Prospectus-Final (clean) - Malta Financial Services Authority

The decrease in the number of mobile customers in 2010 was due to the deactivation of around 8.3million inactive prepay customers' cards, which enabled Deutsche Telekom to reduce theadministrative costs related to these inactive accounts. The number of contract customers remainedstable at 17.2 million, which Deutsche Telekom attributes to its extensive selection of smartphonesand its enhanced integrated rate plans for voice telephony and data services. For example, in 2010,Deutsche Telekom began selling the iPhone 4 in Germany. With a mobile penetration rate in Germanyof well over 100%, the strategy in Deutsche Telekom's German mobile operations is to continue tofocus on higher-value contract customer business.- ConsumersIn the consumer business, Deutsche Telekom's Germany operating segment focuses on high-valuecustomers who purchase both fixed-network services such as Internet and TV products (e.g.,Entertain) and mobile services with integrated flat rates for data. Since the end of 2010, DeutscheTelekom has offered its customers a fixed-network calling plan (Call & Surf Comfort) with morebandwidth.In mobile communications, Deutsche Telekom has upgraded the service content of the contracts, andat the end of 2010, Deutsche Telekom started to offer an entry-level double-play package with a dataflat rate for the mobile Internet (Call & Surf Mobil). In the new mobile communications portfolio,packages with integrated data flat rates for the mobile Internet (Call & Surf Mobil and Complete Mobil)have sold well. Newly introduced special packages (e.g., Special Call & Surf Mobil) have also beenwell received by contract customers. The sale of SIM cards to resellers also increased in 2011.- Business CustomersIn 2011, line losses in the business customers segment remained at the prior-year level. Also, manycustomers are switching from pure voice telephone lines to double-play products with flat rates fortelephony and Internet, which means they use higher-value calling plans, such as Business Complete.In addition, Deutsche Telekom introduced a new set of mobile calling plans for its business customersin February 2011. With a clear focus on calling plans with integrated data flat rates for the mobileInternet, this helped to increase subscriber numbers compared with 2010.- WholesaleOverall, the various wholesale products Deutsche Telekom is required to provide to its competitors bythe regulator, such as ULLs and unbundled access lines, increased. Network infrastructure providersrequire ULLs for their customer access and the number of ULLs increased by 1.1% in 2011. Thenumber of Deutsche Telekom's bundled wholesale lines declined in 2011, while Deutsche Telekomrecorded an increase in unbundled products. Deutsche Telekom expects this trend to continue for thenext few years, in particular due to the fact that its competitors are switching from bundled tounbundled wholesale products in order to improve their service to their own end-customers. DeutscheTelekom also expects the number of ULLs to increase as well. The results of regulatory decisions areexpected to continue to have an effect on demand for Deutsche Telekom's wholesale products.In 2010, the increase in ULLs resulted from a migration of competitors to all-IP lines. The number ofDeutsche Telekom's bundled wholesale lines declined in 2010 and 2009 as competitors switched frombundled to unbundled wholesale products to improve their own services.- CompetitionDeutsche Telekom's fixed-network operations in Germany face intense competition based primarily onprice in the market for fixed-line network voice telephony and broadband services. Continuedcompetition in the fixed-network market has led to higher service levels and lower prices, intensifyingthe downward pricing pressure on Deutsche Telekom's own products and services. In addition, asprices for mobile telephony decline, local and other calling services, as well as access services, faceincreasing competition from mobile telephone operators, due to mobile substitution. These factors,combined with the continued implementation of regulatory policies intended to foster greatercompetition, are expected to result in similar trends in the future. In addition, the German mobilecommunications market is saturated in terms of customers and Deutsche Telekom faces intensecompetition from other mobile network operators and MVNOs.82