Deutsche Telekom expects significant increase in net income

In view of the positive half-year figures, Deutsche Telekom increased its forecasts for the full 2004 financial year. Results from ordinary business activities are expected to triple compared with the figure at the end of 2003 from EUR 1.4 billion to EUR 4.2 billion. The Group is aiming to increase net income by at least 100 percent compared with 2003 to EUR 2.5 billion. Year-on-year, net income improved by 64.5 percent to EUR 1.8 billion in the first six months of 2004. This development can mainly be attributed to the increase in results from ordinary business activities. Free cash flow in 2004 is now expected to reach at least EUR 7 billion, after expectations to date of EUR 6 billion. Net debt decreased by approximately EUR 3.3 billion compared with the end of 2003 to EUR 43.3 billion at June 30, 2004. As previously announced, adjusted EBITDA is expected to grow from EUR 18.3 billion to at least EUR 19.2 billion.

"We continue to be firmly resolved to deliver what we have promised. The results for the first half-year of 2004 show that we are on track. We grew considerably in the first six months of this year. And above all: this growth continues to be increasingly profitable," stated Chairman of the Board of Management Kai-Uwe Ricke at the press conference on Deutsche Telekom's half-year financial statements in Bonn. Mr. Ricke also used this press conference as an opportunity to announce Deutsche Telekom's intention to pay shareholders an attractive dividend for the 2004 financial year. More detailed information is to be provided in the report for the third quarter in November.

Net revenue increased by 4.4 percent, or EUR 1.2 billion, to just under EUR 28.4 billion in the first six months of 2004. In organic terms, i.e. adjusted for the effects of exchange rate fluctuations and changes to the consolidated group, revenue grew by approximately 7.4 percent. Adjusted Group EBITDA increased by around 3.2 percent to roughly EUR 9.4 billion, mainly as a result of the efficiency-enhancement measures. Organic growth of adjusted Group EBITDA was 5.2 percent.

Stronger subscriber growth was recorded, both for broadband and mobile communications. Around 800,000 new DSL lines were put into operation in the first six months of 2004. As a result, the Group-wide DSL subscriber base grew to just under 5 million. In mobile communications, the number of subscribers served by the Group reached 71.6 million as of June 30, up by just under 5 million.

In its broadband business, Deutsche Telekom expects the number of T-DSL lines in Germany to increase to at least 5.6 million. In mobile communications in the United States, around 17 million subscribers are expected by year-end 2004, representing an increase of approximately 4 million.

Accelerated revenue growth in the second quarter Deutsche Telekom significantly increased its net revenue in the second quarter of 2004, too. Year-on-year, revenue rose by EUR 0.8 billion, or 6.0 percent, to EUR 14.4 billion in the second quarter. Consequently, revenue growth was substantially stronger than in the first quarter (2.7 percent). Revenue was reduced by negative exchange rate effects amounting to EUR 0.5 billion – in particular from the translation of U.S. dollars – and by consolidation effects totaling EUR 0.3 billion that relate, for example, to the deconsolidation of T-Com's cable companies as well as to deconsolidation measures at T-Systems . Adjusted for these effects, organic revenue growth amounted to 7.4 percent.

Deutsche Telekom's substantial revenue growth was again driven by the positive business development at the T-Mobile and T-Online divisions. Both in the second quarter and in the first half of 2004, T-Mobile achieved a growth rate of approximately 12 percent, which is primarily attributable to the sustained expansion of the subscriber base. T-Online, which boosted revenue by more than 11 percent both in the first half and in the second quarter of this year, made a significant contribution to the positive development of the Group, in particular by continuing its broadband strategy.

In spite of the difficult economic and regulatory environment, T-Com managed to stabilize its revenue performance. The decrease in total revenue amounted to 3.8 percent in the second quarter, compared with 6.9 percent in the first three months of 2004. The revenue decline in the first half thus totaled 5.4 percent.

In the first half of 2004, T-Systems kept its revenue at a virtually constant level year-on-year. In the second quarter of 2004, the division's revenue clearly increased by 2.3 percent year-on year and 6.1 percent quarter-on-quarter.

International revenue growth amounted to just under 18 percent in a year-on-year comparison of the second quarters. The proportion of revenue generated outside Germany has already reached 40.5 percent. The key factor behind this is the sustained positive development of revenue at T-Mobile USA.

Significant increase in EBITDA

Group EBITDA amounted to EUR 6.2 billion in the second quarter of 2004 – up EUR 1.4 billion or 30.7 percent year-on-year. EBITDA in the first half of 2004 amounted to EUR 10.7 billion, a year-on-year increase of 11.0 percent.

The second quarter of 2004 saw positive special factors amounting to EUR 2.0 billion from income relating to the write-up of U.S. mobile communications licenses (EUR 1.8 billion), and the sale of SES and Virgin shares (each around EUR 0.1 billion). However, EBITDA was impacted by special factors from the recognition of accruals totaling EUR 0.6 billion relating to the dissolution of the U.S. mobile communications joint venture. Special factors totaling EUR 1.3 billion had a positive effect on EBITDA in the first half of 2004. Adjusted for special factors, Group EBITDA increased by EUR 0.2 billion, or 4.0 percent, to EUR 4.8 billion in the second quarter, with the largest growth contribution coming from T-Mobile .

In the first half of 2004, adjusted EBITDA amounted to EUR 9.4 billion – up EUR 0.3 billion, or 3.2 percent, year on year. All the divisions of the Group contributed to this increase. Organic growth in adjusted EBITDA was significantly above 5 percent. Adjusted EBITDA increased at a slightly lower rate than revenue which is mainly due to the increase in subscriber acquisition costs as part of the growth strategy. The adjusted EBITDA margin declined moderately from 33.3 percent in the first half of 2003 to 33.0 percent in the period under review.

Adjusted net income tripled The increase in net income by 64.5 percent to EUR 1.8 billion is mainly attributable to clearly improved results from ordinary business activities. In the first half of 2004, Deutsche Telekom recorded income tax expenses amounting to EUR 0.7 billion, compared with tax income of EUR 0.2 billion in the prior-year period. Adjusted for special factors (in particular net income relating to the dissolution of the mobile communications joint venture in the United States), net income more than tripled year-on-year to around EUR 1.0 billion.

Free cash flow up in the first six months In the first of half of 2004, free cash flow increased by EUR 0.2 billion year-on-year to EUR 4,2 billion. This is the result of offsetting effects: an improvement in net cash provided by operating activities – driven in particular by the improvement in operational business and an increased positive balance from income tax refunds and payments – set against a higher level of spending on property, plant and equipment.

Free cash flow in the second quarter of 2004 amounted to EUR 1.3 billion, a year-on-year decrease of EUR 0.7 billion attributable to higher investments and a decrease in netted tax received/paid.

Net debt further reduced Net debt was reduced to around EUR 43.3 billion in the first half of 2004. This means that around EUR 1.3 billion of debt has been repaid since the end of March 2004. This was possible in particular due to the continued positive free cash flow and the proceeds from the sale of SES shares.

Year-on-year, net debt was reduced by around EUR 9.7 billion

Results from ordinary business activities grow strongly Results from ordinary business activities quadrupled year-on-year to more than EUR 2.4 billion in the second quarter of this year. In the first six months, the results from ordinary business activities amounted to around EUR 2.8 billion, clearly exceeding the 2003 full-year figure of EUR 1.4 billion.

T-Com 4

1) EBITDA = Results of ordinary business activities before net financial income / expense, including income related to subsidiaries, associated and related companies, amortization and depreciation, and before other taxes; for a detailed explanation of these figures, please refer to "Reconciliation of pro forma figures" at "www.deutschetelekom.com/investor relations". 2) For detailed information, please refer to "Reconciliation of pro forma figures" at "www.deutschetelekom.com/investor relations". 3) Average number of employees. 4) The Toll Collect joint venture has been managed by and reported under the T-Systems segment since April 1, 2004. For segment reporting purposes, the effects on the statement of income are no longer shown under T-Com , but under T-Systems . Prior-period comparatives were adjusted accordingly

Having generated revenue of EUR 13.9 billion in the first six months of 2004, T-Com is again the largest contributor to revenue in the Group. Adjusted for the pro-rata revenue generated by the remaining cable companies sold as of March 1, 2003, revenue decreased by 4.4 percent year-on-year. The trend of declining revenues from business with third parties is beginning to bottom out. Thus the decrease in external revenue (after deconsolidation of cable companies) in the first quarter of 2004 on a comparable basis was still 4.1 percent, while in the second quarter this figure was only 1.1 percent.

The call-by-call and preselection products offered by competitors for local network calls continued to have a significant impact on the Group’s revenue performance in the German market.

Revenues generated from access business grew in the second quarter of 2004 once again as a result of price adjustments and increasing revenues from T-DSL. This increase is offset in part by a drop in call revenues in particular, mainly as a result of the introduction of call-by-call and preselection in the local network last year. The high level of demand for T-DSL has continued, boosted by the broadband initiative, including T-Com‘s 1-2-3 strategy launched in early April. The number of T-DSL lines in Germany increased by over 344,000 compared with the first quarter. Approximately 4.7 million T-DSL lines were in operation in Germany at the end of June 2004, a year-on-year increase of 38.2 percent. Including its majority-owned subsidiaries in Eastern Europe, T-Com had a total of 4.9 million T-DSL lines in operation at the end of the half-year – 40 percent more than at the same time last year.

Following a drop in the first quarter, revenue in Central and Eastern Europe increased in the second quarter from EUR 916 million to EUR 976 million. Due to progressive deregulation and tougher competition, the revenue generated in the conventional fixed network decreased, but this decline was offset by the growth in the mobile communications and broadband business.

Adjusted EBITDA rose slightly to EUR 5.2 billion in the first half of 2004 despite the drop in revenues. On a like-for-like basis, i.e. excluding revenues from the cable businesses in the first quarter of 2003, adjusted EBITDA increased by 0.1 percent. In a year-on-year comparison of the second quarters, adjusted EBITDA excluding cable activities increased by 1.5 percent to almost EUR 2.6 billion. This improvement was attributable to increased staff productivity and measures to enhance quality and streamline operating costs. The adjusted EBITDA margin improved significantly by 2.1 percentage points in the first half of 2004 to 37.8 percent.

T-Mobile

1) EBITDA = Results of ordinary business activities before net financial income / expense, including income related to subsidiaries, associated and related companies, amortization and depreciation, and before other taxes; for a detailed explanation of these figures, please refer to "Reconciliation of pro forma figures" at "www.deutschetelekom.com/investor relations". 2) For detailed information, please refer to "Reconciliation of pro forma figures" at "www.deutschetelekom.com/investor relations" 3) Average number of employees.

T-Mobile increased its revenue in the second quarter of 2004, as was the case in the first quarter. This led to year-on-year growth of around 12 percent to EUR 12.2 billion in the first half-year. T-Mobile USA was once again the main growth driver, recording a revenue increase of over 30 percent in the second quarter. As a result, the revenue of T-Mobile USA surpassed that of T-Mobile Deutschland for the first time.

Almost all T-Mobile companies generated higher revenues in the first half-year of 2004, driven above all by increasing subscriber numbers. Revenue from data services (excluding text messaging) also increased considerably. Revenues in this area rose significantly at all T-Mobile companies in the first half of 2004 to a total of almost EUR 300 million, compared with EUR 123 million in the first half of 2003.

The number of mobile communications subscribers served by T-Mobile majority-owned subsidiaries increased by more than 2.2 million in the second quarter of 2004 to 65.7 million. Of these new additions, around 1.4 million signed fixed-term contracts. The total subscriber base grew by over 9 million customers or more than 16 percent year-on-year compared with the second quarter of 2003.

The number new additions in the USA increased by almost 1.1. million in the second quarter of 2004 to 15.4 million. This means that, of all the nationally operating mobile communications providers in the United States, T-Mobile USA achieved the second-best result in absolute terms. T-Mobile regards exceeding the 15 million customer mark as an important milestone for generating economies of scale. Based on this positive development, the company's expectations for the total number of T-Mobile USA subscribers at the end of the year has been raised to 17 million.

T-Mobile Deutschland acquired 378,000 new customers in the second quarter, of whom more than 60 percent signed fixed-term contracts. In particular, the new “Relax” calling plans contributed to this subscriber growth. The proportion of fixed-term contract subscribers in the total subscriber base increased to over 48 percent.

With 556,000 new additions in the second quarter, T-Mobile UK also dramatically increased its total number of subscribers to 14.9 million.

T-Mobile CZ expanded its customer base by 84,000, taking it well past the four million mark. With more than 2 million customers, T-Mobile Austria kept its subscriber base stable. T-Mobile Netherlands has around 2.2 million customers at the end of the second quarter of 2004, a quarter-on-quarter increase of 114,000.

EBITDA in the T-Mobile division amounted to almost EUR 4.9 billion in the first half of 2004. EBITDA adjusted for special factors was EUR 3.6 billion in the first six months and EUR 1.9 billion in the second quarter. Special factors affecting EBITDA in the past quarter consisted of a EUR 1.8 billion write-up of U.S. mobile communications licenses, accruals of EUR 0.6 billion for contingent losses relating to the dissolution of the U.S. mobile communications joint venture with Cingular, and backdated proceeds of EUR 75 million from the sale of Virgin Mobile. The adjusted EBITDA margin was 29.6 percent in the first half-year and 30.9 percent in the second quarter, both of which are moderately lower than the prior-year figures. The current costs for the construction and operation of the UMTS network in Europe, which has not yet generated any significant revenues, exerted a negative impact on the EBITDA margin.

As in prior periods, T-Mobile Deutschland made the biggest EBITDA contribution of EUR 832 million in the second quarter. This figure was positively affected, in the amount of EUR 68 million, by a one-time wholesale agreement. On the other hand, EBITDA was adversely affected by the increased expenditures for the Relax calling plans. The EBITDA margin was 38.5 percent.

T-Mobile USA generated an adjusted EBITDA margin of more than 25 percent in the second quarter of 2004, contributing EUR 589 million to EBITDA.

As in the first quarter of 2004, EBITDA of T-Mobile UK was positively affected by the modified contractual terms in effect between T-Mobile UK and Virgin Mobile. Adjusted EBITDA amounted to EUR 365 million; the EBITDA margin was 33 percent.

The subsidiaries in the Czech Republic, Austria and the Netherlands contributed EUR 89 million, EUR 50 million and EUR 31 million, respectively, to EBITDA.

T-Systems

The Toll Collect joint venture has been managed by and reported under the T-Systems segment since April 1, 2004. For segment reporting purposes, the effects on the statement of income are no longer shown under T-Com , but under T-Systems . Prior-period comparatives were adjusted accordingly. 1) EBITDA = Results of ordinary business activities before net financial income / expense, including income related to subsidiaries, associated and related companies, amortization and depreciation, and before other taxes; for a detailed explanation of these figures, please refer to "Reconciliation of pro forma figures" at "www.deutschetelekom.com/investor relations". 2) For detailed information, please refer to "Reconciliation of pro forma figures" at "www.deutschetelekom.com/investor-relations". 3) Average number of employees.

In the second quarter of 2004, unadjusted total revenue increased by 6.1 percent quarter-on-quarter. This increase is due to the positive development of revenue in the service lines for Computing Services and Desktop Services as well as to the further improvement in net revenue. Adjusted for deconsolidation effects from the sale of investments, T-Systems posted 4.5 percent revenue growth in the second quarter of 2004 compared with the same quarter of the previous year.

The increase in T-Systems' net revenue continued once again in the second quarter: It was 3.4 percent higher than in the second quarter of last year in absolute terms; after adjustment for deconsolidation effects, 6.8 percent. In a year-on-year comparison of the first six months, unadjusted growth was 1.9 percent; adjusted growth, 6.5 percent.

Adjusted EBITDA grew substantially year-on-year, both in the second quarter of 2004 and in the first six months of the year. The increase of 7.1 percent to EUR 361 million in the second quarter, and of 6.3 percent to EUR 662 million in the first half of 2004, underlines the improvement in T-Systems' operating performance. This is primarily due to the continuously improved cost structures, as well as to efficiency gains in the division. At 13.8 percent, the adjusted EBITDA margin for the second quarter was considerably higher than in the prior-year period (13.1 percent).

T-Online 4

1) EBITDA = Results of ordinary business activities before net financial income / expense, including income related to subsidiaries, associated and related companies, amortization and depreciation, and before other taxes; for a detailed explanation of these figures, please refer to "Reconciliation of pro forma figures" at "www.deutschetelekom.com/investor relations". 2) For detailed information, please refer to "Reconciliation of pro forma figures" at "www.deutschetelekom.com/investor-relations" 3) Average number of employees. 4) 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 the IFRSs, as T-Online International AG and Deutsche Telekom AG do not apply the same accounting policies.

In a year-on-year comparison of the second quarters, T-Online increased its revenue by more than 11 percent to EUR 500 million. (Figures in line with German GAAP) This increase was mainly attributable to sustained customer growth. In the first half of 2004, net revenue improved by around 11 percent year-on-year.

In comparison with the second quarter of 2003, EBITDA rose by 26.7 percent to EUR 128 million. Adjusted EBITDA increased by more than 68 percent. In a year-on-year comparison of the first six months, adjusted EBITDA increased by almost 64 percent to EUR 247 billion. The EBITDA margin in the second quarter of 2004 was 25.6 percent.

The main factor driving customer growth is the implementation of our broadband strategy. The number of subscribers to DSL, for example, rose 32.6 percent from 2.2 million to 2.9 million. In the "Germany" business segment, the number of T-Online broadband customers rose 31 percent in the same period to a total of 2.62 million.

Group Headquarters & Shared Services

1) EBITDA = Results of ordinary business activities before net financial income / expense, including income related to subsidiaries, associated and related companies, amortization and depreciation, and before other taxes; for a detailed explanation of these figures, please refer to "Reconciliation of pro forma figures" at "www.deutschetelekom.com/investor relations". 2) For detailed information, please refer to "Reconciliation of pro forma figures" at "www.deutschetelekom.com". 3) Average number of employees.

The total revenue of Group Headquarters & Shared Services rose slightly by 3.7 percent to EUR 2.2 billion compared with the first half of 2003. This increase is mainly due to the revenues from Vivento's new call center business. In comparison with the second quarter of 2003, revenue increased year-on-year by 7.7 percent to just under EUR 1.2 billion. At EUR -346 million, adjusted EBITDA in the first half of 2004 was lower than the prior-year figure of EUR -20 million. This is primarily due to the significant increase in the number of employees assigned to Vivento.

The development of unadjusted EBITDA compared with the first half of 2003 can be ascribed to the higher expenditure for Vivento and to the lower volume of special factors. Negative special factors in the first half of 2004 amounted to EUR 102 million compared with EUR 244 million in the prior-year period. Special factors in the first half of 2004 result from the transfer payments of around EUR 43 million for the employees transferred from T-Systems to Vivento, the income from the sale of interests in SES Global S.A. amounting to EUR 92 million, and the accrual recognized in the first quarter for the voluntary redundancy program set up in March 2004.

Vivento is now developing along positive lines as a result of the establishment of its own business activities within the Vivento business lines and the acquisition of orders for major projects. Founded in the first quarter of 2004, Vivento Customer Services GmbH & Co. KG (VCS) is represented throughout Germany with 14 sites and approximately 1,000 employees in June 2004. VCS also had some 600 loaned and temporary staff. The installation services company VTS (Vivento Technical Services) was launched on July 1, 2004 with 400 members of staff. A major project which is particularly important for Vivento has been agreed with the Federal Employment Agency (BA). Under the terms of the administrative agreement between the BA and Deutsche Telekom AG, around 3,000 civil servants from Vivento will assist the BA for a limited period in the introduction of the new scheme for settling benefits for the long-term unemployed.

In the employment alliance agreed upon with employees' representatives, weekly working hours were reduced to 34 at March 1, 2004 for employees subject to collective agreements and at April 1, 2004 for civil servants ? with a partial reduction in pay and a moderate increase in salaries which will not take effect until 2005. This has also allowed us to safeguard about 9,800 jobs. We have been able to cancel planned transfers to Vivento, while about 2,000 staff have been transferred from Vivento back to Deutsche Telekom AG.

Approximately 1,500 staff were transferred to Vivento in the second quarter of 2004. At June 30, 2004, a total of about 26,400 employees had been transferred to Vivento. Some 3,500 employees have left Vivento since January 1, 2004, about 1,900 of whom in the second quarter. About 7,300 employees have left Vivento since it was first founded. Vivento had around 19,900 employees at June 30, 2004, including approximately 650 permanent staff, roughly 16,050 transferred employees and 3,200 employees of the call center business line. In June, around 5,200 Vivento staff were in temporary position within the Group, and a further 1,200 outside the Group. Vivento thus increased the employment ratio considerably in the first half of the year.

Outlook In view of its results for the first half-year, Deutsche Telekom has revised and increased its forecasts for certain key performance indicators for the second half of the year.

The significantly improved operating performance means, for the full financial year, we expect to triple the results from ordinary business activities of just over EUR 1.4 billion we achieved last year to EUR 4.2 billion. Deutsche Telekom is aiming to increase its net income by at least 100 percent to EUR 2.5 billion compared with 2003. Ricke announces intention to pay an attractive divided for the 2004 financial year.

Free cash flow in 2004 is now expected to reach at least EUR 7 billion, after an original forecast of EUR 6 billion. The expectation that adjusted EBITDA will grow from EUR 18.3 billion to at least EUR 19.2 billion remains unchanged.

In mobile communications in United States, Deutsche Telekom now expects to have around 17 million subscribers by year-end, representing approximately 4 million net additions in 2004. Deutsche Telekom also expects the number of broadband customers to increase from the original target of 5.0 million to at least 5.6 million by year-end.

Development of customer figures

The total was calculated on the basis of precise figures and rounded to millions. 1) Telephone channels, including for internal use. 2) Subscriber-line figures are recorded including MATÁV's subsidiary Maktel. 3) Including Virgin Mobile. 4) Percentages calculated on the basis of figures shown 5) Mobimak mobile subscribers included for the first time as of March 31, 2004. Prior-year figures have been adjusted accordingly. 6) Number of subscribers of T-Mobile's fully consolidated mobile communications companies, plus the majority shareholdings of MATÁV and Hrvatske telekomunikacije (HT). Mobimak mobile subscribers included for the first time as of March 31, 2004 . Prior-year figures have been adjusted accordingly. 7) Westel was rebranded as T-Mobile Hungary as of May 3, 2004.

This notification 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 submitted to the U.S. Securities and Exchange Commission. 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 of pro forma figures" on Deutsche Telekom's Investor Relations website at http://www.telekom.de.