3. Dominique Leroy on Europe & Q&A – Deutsche Telekom's Capital Markets Day 2021 #DTCMD21

Thank you, Ernest. Good afternoon everybody. I'm really happy to be here in my new capacity of board member Europe. Three years ago, Srini was standing here talking about turning around Europe. Today I'm very proud to say the turnaround has been done, and we are now a leading large-scale European telco and a very fast-growing one. The challenge now is how to write the next chapter: accelerate growth towards long-term sustainable growth by focusing on customer centricity and digitalization. We have opportunity in B2C: scale fiber, upsell customers in fixed-mobile convergence, grow revenue per household, improve customer service, and grow in B2B. We want to scale an agile organization with a customer-centric mindset, roll out fiber and 5G, and advance digitization. Multi-country operators will be very successful, and we can scale across countries, transferring best practices and digital skills. We will also bring fair share and fair value to DT equity. Let's review the last four years: we achieved 11 billion turnover, almost 4 billion EBITDA, close to 2 billion cash. As a standalone region, we would be the seventh biggest telco in Europe, far ahead of Iliad, KPN, Tilia, and one of the fastest-growing. Despite COVID, we had 2.3% EBITDA growth and 3.9% cash growth. Our markets have growth potential, with expected consumer spend on telco around 3.5% and most markets being three MNOs. Regulation and government support digitization, and we will receive around 20 billion EU funds. We have 13 consecutive quarters of growth, one third from net margin growth and two thirds from cost reduction. Revenue growth came from value and volume: 2.5 million new mobile contract customers and close to 1 million broadband customers. We reduced IDC by 320 million to 30% of revenue, close to best in class, through 6,000 fewer people, central function downsizing, outsourcing, and digitization. We put one million new homes past in fiber in 2020 and intend to continue, with 30% utilization and 1.7 million homes connected. All promises from 2018 are delivered. Now moving to Strategy 21-24: from good to great, with a customer-centric and digital focus, winning hearts and minds, full fixed-mobile convergence, driving digital, lean and agile organization, and moving the brand to a love brand. For B2C, we will further drive fixed-mobile convergence, capture underserved segments through fiber, cross-sell and upsell, and target young and smart shopper segments. We will implement Medallia to identify pain points and reallocate resources, and embed a customer journey mentality. Our love brand will convey digital optimism and turn employees and customers into brand ambassadors. Targets: grow consumer business to 6.6 billion, net share in line with fair share, grow value market share, and deliver 1-2% net margin growth. For B2B, we have grown ICT by 7% to over 1 billion with profitable growth. We will become the partner of digitization, focusing on public sector using EU funds, enterprise with smart connectivity and cloud, and SME with magenta bundles. We aim to add 300 million additional revenue in B2B, especially in Austria, Czech, and Poland. On people, we will attract talent, become top employers, and have a positive impact on society through digital inclusion and environment. On network, we will become the undisputed fiber leader, rolling out fiber for less than 400 euro per home past. Objective: 40% fiber coverage, 10 million homes on fiber, plus 4-5 million via wholesale, utilization to 33%, 3 million homes connected. For mobile, we will stay leader, roll out 5G to 75% coverage, retire 3G, and monetize 5G through capacity, FWA, and B2B campus networks and IoT. Digitally, we have built an impressive digital factory with a harmonized API layer and new applications built once and exposed to all countries. I propose we watch a video to see what has been done.

So I think that was a quite strong video that really explains what we have done and the platforms we have to build the future. Let me quickly go through some elements. First, everything around digital telco: the one app manages products, contracts, and payments, and from there we can build more services. Second, broadband: we have one firmware for all countries, giving procurement advantage, and the RDK layer enables services like parental control and guest Wi-Fi, allowing us to build home solutions. Third, TV: one firmware for Europe on an IP/Android IPTV platform, offering best-in-class UI, aggregated content, voice search, and search engine. All these new digital platforms have a data lake where we store data from how our systems work with customers. Through data analytics and AI, we can do predictive maintenance and actions, increasing customer satisfaction and reducing cost. Our ambition is to further decrease call and truck roll costs, increase app transactions, and achieve first-time right provisioning above 95%. This is now possible thanks to the digital layer in 10 countries at once. Last but not least, we can do the same for network: further modernize the RIT structure, simplify legacy and portfolio, automate more. On cloud, the more we put on cloud, the more we harmonize and automate, leading to around 42% workload in the cloud by 2024, another 300 million reduction in costs, and four over-Natco already on 5G standalone by 2024. On capital allocation and portfolio, we have strengthened our portfolio by exiting geographies like Albania and selling our fixed business in Romania to Orange, and reinforced ourselves in other countries. The merger with UPC in Austria brought EBITDA margin from 34% to above 40% through synergies. In Poland, we signed wholesale deals with Orange and others, accessing more than four million fiber households. At the beginning of this year, we are accelerating the fixed-mobile convergence strategy in Poland, with thousands of new FMC customers in the first quarter. In the Czech Republic, we will use a hybrid model: own fiber rollout, small M&A, and partnership deals like with CETIN. All this disciplined capital allocation enabled us to increase return on capital employed by three percentage points from 2017 to 2020. Looking forward, I believe we can further improve RoCE, decrease cost, and grow through multi-country synergies. We have a culture that allows this, with competence centers like 300 people in our digital lab in India, a data lake with common analytics and AI, and the ability to develop products once and roll out to countries. We foster exchanges of best practices and deploy playbooks. This should change the game, enabling more synergy, speed to market, and cost reduction. I hope I have convinced you that Europe is a bit unknown or undervalued jewel within DT. We are strongly growing, strong in execution, growing in customers, strong in cost reduction, have a highly digital infrastructure, strengthened our portfolio, and are investing heavily in fiber and 5G with secured spectrum at good conditions. We commit to EBITDA growth of 1.5% to 2.5%, very strong cash generation increasing to 57% of EBITDA with stable capex, giving cash growth of around 4% to 6%. For the first time in 2021, RoCE will be superior to WACC, and we will further grow RoCE. We have strong commitments on customer centricity, network, and financials: revenue growth above 1%, EBITDA growth 1.5%-2.5%, further IDC reduction of 300 million, stable cash capex, and RoCE above WACC. This is my story for Europe. I hope I've convinced you about the power and growth ambition of Europe. I was very happy to bring that story to you. Thank you.

Okay, thank you, George, for your questions. On Romania: we are exiting the fixed business, selling it to Orange, and will keep the mobile business. We have proven in the Netherlands that we can manage an attacker position on mobile. After closing, we are preparing a plan to further scale the mobile and take an attacker position in the Romanian market. On Poland: we have a strong position as number four with 20% market share, so everyone is relatively close. What we are missing is fixed-mobile convergence, but we are building it through wholesale deals with several partners. We are starting communication to scale it, so Poland is still a great opportunity and will be a growth engine. On operators and suppliers: it's too early to give any indication until the auction and government decide on the cyber act. On the European Recovery Fund: it's a big opportunity. We don't want to oversell it. Funds are there, and we are applying in each country. Greece is most advanced. We will use funds to build infrastructure, especially fiber in remote areas, and also in B2B where we have strong positions in countries like Hungary, Slovakia, Greece, and Croatia. There is opportunity to partner with the public sector for digitization. That's a key element for growing B2B alongside the three countries I highlighted. On the bottom-line impact of digitization: it's difficult to say exactly, but probably two-thirds of the IDC savings of 300 million will come from digitization and waste reduction. Digitization is not only a tool to reduce cost but also to enhance customer experience. It allows us to do both at the same time: improve customer experience and decrease costs by reducing waste.

Thank you. As I said, most of our markets are three MNOs, so there is high competitive intensity in all markets. However, many markets have very low ARPU, which I see as an opportunity because there is huge demand from consumers and enterprises for more data, capacity, and coverage. So competitive dynamics exist, but there is also potential to increase the value of the market. It is healthy competition to serve customers with more products and capacity. Where we see more intense competition is typically Romania, which is probably one reason we decided to sell the fixed business. Competing there would require significant investment, and ARPU is low with Digi being aggressive. We decided to exit. Poland could also be more intensive since Play was bought by Iliad, but so far we have not seen an increase in competition. Everyone is focused on bringing fiber and high-speed internet to the country, so it remains healthy competition. Overall, the markets are relatively healthy with strong growth potential due to low ARPU, high demand, and regulators and governments increasingly looking to digitize services and roll out infrastructure as a way to be recognized as good leaders. They are no longer just extracting money from the industry; they want better infrastructure and services for citizens. We can play on that and get value in most countries. I am very optimistic about the potential of the European segment.

Thank you, Jacob. On revenue: roaming impacted us by 130 million in 2020, so we will have tailwind from that this year and probably next year. However, we also have MTR cuts coming from mid-July this year. The impact in percentage is high but in value low, so it will affect service revenue. The guidance is over four years, so we have a tendency to try to deliver and potentially over-deliver. For the next two years, we should probably be a bit better, but we must be prudent. Around 1% is a very decent figure, and we will do everything to over-deliver. On tower ownership: we have done a tower carve-out in Austria. We can look at other countries, and you may hear more about that tomorrow. I don't want to reveal too much; I'll leave something for others to tell you. Everything we do will be towards DT TowerCo. It could be a way to improve RoCE, but it will not be a leverage to third parties. DT's strategy is to build a strong tower co internally. If we carve out towers in Europe, it will be to DT TowerCo, and then as a group we will decide what to do with those assets. We will not start individual tower carve-outs to third parties in Europe.

No, I think it's very different. DT is a much bigger group. What impressed me is that DT is a very diverse and international company, probably much more than people sense from the outside. So it's a much more international and diverse culture. In Europe, I think it's very much a hidden jewel. Europe is a great asset, but there is not a lot of publication, so it's difficult for analysts or investors to follow. But when I am here and look at the countries, there is a lot of potential. DT is so well placed with its transatlantic foot in the US and Europe. In Europe, there is a lot of focus on Germany, but there are other countries. When we are able to get even more scale and harmonization within the European footprint, it is really a base from which we can deliver growth and even potential further acceleration going forward.