Deutsche Telekom achieves debt reduction target for 2003 ahead of schedule

The Deutsche Telekom Group continued its successful growth course in the third quarter of 2003. The debt reduction target for the full 2003 financial year was achieved at the end of the third quarter ahead of schedule - meaning that the "6+6" program can be concluded earlier than planned. The free cash flow before dividend payment in the third quarter of 2003 increased quarter-on-quarter by almost 75 percent to approximately EUR 3.4 billion; adjusted net income excluding special factors almost tripled to EUR 463 million.

Following a reduction of EUR 8.1 billion in the first half of 2003, net debt was decreased by a further EUR 3.8 billion in the third quarter of 2003. The reduction of net debt in the third quarter of 2003 was mainly a result of positive free cash flow, exchange rate effects, and the sale of additional non-core activities, in particular real estate. Compared with the third quarter of 2002, net debt has decreased by a total of EUR 15.1 billion to EUR 49.2 billion. A reduction of almost EUR 12 billion has been achieved since the end of 2002. Deutsche Telekom's debt reduction target for the full 2003 financial year - net debt of between EUR 49.5 billion and EUR 52.3 billion - has thus been achieved ahead of schedule.

"We have achieved the turnaround - earlier than we had planned or expected", said Kai-Uwe Ricke, Chairman of the Board of Management of Deutsche Telekom AG, on Thursday in Bonn. "Yet this certainly does not mean that we have passed the finish line. This was the first step. The second will be to see to it that the company again generates an appropriate return on capital."

In the first nine months of 2003, Group EBITDA increased by 25.6 percent, or EUR 2.9 billion, to EUR 14.3 billion. Adjusted EBITDA in the first three quarters increased by 15.3 percent to EUR 13.8 billion. In the third quarter of 2003, the Group generated adjusted EBITDA of approximately EUR 4.7 billion. This indicator of the Group's operating performance has increased for six consecutive quarters. The largest contribution to adjusted EBITDA growth in the third quarter of 2003 was made by the T-Mobile division, whose adjusted EBITDA increased by EUR 0.5 billion year-on-year. Excluding the effect of exchange rate fluctuations, adjusted Group EBITDA increased by 19 percent in the first nine months of this year to EUR 14.2 billion.

In the same period, the adjusted EBITDA margin improved to 33.4 percent compared with 30.5 percent in the first nine months of 2002. This development was attributable to high-quality growth in the customer base as well as synergy effects and economies of scale. At T-Systems, the considerable progress achieved in cost savings contributed to the increase in adjusted EBITDA, while T-Com succeeded in stabilizing adjusted EBITDA at a high level in spite of a decline in revenue. T-Online improved profitability through the continued optimization of network utilization.

Net income increased by EUR 26.1 billion year-on-year to EUR 1.6 billion in the first three quarters of 2003. This increase was attributable in part to the improvement in results from ordinary business activities, which was reduced in the same period last year by negative special factors totaling EUR 22.3 billion as a result of the strategic review. In addition, the increase in results from ordinary business activities clearly reflects the progress made with the Group's EBITDA. Excluding special factors, the Group recorded net income of EUR 0.7 billion in the first nine months of this year compared with a net loss of EUR 4.2 billion in the same period last year. In the third quarter of 2003 alone, net income excluding special factors almost tripled to EUR 463 million. The Deutsche Telekom Group is thus a step closer to achieving its goal of breaking even this year.

Successful completion of the "6+6" program Free cash flow before dividend payments amounted to EUR 7.4 billion in the first nine months of 2003, approximately EUR 2.7 billion higher than in the same period last year. This clear increase is mainly attributable to the increase in cash generated from operations and the reduction of approximately EUR 1.8 billion in investments in property, plant and equipment and intangible assets. With free cash flow before dividend payment totaling EUR 7.6 billion since September 30, 2002, the target set in November of last year of generating EUR 5.5 billion to EUR 6.0 billion in free cash flow for the fourth quarter of 2002 and the full 2003 financial year has been exceeded by far.

Proceeds of approximately EUR 6.3 billion have been generated or agreed for the fourth quarter of 2003 through the sale of non-core assets since the initiation of the "6+6" program. These proceeds also contributed to reducing Deutsche Telekom's debt. As the debt reduction target has been achieved ahead of schedule, the "6+6" program is now completed.

The main revenue drivers in the Group in the third quarter of 2003 were, once again, the T-Mobile and T-Online divisions. Both divisions increased their revenue figures further by healthy double-digit percentages. The net revenue of the Group in the third quarter of 2003 increased by approximately 4.9 percent year-on-year to almost EUR 14.1 billion. Revenue in the first nine months of 2003 increased by 5.4 percent year-on-year to EUR 41.3 billion. Adjusted to exclude exchange rate fluctuations, organic growth for the first three quarters of 2003 would have been 8.7 percent with net revenue of the Group of EUR 42.6 billion.

With an increase of 19.5 percent to over EUR 5.5 billion in the third quarter of 2003, revenue generated outside Germany also developed very positively. Despite continued negative currency translation effects, revenue generated outside Germany accounted for 39.2 percent of total revenue, compared with 34.4 percent in the same period last year.

"The last 12 months have been a particularly successful period for the company. The emphasis that we placed on restructuring, on deleveraging and on profitable growth has allowed us to regain our operating and financial flexibility. We are now in a position where we can look to the future with confidence", said Dr. Karl-Gerhard Eick, Chief Financial Officer.

Overview of selected key figures

1) Excluding goodwill. 2) Bonds, liabilities to banks, liabilities to non-banks from loan notes, and other liabilities after deduction of liquid assets, marketable securities, other investments in noncurrent securities, other assets, and loan discounts (prepaid expenses, deferred charges).

T-Com T-Com was once again the largest revenue driver and contributor to results in the Group in the third quarter. Nevertheless, the development of T-Com's revenue in the first three quarters 2003 was influenced by regulatory, competitive and general economic factors and - adjusted to exclude the revenue contribution of the cable companies in prior-year figures - was 1.8 percent lower than in the same period last year. Cumulative EBITDA increased by around 1 percent year-on-year to approximately EUR 7.7 billion as a result of cost savings and efficiency improvements. EBITDA adjusted to exclude special factors increased by EUR 153 million compared with the same period last year. T-Com thus achieved a considerable year-on-year improvement of its adjusted EBITDA margin from 33.8 percent to 35.8 percent in the first nine months of this year.

An important trend affecting T-Com's business development in the third quarter of 2003 continued to be the migration of customers to more advanced lines, and particularly broadband lines. The number of T-DSL lines marketed in Germany grew by another 0.3 million in the third quarter of 2003, bringing the total figure to 4.0 million.

1) Including DeTeMedien and agency business. 2) Average number of employees

T-Mobile T-Mobile continued its growth story in the third quarter. Revenue in the mobile communications division increased by approximately 18 percent to almost EUR 16.8 billion in the first nine months of 2003, compared with EUR 14.2 billion in the same period last year. In addition, the first-time consolidation of T-Mobile Netherlands in the fourth quarter of 2002 has had a positive effect. Excluding T-Mobile Netherlands, total revenue increased year-on-year by more than 13 percent in the first three quarters of 2003. T-Mobile's revenue and EBITDA growth was held back by negative currency translation effects from the conversion of figures from U.S. dollars and pounds sterling.

With an increase of 35 percent year-on-year, T-Mobile had another record quarter with its adjusted EBITDA. T-Mobile Deutschland remained the main contributor to EBITDA with a year-on-year increase of over 11 percent to EUR 953 million in the third quarter of 2003. At 29.5 percent, the adjusted EBITDA margin of the T-Mobile division was 4.2 percentage points higher in the third quarter of 2003 than in the corresponding prior-year period. The increase in the EBITDA margin is a result of the qualitative growth in new subscribers, particularly fixed-term contract subscribers, and of economies of scale and synergy effects.

T-Mobile increased its customer base by almost 1.2 million quarter-on-quarter. In Germany, T-Mobile further underlined its position among the leading providers with around 370,000 new customers, of which approximately 60 percent were fixed-term contract subscribers, in the third quarter alone. The focus in the UK was also on increasing the number of fixed-term contract subscribers: With around 123,000 new subscribers, T-Mobile UK once again achieved excellent results in this particularly important customer segment. T-Mobile USA increased its customer base by about 670,000 to more than 12.1 million subscribers in the third quarter of 2003. The proportion of fixed-term contract subscribers in the entire customer base increased further to 89 percent at the end of the quarter. T-Mobile USA's monthly ARPU (in accordance with German GAAP) remained constant compared with the previous quarter at USD 50; in euros, it increased from EUR 44 to EUR 45.

1) Average number of employees

T-Systems Despite the difficult market environment, T-Systems succeeded in increasing its total revenue by 1 percent year-on-year to more than EUR 7.7 billion in the first nine months of 2003. Adjusted EBITDA increased in the first three quarters, growing by 22 percent to approximately EUR 1 billion as a result of the continued improvement in cost structures. The continued streamlining of the investment portfolio in particular resulted in improved earnings, aided by lower rental, leasing and maintenance expenditure. The majority of this improvement was achieved in the Telecommunications unit. In addition to the major projects which were acquired in the second quarter of 2003, further large orders were successfully generated in the third quarter.

1) Average number of employees.

T-Online

In the third quarter, the T-Online division again reported clear growth in total revenue. Revenues in the first nine months increased by more than 20 percent year-on-year to over EUR 1.3 billion. The main factor driving this development was the growth in the customer base; increased demand for content and services also contributed. EBITDA increased year-on-year by 140 percent in the third quarter of 2003 to approximately EUR 84 million, the highest figure in the history of the company to date.

The clear year-on-year increase of 18.5 percent in the EBITDA margin in the third quarter of 2003 demonstrates that T-Online has benefited from economies of scale as a result of the very good growth in the numbers of new customers and from the successful implementation of measures to improve efficiency.

1) Average number of employees, excl. DeTeMedien The T-Online figures shown here were calculated in line with the provisions of German GAAP, as applied throughout the Deutsche Telekom Group, and do not correspond to the figures published by T-Online International AG in accordance with IFRSs, as T-Online International AG and Deutsche Telekom AG do not apply the same accounting policies.

Group Headquarters & Shared Services In the first nine months of 2003, Group Headquarters & Shared Services generated total revenue of EUR 3.2 billion, representing a slight increase of 1.5 percent year-on-year, primarily as a result of organizational changes in previous periods.

Compared with the same period last year, EBITDA in the first nine months of 2003 was boosted in particular by special factors in 2002 and 2003, such as income from the sale of shareholdings, transfer payments to Vivento, and the non-recurrence of the book losses on the sale of France Telecom shares. Adjusted for special factors, cumulative EBITDA for the first nine months was only slightly negative. The improved development of adjusted EBITDA year-on-year was mainly a result of the non-recurrence of any recognition of losses on accounts receivable and provisions for doubtful accounts in the current financial year, and from lower rebranding expenses. This was offset by, among other things, personnel costs and associated expenses for goods and services purchased for Vivento.

1) Average number of employees

Outlook for the 2003 and 2004 financial years On the basis of the positive operational development in the first nine months of 2003, Deutsche Telekom stepped up its expectations for the full-year. The company now aims to generate adjusted EBITDA of approximately EUR 18.2 billion in 2003, as opposed to the previous guidance of EUR 16.7 to 17.7 billion. Adjusted EBITDA in the 2002 financial year amounted to EUR 16.3 billion. Total investments for 2003 will not exceed EUR 7 billion.

For the 2004 financial year, Deutsche Telekom expects adjusted EBITDA to amount to at least EUR 19,2 billion. The 2004 guidance for the free cash flow is to at least EUR 6 billion. Furthermore, Deutsche Telekom intends to increase its investments in further profitable growth by approximately EUR 1.5 billion over the 2003 level.

6-item agenda for the whole Group After successful completion of the "6+6" program, the focus is now on profitable growth. Business development is centered on the growth potential in the fixed-network and mobile communications business. At the same time, IT services and portal business are to be developed further. A Group-wide 6-item agenda has been established for 2004 for the new phase of bottom-line growth. The 6 core issues are: broadband, human resources, innovation, quality, efficiency, and corporate customers.

1) Including for internal use 2) Percentages calculated on the basis of figures shown 3) Subscriber-line figures are recorded including Matav's Maktel subsidiary for the first time. The figures for the previous year have been adjusted accordingly. 4) Including Powertel, Inc. 5) Including Virgin Mobile. 6) T-Mobile Netherlands fully consolidated since the fourth quarter of 2002, presented on a pro forma basis to facilitate comparison.

This press release contains forward-looking statements that reflect the current views of the Deutsche Telekom management with respect to future events. Forward-looking statements are based on current plans, estimates and projections, and therefore too much reliance should not be placed on them. Such statements are subject to risks and uncertainties, most of which are difficult to predict and are generally beyond Deutsche Telekom's control, including those described in the sections "Forward-Looking Statements" and "Risk Factors" of the Form 20-F/A submitted to the U.S. Securities and Exchange Commission on June 27, 2003. If these or other risks and uncertainties materialize, or if the assumptions underlying any of these statements prove incorrect, Deutsche Telekom's actual results may be materially different from those expressed or implied by such statements. Deutsche Telekom does not assume any obligation to update forward-looking statements to take new information or future events into account.

In addition to the figures shown in accordance with German GAAP, Deutsche Telekom also shows so-called pro forma figures, e.g., EBITDA, adjusted EBITDA, net debt, and free cash flow. These pro forma financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with German GAAP. For a definition of these pro forma figures, please refer to the explanations under "Reconciliation to pro forma figures" in the Group Report on the third quarter of 2003 and Deutsche Telekom's Investor Relations website at http://www.telekom.de.