of the country.

I think this isn't design failure of this German auction, no. Without going too much detail because I think it's not making a big difference for investors at that point in time.

And I will -- and we are working on a letter on a suggestion constructive approach tells that [ph] second again to what in the future should be done differently in this auction and then the auction designs. And I think we are still contesting the auction in court in the way always how it was designed in parallel because I think this was in lot of areas was unfair, how it was designed.

So what under the bridge management always have to live with their interdependencies. So we take it as it is and we move forward and we’re designing our rollout plan according to this one.

And there's nothing else to be said is that we are trying to avoid mistakes as happened in the upcoming auctions.

Great. Thanks Tim, thanks Christian.

Next is Georgios at Citi please.

Thank you taking the question. I have two, the first one is around the U.S.

deal and I know you can't comment about the details but more about thinking on how to approach the objections that some of the states have expressed. And what I wonder is whether you have any plans to engage in a dialogue with them perhaps in find a settlement for or whether you think given the help what you have from the relevant authorities it makes more sense just wait it out and wait for a finance cost decision?

And my second question is around the network sharing options that you have, the two operators that share in Germany but maybe also in other countries not just in Germany have kind of left the door open in their conference calls for a single, hope for some more collaboration in legacy technologies perhaps even a single 2G network, where the other two or three operators can roam in that way you'll see a lot of spectrum, you get rid of a lot of costs and equipment and everything else. Is that something you are considering or so and if that's the case, if you could share with us which what's the framework which you think to maximize the synergies?

Thanks.

George let me start maybe a little bit broader with the view on the U.S. situation where we are.

Look I think we stepped over a big hurdle recently with the DOJ approval. Now and for us this is a major milestone which was achieved because we have now both from the SEC and from the DOJ we've got the federal support.

And, yes, the process was much longer and more complex than we all thought. And, yes, there were remedies being imposed here on us.

But what I can tell you is the deal mechanics and the deal logic is fully intact. Our deal logic was always to build-out a 5G network which is unique in the U.S.

market. And part of the remedies is that we built 97% upon in the next three years and 99% in the six years on 5G services beyond 1 megabits per second.

And this is part of the package, part of the remedies, part of let's say our strategic plan. The $43 billion synergies are confirmed and not tackled.

And the profitability and the long-term cash generation is supported or is let's say, confirm from us as well. And so I think the deal logic is intact.

And having now both federal institutions supporting the deal. What we have had to accept was that there is another operator being created.

And DISH as the remedy taker is taking the Boost, the Virgin Mobile and the Sprint prepaid business which has 9 million customers. He's getting 800 megahertz of our spectrum.

He is supported by a seven-year MVNO on this one. And on top of that, if we decommission shops and sales, he even can take DISH to build his own infrastructure.

So if we see all of this package together, our logic is intact. But nevertheless there is a significant opportunity for DISH to build a credible disruptive fourth wireless carrier in the U.S.

with the remedy. So I think we found a very balanced approach on all the sides you know to support the customer interests, to support the competitive interests, and as well to support the network build-out in this environment.

So I think we're very, very convinced about this deal logic. When we go now into the card and when we're trying to get the justification and support for these.

Clearly the states filed their lawsuit before our agreement with the DOJ. And therefore we believe that a lot of let's say this remedies which I just described are addressing their concerns already.

And but nevertheless we will be willing to engage with the state agencies including those who are part of the lawsuit to file kind of reasonable agreement. Today we expect that we meet in court which is now organized or let's say for the beginning of December, the 9th of December, is the court where the lawsuit is taking place and that is the time or the date while we are working on those.

Okay. When it comes to the network sharing especially in Germany, sorry it should disappoint you, it's a little bit too early to basically comment on details because we haven't had detailed discussions yet.

Well we always had throughout the 5G or after the 5G auction period to build-out the rural areas as we have been obliged to do so, it doesn't make sense for anybody to do it on themselves. So there is a rationale obviously to go for network sharing auction.

The easiest way would obviously a passive network sharing. But I think that is contingent upon the discussions which we have to have and you see that we have quite a variety of sharing agreements in our portfolio.

Just remembering you about the T-Mobile check and O2 question which we just had. I think when it comes to the German tower market one thing is very clear.

From a tower perspective, that's going to be a growth business because we're going to see additional demands and build-out in the rural areas. We will have another player who has to build-out a network.

So there is obviously a lot of towers to come to the German markets from a tower perspective, it's really attractive market.

Great, thanks. So next is Akhil at JPMorgan.

Yes, hi good afternoon. Thanks for taking the questions.

Can I just kind of follow-up on the topic of towers. You've talked about network sharing but Tim you mentioned at the beginning or early on in the call, your surprise at the share price direction of Vodafone's comments.

I guess just keen to understand how you think about that I guess network sharing and synergies have been talked about for a long time by yourselves and others. I guess the shift people perceived from their end was an attempt to try and monetize the valuation arbitrage that is perceived between tower valuations and Telcos.

So to what extent are those things you're talking about in terms of thinking about, how do you think about the merits or not of actually financially spinning out towers? So I guess that will be my first question?

And then the second one is on the U.S., I guess it's a bigger picture question. I mean you've obviously talked about the deal logic remaining intact despite the remedies.

How do you think about the operational performance in U.S.? I guess one of the things that stands out since the deal was announced is the extent to which Sprint numbers have missed consensus numbers we've seen.

If you look at Street numbers double-digit costs to EBITDA mid-term. I guess how do you think about the execution risk that that entails.

And I guess your confidence in actually delivering on the objective of that transaction financially. Thanks a lot.

Okay. Let me just go again into the tower question here regarding the monetization.

Look the first thing is that we talk about that towers already since 2002 and I mentioned that I was the one first Chairman I signed the first context of this company and since then we're operating independently, we have now a new term to that business, new management and significant cost savings in our EBITDA AL just to give an example after six months $274 million I think that was the number which we have seen. So we improved the performance of this company by -- every day, not just by the way creating value.

And second, Christian said it, this business is heavily growing and today it is 100% owned by Deutsche Telekom shareholders. So the moment where we monetize that business that moment we might lose this opportunity.

So therefore you have to find the right timing to monetize this business. I strongly believe that even our towers have a value of 20 times on what we have seen in the market and I saw some sell-side.

Now even you know putting into the some of the parts here which I think highly appreciate that because it is creating more transparency about the asset base of Deutsche Telekom. Now guys give us some credit with our GD troops Good Development with Doris Langer and Christian on this.

We have a track record on finding the right way of monetizing assets. Remember when we did the MetroPCS deal at 1560 and was the strike price when we did the deal remember how we monetized Scout, how we monetized Strato at the right valuation nobody expected.

Look just on this small transaction of Mishtolia where we had loss making to online portfolio in a shrinking click rate business which we exchanged into stock which is how today more than $515 million worth of equity value. So I think we have some track record on how we monetize it.

And by the way it is not the question of how, it is more the -- it's not the question of whether we do it. It's more the question how we are doing.

Are we considering an IPO at one point in time? Are we trying to merge with somebody on this one creating synergies beyond the portfolio which we have?

Are we selling pieces of that one? Are we going out of the majority at that point or are we developing that business for a while knowing that this asset is growing.

So guys please give us the credit for what we have done in the benefit of the doubt and be aware that we are looking of every opportunity which is rising in the marketplace. I'm very open on that one.

That is why I pushed the business into Group Development where this is suited today. And let's comment when we realize value than rather announcing something and then running after all commitments.

So the second question let me thing, the U.S. bigger deal logic tech operational performance in U.S., Sprint missing consensus.

And look I'm not commenting on any kind of internal discussions whether DISH business is in tech. It's delivering on OpEx and CapEx synergies.

And if you want to realize the value you need on the total business and not only half of it, you need it all. Look customers in spectrum are at the amount of what we have in mind.

So I'm not commenting on any REIT rate here on the conference call please understand that.

Yes I mean you have clearly confirmed the OpEx and CapEx synergies of the transaction. I think you also had Brexit on the core that where we are in terms of our leverage assumptions and EBITDA business case.

So next question is from Ulrich at Jefferies, please.

Yes, thanks very much. My first question is about the remedy deal.

I think in the past we've heard you discuss the risk that DISH had bit of a lift to just track record. What is it that protects you from this in the current deal, is it the structure of the contract, is it maybe that the industrial logic of this deal aligns you better or what gives you the confidence that this is good deal partner in this -- from this particular angle?

And the second question is kind of back to the broadband slowdown, I was just wondering is there an element in the reasons also that you're now discounting in the test the best way discounting the offers initially and knowing customers sort of get back to paying full price that it is sort of a bull shark there or is this simply not an issue when you look at the numbers of what's happening in your own customer base? Thank you.

Yes. With regard to the first question, not easy to answer, first, you know, you meet in these deals, you know, always you know your new partners and you never know how the future is looking at that point in time.

And I know, Charles, you're going to now already four years. We once had a discussion to merge our businesses.

That's quite some time ago. I meet him on a regular basis.

I think he's a great entrepreneur and how he has driven the business. But, we know about his reputation and therefore you know the only thing what we can do is to protect ourselves by drafting and agreeing to contracts which is giving us and our shareholders appropriate protection in that deal.

Now you have seen the 8-K filings and I've read them, so you know about what has been said about the protection rights. I do not want to disclose, I'm not allowed to disclose anything which is going beyond that.

But we got two protections in change of controls and other things. So therefore, please, and just trust us on that we have an appropriate and diligent way of how we are drafting contracts here.

So, when it comes to the broadband question, so specific answer to a specific question. No, we don't see a bull shark.

So we don't see a significant increase in churn once the customer has to pay full price. What we're seeing is that competitors are still significantly more aggressive on promos than we are.

And I think we have to think through how we get to an operational full potential when it comes to go-to-market activities, whether it's going to be up sell or whether it's going to be specific office -- specific reasons in order to bring up the net add ratio on the broadband side. But it's not like customers are leaving us once they're seeing the full price.

Great. Thanks.

Next is Mandeep from Redburn, please.

Hi. Thank you for taking the question.

I just wanted to -- just a quick question on the dividend. Is it reasonable assumption should the T-Mobile deal complete this year that we should just assume the dividend for Deutsche Telekom will be €0.50.

Is that a reasonable or fair assumption to make, if you could maybe just help us with that? Thanks.

Look I can only come back to our dividend policy and we said that there's a floor which is €0.50. I have been asked the question especially if the deal closes this year, what's going to be the full impact of the combined entity, we said it's EPS dilutive.

But since we don't have full visibility in the Sprint books we can't tell you the exact number. So, I cannot confirm a €0.50.

I cannot confirm anything else. I think we just have to simply take a look into the combined entity and then take a look how EPS is impacted.

Knowing how important next question is for our shareholders. Christian and myself, we have said that by the Q3 results after discussing that with the supervisory board and giving a direction towards this and knowing exactly where our business is heading to which looks quite positive at that point in time, we will give you an indication by the next quarterly results on how we think about the dividend for 2019.

Okay. And with that we move on to Christian at HSBC please.

Yes thank you. A couple of questions.

First one is on your earlier statement on the U.S. what you said basically I think literally we don't raise our U.S.

guidance yet. So I mean do you see that there's upside if they hit the higher end of their own guidance.

Is that why you're still a bit cautious where they end up? Secondly there was a decision on StreamOn and I think you are now basically allowing you roaming so all the customers can use it outside of Germany.

Can you quantify maybe the financial impact from that? I mean you already guided for lower H2 is that one of the reasons?

And then, lastly on T-Systems, yes there was some announcement that you are transferring the connectivity business over to the German unit. And can you maybe quantify the EBITDA effect impact, I think the total business of T-Systems is around €500 million or so this year which would be transferred just how you feel?

And then is it is it fair to say generally that you're a bit behind maybe in your restructuring plan? I mean was that transfer over its part of the plan or was it kind of a new development?

Thank you.

So let me start with the StreamOn question, obviously there were quite a bit of intensive discussions on whether we would allow roaming yes or no on the EU on the StreamOn proposition. We finally came to the conclusion that we will include this because we are forced to but we don't make any statement on the financial impact of that I would say proposition expansion.

Let me give you a little bit frame of flavor about what we're doing at T-Systems and what's happening there. And by the way we are – we announced to our employees that we're working on this one the work group.

It's not been finally negotiated with the unions and we will need as well the support of our supervisory board which is meeting beginning of September. So we are working on this project and I think it's worth doing this.

What are we doing here? And look there were the dark times of Deutsche Telekom when a lot of battles took place.

And where the question was which kind of business belongs to A and which can kind of business belongs to B. And there were some artificial borders being built in the company.

And one of the leaving one is the telecommunications services business because just to give you an example if we are negotiating governmental contracts, these governmental contracts are discussed with T-Systems, but the execution with the municipalities or even with the states is taking place in the Deutschland business and this is creating interfaces. Another examples, and I remember that battle when Rainer sent me in that battle in 2006, when he said we will never give up our T-Mobile business, we'll never be negotiated with T-Systems and I was successful in negotiating that at that point in time.

So the entire sales organization and even the pricing for every big customers on mobile is in the German business and not at T-Systems. The T-Systems business only handles the margin when they are selling to the big corporate customers' mobile services.

On top of that we have product houses who are developing the latest products like the MPLS, substitution products, the SD WAN services. When it comes to connectivity services in free move and other areas so we do that twice.

We do that either on one side and on the other side in the organization. So you could question and you could criticize me for why Tim have you waited so long on bringing this business together.

Honestly, we had so many other big things to get resolved over the part that it wasn't – it was always on my list but never on the priority list. Now cleaning up all the garage here, we are now even in that corner and there's another element we even want to make sure that the classified business of the business which are related to secure service for the -- for governmental issues that they are very close to the core network and how we are operating.

So therefore we decided and we are aiming for bringing this two business together to be more efficient, to be more customer oriented, to make it out of one hand with one leadership and with an even stronger attempt to grow the business. I think pro forma financials will be provided with the 2020 numbers coming out and I think there is no change in the financial guidance on a pro forma basis here.

And I think we are talking about one-third of the revenues of the systems which are affected by this reorganization within the organization. On top of that, DTC business, the telecommunication service business is very close to two other businesses.

One is the security business because networks would be always secure. And the second one is very close to the IoT business because a lot of let's say business applications in the IoT running of this infrastructure.

Now we don't want to create another now the silo organization here and therefore we take this company -- company's independent. We build on companies that are on TSEC and known company about the IoT so that this company has three kind of areas which they're selling to.

The first one is Germany, the second one is T-Systems, and the third one is to markets outside of this footprint. So we put a P&L behind that, you know that I'm a big fan of this individual entrepreneurial ownerships of businesses and just pointing on the Netherlands are looking to other areas where we have done that.

We see that there is a correlation even with the success we are having. So therefore this is the second attempt to grow significantly these two areas in our B2B portfolio.

So, this is the reason behind T- Systems and what we are doing there and we will report in the next quarters about success and the process we met. Coming to your third question and coming to the U.S.

and coming to the guidance. Look [indiscernible] has increased guidance by $150 million and the mid-point.

However, we now expect that the bridge between the IFRS and the U.S. GAAP results will be around $0.7 billion.

In our own plan it was just $0.6 billion and I laid out where it's coming from mainly from this bonds for renewable energy and that we have a total new 10 towers the sustainability in that group. We want to be based on renewable energies by 2021 already for all and see the emission within the group and our ambition is by 2030 to reduce our energy consumption by 90%.

This was one pillar of our big sustainability program which we have laid out here. Maybe it's worth that we've put that into one of the next capital -- next quarter results to show you what we are aiming for and therefore we have an additional cost which is showing up in the IFRS numbers, but not in the U.S.

GAAP numbers. This is the reason that we haven't increased our guidance and if this would not have been the case probably would have done that, but that is the reason that we are -- that this guidance is intact.

Let me say another sentence on where we stand and you have seen the numbers. Honestly we worked hard into the year.

We have a new management team here, we have a new CFO, we have a lot of new managers in the business, and we have to sort out who is doing what and to gain attraction. If I'm now looking after the second quarter on the business, I think we have tractions on all angles of the business and organic integration of acquisitions doing very well.

The track which we have on cost side you've seen in Germany, the costs and the indirect costs are improving the towers targets we've laid out and even the operational business doing very nice eight consecutive quarters now in the row for our German and Europe business where we are growing revenues now. So this is not only just a one quarter event.

This is already sustainable both so. I see that this company is forward and working forward.

So therefore if we're moving of the likelihood that we that we see exceeding is higher then failing that is clearly my assessment for 2019.

Okay. Thank you, Tim.

And next is Fred at Bank of America, please.

Hi. Good afternoon.

So, couple of questions. Firstly on the U.S., if you could share with us expectations on the timings, you give us the date of the strategies.

But once this is past us, what's your updated view on timing. And it's interesting comments on your -- commentary on the Q3 dividend.

So, we will be in a position by at that time to have -- have that look into the numbers and refresh your UMass. And lastly on the leverage and dividend outlook, are you looking at a one-year or a more kind of multi-year dividend outlook.

Second point on broadband, just more, more general strategic view, how the markets see there, your message used to be focused more on the upselling. I mean, shouldn't the focus be on share of revenue that of net adds more specifically or is that -- do you think you have to continue to be at around that 40% target share of adds as an important milestone.

And then very quickly whether you got any thoughts into 5G pricing, Vodafone has launched it's 5G price premium on all the price points in Germany. You have that €85 price point, but if you could tell us a bit more about your pricing strategy in Germany on 5G.

Thank you.

Okay, Fred. Let me start, first U.S.

protection timing, the first thing is -- there has been a delay you know that. Now for the -- for the federal -- sorry, for the -- for the trial, the 9th of December is now the time which has been defined.

That said, this is let's say what we're working on and what the implications on the closing is going to be that is too speculative at that point in time. So we are focusing now on the 9th of December with regard to the next milestone and almost the last milestone in this long procedures here.

No, it's not good that we have so long time period of uncertainty, but if you look to our operational performance, if you look to the T-Mobile business, I'm not so worried, I'm not so worried too much because we are working on a very strong operational track here and I do not see why this would break within the next four months or five months. Second question, what I've said on the dividend, we have a dividend policy where the Capital Markets Day and we have clearly said that that our dividend is following the earnings per share growth for the next years and this is intact.

What we haven't foreseen is that because everybody was expecting the closing in 2019, what is happening if the closing of this year is not taking place, what is then the dividend, what is the logic behind that. And we know that there is some uncertainty in the market at that point in time, look we had so many things to do in parallel and you cannot define a dividend if you do not know what you earn at the end of the year.

So therefore I think with the diligent approach and with some patience and I know guys I know you're all not patient, but this is let's say what I'm – what I can only tell you at that point in time, we will have now in the next eight weeks an intense discussion with our board looking to the numbers why we foresee how the performance of this year are going to look like and expecting that maybe the closings has not going to take place during the course of this year. What would be an appropriate dividend to be paid off to our investors?

There's the part which I described and to give you an indication because it's anyhow subjected to the board approval and to the Annual Meeting, giving you an indication, as we always did it in the past, in the third quarter is something which of course Tim and myself are aiming for.

So let me take on that broadband question, Fred, and I think it's not an either or it's both. We always had an ambition to have a 40% net add share, and we always said that we want to have our organization to focus on more upselling given our great opportunity which we have on super vectoring.

So I think they have to basically handle both vectors, volume and up-selling. And I think what you've seen in the recent quarters and years, is we have always shown a steady hand when it comes to pricing, so there is a difference between promotional activities and structural pricing activities.

So don't expect any surprises on this one.

Excellent. Thank you, Christian and Jim.

And we take two more questions. I think the next one is from Andrew at Goldman Sachs.

Thank you. Good afternoon, everyone.

I had first question again, back on towers and on the efficiencies. But, one of the perennial problems is there it is, operators retaining efficiencies that they have achieved.

What gives you the confidence that you can retain tower efficiency benefits, especially when -- and the typical response we see when operators in the market each make savings, is that they end up giving these benefits to the customer in the form of lower prices. And then, a second question just on tower densification, you've highlighted -- I think you're highlighting more towers to customers approach and you'll see highlighted some more deployed sites in Germany.

What do you think is the increase in densification of towers you need in Germany in the long-term for 5G and how does that -- or does that differ across markets? Thank you.

Okay, Andrew. And so, I think whatever we will do with the towers will always be subject to protecting our network leadership.

I think we have a clear leadership in Germany. We intend to protect and extend this leadership.

5G is a great opportunity for this. At I think at this point in time, you've referred to our 9,000 site expansion plan which we first laid out at the full-year results 2017 -- sorry in February 2018.

And that plan is intact, but frankly it mainly relates to coverage rather than densification, of course as always a bit of this densification going on. But, the plan of the 9,000 sties plan is mainly related to motorway coverage, railways, white sports to the extent that that is economical for us, together with other carriers.

And that's why they usually actually also have macro sides rather than rooftops going forward. In the first year, it's more our focus on rooftops going forward as well as our macro side that's all in the guidance that we gave at the Capital Markets Day.

And I think we will at the end of course also consider the build-out obligation related to the 5G auction. I emphasized that this 9,000 plan preceded the auction and the coverage obligation.

Those will add to the build-out plan that we have. But again there are more related to coverage rather densification.

And so I think the focus will be -- for the next few years will be on coverage rather than densification. I think with that I just move on to Wolfgang at Bankhaus Lampe with us who wants to ask the next question?

Wolfgang?

Yes. Hello.

Good afternoon. Two questions from – from my side.

One again on system solutions. Can you give us an idea how your plan for the classical IT part of the T-Systems are?

We learned that you put on sale of the mainframe business to IBM that is still an ideal kind of bigger deal for the complete classical IT part? And the second one, on the German Fixed Business you indicated ongoing problems going into Q3.

Are you ever confident that sub-segment can grow into the second half so do expect some kind of Christmas business here?

The first question with regard to the system solutions so if we're moving on with the TC part and with the classified business, so the government -- governmental security service and we will have then a kind of IT service company which is the T-Systems part of it in this area we have a lot of business where we have applied a kind of portfolio strategy approach. This portfolio approach means a very focused approach towards the markets which we have behind that and it means as well the cash accretive business, this business have -- this portfolio elements have to develop overtime.

As we have said, we are not tolerating any kind of losses anymore in the T-Systems business and if a business is not performing in the right angle, we even consider portfolio measures to move forward. Now the sale of the mainframe business was a disappointment and honestly we oversee the anti-trust side on this one because we thought it's in better hands so if IBM would run it.

We will now find a solution, we are working on a solution, it's too early for me to disclose that, but I think we are very close to solving that issue. And for the other classical IT areas, we have our turnaround plan which is Intec, Adel is doing a great job.

You have seen the numbers, order entries growing, we have seen profitability rising. We have planned 10,000 lay off in this area.

We have a very clear strategy towards offshore facilities and on top of that improving quality. All key parameters are in the right direction and green and we will move on and on delivering on the commitments which we are giving you.

So IT service digitalized on the one side and the telecommunication service on one hand of the other side. This is -- let's say the way how we are moving forward.

And if the business is not performing as cash losses are existing, we take decisive actions, not excluding even a sale of parts of the business.

On the German fixed performance, let me elaborate a bit on Q2 and then give kind of a direction towards Q3. In Q2, we had quite a bit of a weak IT business and we expect this to increase in the current quarter.

As I said earlier on, we're working on plans in order to increase the net adds as well as the upselling. I don't have any specific indications right now on the Christmas bill business.

So, we haven't discussed that in detail -- in great detail yet. But let me leapfrog from the fourth quarter to the first quarter and as we said, the B2C IP migration is going to be finalized at the end of the year.

Obviously, the post-churn effect from consumers will disappear in the first quarter of 2020.

Okay. Something to look forward to, and a few things I hope.

And, with that we come to the end of the conference today -- conference call. If you have further questions, please contact us at the Investor Relations Department as always.

And with that, I think Tim, and Christian, and I hand back to the operator.

Thank you. Good bye, guys.

Thanks, bye.