7. Thorsten Langheim on Group Development – Deutsche Telekom Capital Markets Day 2018

All right, good morning or good day to all. It's a pleasure to speak to you today, although I'm scared to death. When I joined Deutsche Telekom in 2010, I negotiated with Tim and the board that I never have to do this, but finally I'm here. The good thing is I only have two slides because you get the key messages on this slide. This is a picture from the moment when our board approved the T-Mobile US transaction. It's a monumental deal for us. We had been in deal mode for seven years. Group development is a very important group within Deutsche Telekom, focused on M&A and portfolio management. We share the same DNA as you: predicting the unpredictable. Who predicted that T-Mobile US stock would increase 50%? Who predicted that after the announcement our US share price would drop from $63 to $56? We share the same depression. We read the same things in the morning. Group development is about capital allocation and risk return. We provide the analytical framework. We try to bring alignment of interest: share the gain and share the pain, someone needs to have skin in the game. We are responsible for our investment management, from passive minority stakes like BT to controlling shareholder in T-Mobile US, and active management like T-Mobile Netherlands where we act like a private equity firm. We also have Deutsche Telekom Capital Partners, which is more than a venture capital firm; it invests in special situations and acts as a governance harbor. Our portfolio management has worked. The key thing I spent most time on over seven years is T-Mobile US. The success speaks for itself. We got it wrong on BT, and I'm happy to answer questions. We invested €40 billion in the US while keeping our rating and dividend. Small divestitures like Scout and Strato helped. In 2012, Scout had €100 million EBIT, bankers pitched €1.2-1.3 billion, but we generated €2.6 billion. Same for Strato. Now let me explain the T-Mobile US story. In 2010, there was an overhang on Deutsche Telekom stock. We lost 2 million customers, had the weakest network, no path to spectrum. We tried to sell to AT&T, got a $3 billion break fee and mid-band spectrum. We used that spectrum, sold our towers for $2.5 billion, and did a reverse merger with MetroPCS. That's our M&A playbook. We want risk sharing. The market understood the story, stock price increased, and we invested $15 billion in spectrum between 2013 and 2017. Today, I believe this is a $70 stock with a free option to higher value if the deal is approved. I don't understand why the market values it so low. The Sprint deal is like Ross and Rachel. We've been patient. The best deal is the one you don't do. We were approached many times and said no. Now, about capital allocation: we can be patient. T-Mobile Netherlands was not a chicken salad. We lost market share and profitability. We couldn't sell it for a decent price. So we applied a different toolkit: equity incentives, cost-cutting, unlimited plans, and a capacity improvement deal. We carved out the towers. We are now in rehab but not out of the woods. We are a premium player. The market structure in Holland is interesting. We announced the Tele2 acquisition. On towers, we have a sleeping beauty: the German tower operator with 28,000 sites, no regulation, 80% cash conversion, 60% EBIT margin. We have a database second to none. There is a huge opportunity in Europe. We co-invested with Euroboost to acquire Sunrise towers. We are now at 2.0 with a new team focused on diversification. We may create a European tower co, but we won't sacrifice long-term network leadership for short-term value. DT Capital Partners has been successful since 2015. We make money. We are building a new fund platform with other telcos to have more scale. Our commitment: we represent about €900 million EBITDA, top-line growth of 3%, EBIT growth of 3-4%. We will invest a lot. The most important metric for me is the Bundesliga table: I want to see higher asset values in three years. Thank you for not booing me. I'm open for questions.