Statement by the Board of Management on the shareholder counterproposals.
Regarding Agenda Item 2 - Appropriation of unappropriated net income
The Board of Management sees no reason for any other appropriation of unappropriated net income. In particular, in light of the Group's earnings position in the 2006 financial year and capital market expectations, the Board of Management considers a dividend payment of €0.72 per share preferable to a lower dividend combined with a larger amount carried forward. The net income for 2006 determined in the separate financial statements in accordance with the provisions of the German Commercial Code (HGB) does not readily permit conclusions to be drawn about the earnings position of the Deutsche Telekom Group as presented under the International Financial Reporting Standards (IFRS). For example, the 2006 separate financial statements included numerous obligations that were not economically attributable solely to that period, such as provisions for civil servants to be placed in early retirement in the future.
Likewise, no meaningful conclusions can be drawn from loss carryforwards about the earnings position of the Deutsche Telekom Group. A comparison of the development of loss carryforwards from 2005 to 2006—an increase of EUR 0.6 billion—with the Group's positive income before taxes (EUR +2.6 billion) alone makes it clear that there is no direct relationship.
The statements made by certain shareholders in connection with the counter-motions concerning valuation risks in Deutsche Telekom AG's intangible assets are not correct as stated. In the risk report, the Board of Management notes that the carrying amounts of property, plant and equipment and intangible assets are regularly tested for impairment. It also notes that, if an impairment is required, earnings could be reduced significantly, depending on the amount of the required impairment. However, as of December 31, 2006, no impairment was required.
With approximately 150,000 participants, our employee training programs are a key component of Deutsche Telekom's human resources work. We consider our ongoing commitment to initial and continuing training appropriate and balanced, including in light of the level of the dividend.
On agenda items 3 and 4 – discharge of the Board of Management and Supervisory Board
The restructuring and realignment of the Board of Management signals a new strategic and operational direction for the Company, which the Board of Management announced on March 1, 2007. By consolidating responsibility for Sales & Service in Germany, the operational measures required for the German business are being addressed under unified leadership. The goal is to ensure the Company's sustainable economic success in a challenging market environment. The Company's extensive measures are creating the necessary conditions to achieve this.
As part of its strategy, Deutsche Telekom has also launched a wide range of measures for its business in Germany to significantly improve the Company’s service and, in turn, its image from the customer’s perspective. These include, for example, expanding its own T-Punkt retail network, significantly improving the accessibility of its call centers and on-time fulfillment of customer orders, and increasing the proportion of customer inquiries resolved upon first contact with Deutsche Telekom. Innovative products, such as IP-TV based on the VDSL and ADSL2+ transmission standards in the fixed network, are also intended to be brought to market to meet customer needs even more effectively through an optimal price-performance ratio. In addition, the Group’s brand architecture is being significantly simplified to improve customer communications.
The loss of market share is, of course, not in the Company’s interest. Management is therefore making intensive efforts to reduce customer losses. At the same time, however, it should be noted that the loss of market share by Deutsche Telekom is intended as a matter of regulatory policy. On the one hand, the Company is working to reduce such losses, while on the other, it is also seeking to open up new markets in order to offset them. This includes, in particular, the broadband business, which is a key focus of operational management and of our marketing and quality initiatives in Germany.
Thus, in the first half of 2006, both T-Com and T-Online actively pursued the market and consistently aligned their respective offerings with customer needs. However, it was only after the merger of T-Com and T-Online became effective—following a delay caused by actions to set aside the merger filed by certain T-Online shareholders—that market development could be optimized by offering telephony and Internet products from a single source.
Thanks to the 3x3 bundled packages for Internet access, telephony and IPTV introduced last September, our Company is benefiting significantly from growth in this important market of the future. By the end of 2006, the number of bundled packages sold had risen to 3.6 million. More than two-thirds of the packages sold were Double Play packages (telephony and Internet). This enabled us to successfully reach additional customer groups for broadband Internet. In the domestic market alone, nearly 880,000 new broadband lines were added in the fourth quarter of 2006, representing the highest quarterly increase in DSL since its market launch.
Deutsche Telekom has set itself the important goal of providing excellent service that customers perceive as accurate and tailored to their particular needs. Deutsche Telekom has therefore introduced a wide range of measures to improve customer service.
We regret the problems with Deutsche Telekom products, services, or billing raised in individual countermotions, and they once again reinforce our efforts to improve customer service.
A key element of the package of measures we are pursuing is the establishment of specialized service units for technical customer service, call centers, and technical infrastructure under “Telekom-Service.” By focusing these areas of responsibility, we aim to professionalize them, improve service quality, and increase efficiency. The Deutsche Telekom Group has successful examples of this approach, such as T-Punkt Vertriebsgesellschaft mbH, our retail sales organization, which has performed very successfully in the market as a result of the measures introduced and has also improved service quality. In this area, in addition to expanding our branch network from 600 to approximately 800 T-Punkte by the end of 2007, we are also creating additional jobs.
Telekom-Service, which aims to improve service, increase efficiency, and safeguard jobs within the Group on a lasting basis, must be clearly distinguished from the measures in the Vivento area. The Vivento units consolidate business areas with responsibilities that for the most part no longer belong to Deutsche Telekom's core business.
Our portfolio of service measures has already been viewed positively in numerous media reports and as the right step toward sustainably strengthening Deutsche Telekom's business in Germany. With regard to share price performance, it should also be taken into account that the European telecommunications sector as a whole has performed far worse than the broader market in recent years, due in part to the challenging regulatory environment and intense competition.
Deutsche Telekom's real estate strategy is aimed at ensuring that the Group's real estate is used in an economically sound manner. This is in the interests of all shareholders. As part of this strategy, Corporate Real Estate Management, working with Sireo Real Estate Asset Management GmbH, examines all properties for their potential uses. In pursuing this objective, Deutsche Telekom also consistently seeks to balance the interests of third parties. However, in the interests of shareholders, the Company must also base real estate-related measures, such as sales or renovation measures, on economic criteria.
To the extent that shareholders have raised the issue of the Company's retention of IP addresses, it should be noted that Deutsche Telekom AG now retains IP addresses for only seven days. This applies both to the T-Online business unit and to T-Com as an upstream provider for other Internet access providers. The seven-day retention serves exclusively to protect the Internet access platform and combat misuse (spam, viruses, Trojans, and other malicious code) on the Internet.
Regarding agenda item 6 – Acquisition of treasury shares
The authorization proposed to the shareholders' meeting for the acquisition and use of treasury shares does not permit Deutsche Telekom to trade in its own shares. The law expressly excludes trading in treasury shares as a purpose of acquisition. The authorization is intended merely to give Deutsche Telekom the opportunity, where appropriate and in the interests of the Company and its shareholders, to acquire treasury shares and use them for the purposes specified in the authorization and explained in the report of the Board of Management. In the 2006 financial year, Deutsche Telekom used share repurchases, for example, to avoid permanently diluting the shareholdings of Deutsche Telekom's „Altaktionäre“ through the issuance of new shares in connection with the merger of T-Online International AG into Deutsche Telekom AG.
The Board of Management maintains its proposed resolutions for the agenda.
Bonn, April 2007
Deutsche Telekom AG
The Board of Management
