Investor Relations

Board of Management position on the counter-motions

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On agenda item 1 - resolution on the approval of the Spin-off and Take-over Agreement with T-Mobile Deutschland GmbH.

The Deutsche Telekom Group is a globally operating, multinational company that by the end of the third quarter of 2009 had generated more than half of its revenue - 56 percent - outside of Germany. The new Group structure takes these circumstances into account, with its matrix organization of centralized functions - Technology, IT, Products & Innovation (P&I), and Procurement - and regions - Germany, USA, Southern and Eastern Europe (SEE), Europe (EU) and T-Systems. The centralized functions are responsible for overarching tasks for all regions. The centralization of product development in the Products & Innovation department takes into consideration that telephony and Internet business is already to a large extent an international software business with a global industry structure. Deutsche Telekom's competitors, alongside globally operating telecommunications companies such as Vodafone or Telefonica, also include Internet and software companies such as Google, Yahoo! and Microsoft.

All of these companies have centralized their global product development activities for all countries onto one site, for instance, Microsoft in Redmond, Washington or Google in Mountain View, California. Centralization is being carried out in order to develop products for the greatest possible number of customers - i.e., worldwide - and avoid expensive duplicate developments in individual regions. It will, however, take regional differences into consideration. It also has the advantage that an overarching view of all of Deutsche Telekom's markets makes it possible to monitor customer requirements and competitor offerings on an international basis and rapidly turn these into market products for Deutsche Telekom. In addition, only by centralizing product development in the Products & Innovation department will it be possible to uniformly implement the "A world leader in connected life & work" strategy worldwide - all aspects that would not be possible if the product development department was assigned to T-Home and thus solely for business in Germany.

By establishing a matrix organization across functions and regions - which is standard practice for multinational corporations in the telecommunications and IT industry - Deutsche Telekom is meeting the requirements for an optimized distribution of tasks within the Group, as well as significantly reducing the complexity that arises from the interrelationships between regions, business areas and customer segments. This enables employees in the individual organizational units to focus on their core competencies (e.g., product development). They are thus highly motivated to develop the innovation needed to ensure the Deutsche Telekom Group continues its positive development and to strictly implement the strategy. Establishing the new Group organization therefore also reduces complexity, bundles overarching functions and creates clear, regional responsibilities.

The transfer of the fixed-network infrastructure to T-Mobile Deutschland GmbH does not contravene statutory provisions on network coverage via a wired infrastructure. This applies in particular to provisions on the so-called universal service. These provisions do not require private companies, including Deutsche Telekom, to maintain specific infrastructures but, instead, regulate public authorities’ competencies with the aim of safeguarding the provision of certain basic telecommunications services across Germany.

The resolution on agenda item 1 includes all of the content necessary for obtaining the approval of the shareholders' meeting on the Spin-off and Take-over Agreement. Furthermore, the documents relating to the spin-off must satisfy specific legal requirements. For this reason, the level of detail contained in the agreement cannot be avoided. In particular, the so-called principle of certainty requires a detailed description of the assets to be spun off.

Deutsche Telekom has for many years had to balance the conflict between high market pressure, regulatory pressure and internal cost pressure. It is correct that in the transformation processes arising from this situation, a high level of employee motivation is a factor that is crucial to success. The employee survey from fall 2008 still showed major differences in the understanding of the strategy across all business units. In P&I, the same challenges were visible as in the Group, but P&I's positive results were above the Group average. A host of measures enabled the weaknesses identified to be addressed by the Board of Management and in each individual company. The introduction of the Guiding Principles is just one positive example of the impact of employee feedback. The situation has improved fundamentally in 2009.

In P&I in particular, the level of employee satisfaction is far above the Group's average results, which have constantly improved since the beginning of the year. The results in P&I relating to the question, "I understand why we are carrying out the One Company program" were also positive, although P&I has not quite reached the extremely positive levels in other business units. 2009 has, however, seen a clear and continuous improvement in P&I's results.

Overall, the One Company program enjoys a high level of support from almost all Deutsche Telekom employees in Germany. Employees are willing to support the Board of Management on this difficult journey and to make their own contribution to the program's success. It is clear, however, that further efforts must also be made in future to improve understanding of the need for change and to keep employees highly motivated.

The regular pulse survey specifically asks questions relating to the level of understanding of the major One Company project and the motivation of employees.

The results show that employees increasingly understand the need for such a transformation process and that there is an extremely high level of support at present.

If "health risks to humans and animals, as well as damage to vegetation, as a result of the HF transmission technologies used" are addressed, the company's position is as follows: Deutsche Telekom AG has for many years actively pursued discussions on possible health risks in the area of radio applications. After careful consideration, and supported by the opinions of numerous independent institutions, the company firmly believes that the use of radio technologies is safe. This applies to both mobile communications technology as well as to other radio technologies used by the Group, such as WLAN und DECT. In reaching its assessment, the company draws in particular on reviews from the World Health Organization (WHO), the International Commission on Non-Ionizing Radiation Protection (ICNIRP), and the German Radiation Protection Commission (SSK).

The effects of electromagnetic fields have been the subject of extensive research for more than 50 years. Over the last few years in particular, comprehensive research projects across the globe have continued to improve the basis for reliably assessing potential health risks. As a result, for example, between 2002 and 2008 the Federal Government's German mobile communications research program re-examined all mobile communications-related aspects in more than 50 projects. There was absolutely no evidence to suggest that the electromagnetic fields produced by the power and frequency range used by Deutsche Telekom's radio applications pose any risk to health.

Using global research studies as a basis, the WHO, together with the ICNIRP, has recommended threshold values for radio technologies. Deutsche Telekom ensures that its mobile communications network infrastructure (base stations and microwave links) and all products (cell phones, DECT cordless telephones and WLAN routers) comply with and, in most cases, fall significantly below these values. The EU also recommends that its member states adopt these threshold values. In August of this year, the ICNIRP reconfirmed its recommendations on threshold values as a basis for protecting health. In terms of the expansion of the network infrastructure, compliance with the threshold values is embedded in German law and is continually reviewed by the Federal Network Agency (BNetzA).

This clear, technical quantification also forms the basis for legislative decisions in Germany. The unambiguous scientific assessment is the reason why all damage claims have been rejected to date. At present, neither T-Mobile nor T-Home's radio-based transmission technology poses any risks that make it necessary to ensure provisions. As part of its extensive corporate responsibility undertakings, the company promotes research on the biological effects of electromagnetic fields, and will continue to do so in future.

The Board of Management stands by its motions for resolution under item 1 on the agenda.

Bonn, November 2009
Deutsche Telekom AG
Board of Management

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