Earnings Call - DEUTSCHE TELEKOM AG

Financial Performance:

• Revenue & Growth: Achieved record quarter with 190,000 new fiber connections in Germany; T-Mobile USA showed 10% organic IFRS growth over nine months; European segments (excluding US) grew 4%; T-Systems service sales up 4%; overall organic EBITDA growth of 7.6% year-to-date.
• Profitability: Purified EBITDA grew 8% over nine months; result per share (EPS) increased 12% to €2.20 for 2026; Germany recorded 40 consecutive quarters of organic EBITDA growth.
• Debt & Cash Flow: Net debt stands at 2.6x purified EBITDA, well within the 2.75x target limit; net financial liabilities increased slightly due to exchange rates and refinancing requirements, but remains manageable given rising EBITDA; Free Cash Flow utilized for share buybacks.
• Dividends & Share Returns: Proposed €1.10 dividend for 2026 (payable 2027), representing a 10% increase aligned with EPS growth; planned total shareholder return of approx. €7 billion (€1.10 dividend + up to €2 billion buyback + €3.5-5 billion equity market operations).

Guidance and Future Outlook:

• Short-Term Targets: Full-year purified EBITDA expected to exceed €15.4 billion (benefiting from favorable exchange rates); 2026 EPS guidance set at €2.20 with continued double-digit growth expectations.
• Long-Term Goals: Confident in achieving 2026 and 2027 goals set at the 2024 Capital Market Day; strategic goal to connect 25 million households to fiber in Germany by 2030, eventually targeting two-thirds to three-fourths of the 45 million total housing units.
• AI Strategy: Expects €250 million in AI-related sales from ex-US business in 2026; aims to store savings and drive additional sales through specific operational AI characteristics without fundamentally altering personnel costs.

Business Segments and Product Lines:

• T-Mobile USA: Closed acquisition of US Cellular (EBITDA <€1B, synergies €1.2B, costs €2.6B over two years); launched two glass-fiber joint ventures; solid postpaid account growth despite market slowdown.
• Germany: Returned to broadband customer growth (+11,000); mobile subscriber growth remained strong (+282,000); television business growing strongly (excluding non-connected customers); prioritizing fiber over DSL in overlapping areas.
• Europe: Poland identified as the standout market recently, following Hungary's success; Austria facing some headwinds but overall portfolio performance remains strong; T-Systems showing growth in order intake.
• New Products: Viewing smart glasses and wearables as future growth avenues for independent mobile connections; expanding sovereign AI and cybersecurity services.

Market and Competitive Landscape:

• Competition: T-Mobile USA facing increased aggression following Verizon's ownership change; SpaceX's satellite network plans noted as a potential long-term competitor, particularly in the US where terrestrial coverage is not 100%.
• Network Leadership: Deutsche Telekom holds the "best network in all of Europe" for mobile coverage (UKLA); T-Mobile USA maintains best spectrum position; Germany has the best fixed network coverage in Europe.
• Market Dynamics: German mobile market remains highly competitive; T-Mobile is forcing migration from DSL to fiber where both are available to drive value.

Risks and Challenges:

• Satellite Competition: SpaceX's entry poses a theoretical challenge in the US due to coverage gaps, but is deemed less relevant in fragmented European markets where terrestrial 5G coverage is near-universal.
• Market Volatility: Stock price volatility driven by external news (SpaceX, US market slowdown) and competitor actions (Verizon); internal management emphasizes delivering steady operational results rather than market speculation.
• Execution Risks: Implementation costs for US Cellular acquisition currently impacting short-term results; glass-fiber joint ventures in the US have a longer payback period.

Management Commentary and Tone:

• Confidence: Management expressed high confidence in hitting 2026 and 2027 targets despite external headwinds; tone was steady, emphasizing "40 quarters of growth" as proof of resilience.
• Strategy: Reiterated commitment to a 50% dividend payout ratio of clean-up results per share; emphasized disciplined debt management and strategic investment in network infrastructure over reactive financial engineering.
• Leadership: No immediate changes to the Chairman's role (Tim Höttges contract until end of 2028); succession planning follows a regulated, timely transition.

Analyst Questions and Answers:

• Dividend Tax: Confirmed that the 2027 dividend is expected to be tax-free again, contingent on actual development.
• Buyback Strategy: Explained increased buyback volume is a flexible tool to buy back stock at low prices (e.g., €34/share) while maintaining a dividend policy of 40-60% of earnings.
• US Cellular: Clarified that US Cellular acquisition costs and synergies are being realized over time; EBITDA from the deal will be positive in the long run.
• AI Dependencies: Confirmed no strategic dependency risk on NVIDIA; the Munich AI factory is a revenue generator with expected €250m turnover.
• SpaceX/Satellites: Dismissed immediate material impact, noting high capital costs for competitors and strong existing terrestrial coverage in Europe.
• Post Office/Insurance: Stated Telekom provides employee contributions but has no supervision or care duty over the specific Post Office health insurance fund.

Other Key Points:

• Shareholder Return: Total planned return of ~€7 billion represents approx. 6% yield; stock return program increased to €2 billion for the first time in recent years.
• Network Expansion: Almost 4 million new fiber connections added globally in the last 12 months; fiber penetration growing in Germany and Europe.
• ESG: Energy consumption continues to decline despite higher data volumes; focus on sustainable growth and efficiency.
• Regulatory: Best mobile network coverage in Europe officially recognized by UKLA; maintaining compliance with spectrum auction requirements.