Prospectus-Final (clean) - Malta Financial Services Authority

In February 2011, T-Mobile Czech Republic and Telefónica O 2 CZ signed a 3G network sharingagreement. This agreement currently relates to the provision of high-speed mobile Internet to areaswithout broadband coverage in the Czech Republic. In July 2011, PTC and PTK Centertel signed anagreement for the shared use of their radio access networks and established the NetWorks! jointventure, which started operations on 1 September 2011. The joint venture agreement covers themanagement, planning, service, development and maintenance of the shared networks and is focusedon improving network quality, coverage and service.In December 2011, a binding national roaming agreement was concluded between T-Mobile Austriaand Hutchison 3G. One component of the agreement is the use by Hutchison of Deutsche Telekom's2G mobile communications network. The other is that Deutsche Telekom can use Hutchison's 3Gmobile communications network in rural areas. Under this agreement, Deutsche Telekom's customersacross Austria benefit from Hutchison 3G's fast UMTS network.Markets and RegulationThe Telecommunications MarketDeutsche Telekom's business in 2011 was affected by strong competition, saturated markets andintensified regulatory intervention, which resulted in price erosion.Ongoing stress in financial markets and more broadly in the global economy had an adverse effect onthe markets in which Deutsche Telekom operates. A slight increase in consumer demand in most ofthe core countries was only able to support the telecommunications market to a limited extent. Incountries where purchasing power dropped, the telecommunications market experienced an ongoingslowdown. As a result of strong pressure to consolidate national budgets, some countries, includingHungary, continued to impose taxes on telecommunications companies in 2011 or introducedadditional taxes, such as a real estate tax in Greece. Additionally, regulation caused mobiletermination rates in Europe to decrease significantly, resulting in more stress on operators in thetelecommunications market.Furthermore, the telecommunications market has undergone significant changes in recent years asmore households have given up fixed-network access lines altogether. This trend is particularly high inCentral and Eastern Europe, in part due to the comparatively poor condition of the fixed-networkcompared to Western Europe. In Germany, for example, customers have largely continued to keeptheir fixed-network access lines, with a much lower percentage of households exclusively using mobilephones.GermanyTotal revenue from telecommunications services has been declining since 2005, due primarily tointense competition and regulatory price reductions. Revenue from telecommunications services(mobile and fixed network) in Germany decreased by EUR 0.5 billion to around EUR 60.3 billion in2011. The main reason for the EUR 0.3 billion decline in mobile communications revenues was the50% reduction in termination rates mandated by the regulator. Revenue from the traditional fixednetworkbusiness declined by EUR 0.3 billion, while revenue at cable network operators increased byEUR 0.1 billion.Overall, prices for telecommunications services (mobile and fixed-network) decreased by 2.7%compared to 2010. Prices for fixed-network and Internet services declined by 2.4%, while prices formobile voice and data connections were down 3.5%.With around 38 million lines, the fixed-network market in Germany remained nearly stable in 2011.The use of lower-priced connections, such as call-by-call, continues to decline, a result of theincreasing use of bundled telecommunications services and flat rate packages from other suppliersand Deutsche Telekom's own flat rate offerings. Deutsche Telekom's competitors are increasinglybuilding their own infrastructure and implementing their business models, which has a growing impacton competition in the wholesale market. Deutsche Telekom expects consolidation to continue in theyears to come, particularly in the cable market, as well as new partnerships to be formed amongcompetitors.The number of broadband connections continues to grow overall, as approximately 1.2 million newconnections were added in 2011 (0.4 million by telecommunications providers and 0.8 million by cableoperators). These additions resulted in a total of 23.5 million DSL connections and around 3.6 million51