Deutsche Telekom pushes ahead with profitable growth

Deutsche Telekom continued to grow in the first quarter of 2005, mainly as a result of the positive development of international business and the continued high dynamics of broadband business. Net revenue in the Group increased by 3.5 percent, from EUR 13.9 billion in the prior-year quarter to EUR 14.4 billion. While revenue in Germany was slightly above the level of the previous year at EUR 8.6 billion, revenue generated outside Germany rose considerably by 7.4 percent to EUR 5.8 billion. As a result, Deutsche Telekom generated around 40 percent of its revenue in the first quarter of 2005 abroad. Adjusted Group EBITDA improved by 5.2 percent to EUR 4.9 billion. Adjusted profit before income taxes increased by 28.3 percent to EUR 1.6 billion. Adjusted net profit rose by 45 percent to EUR 1.0 billion; in the first quarter of the previous financial year, it was just EUR 691 million.

Revenue growth outside Germany was driven primarily by T-Mobile USA. The number of mobile customers in the United States increased by 957,000 net since the end of 2004 to a total of 18.3 million at the end of March. Revenue in the Broadband/Fixed Network segment decreased; however, the decline in the loss of market share in the local and national long-distance markets slowed down. Marked growth was recorded in this strategic business area in terms of broadband lines in Germany: The number of broadband lines in operation increased by 581,000 to 6.4 million in the first quarter. The Business Customers segment recorded an increase in revenues from internationally operating key account customers and public institutions served by T-Systems Enterprise Services.

The EUR 243 million improvement in adjusted EBITDA, from EUR 4.7 billion to EUR 4.9 billion in the first quarter of 2005, was mainly generated by the Mobile Communications business area. Adjusted EBITDA from Mobile Communications increased by 15.6 percent to EUR 2.1 billion as a result of efficiency increases and economies of scale created by the growing customer base. This also compensated for the 2.9-percent decrease in adjusted EBITDA in Broadband/Fixed Network to EUR 2.5 billion, which was caused primarily by competition-driven revenue losses in the traditional fixed-network business that could not be fully offset by cost savings. Adjusted EBITDA in the Business Customers segment increased from EUR 394 million in the prior-year quarter to EUR 396 million. The Group's EBITDA in the first quarter of 2005 was impacted by special factors of EUR 20 million relating to severance and voluntary redundancy payments and restructuring expenses.

Profit before income taxes increased by 35.8 percent from EUR 1.2 billion to EUR 1.6 billion. This improvement was mainly driven by a decrease of EUR 503 million in net financial expense in the first quarter of 2005 to EUR 721 million. This, in turn, was mainly the result of lower interest expenses. Net debt decreased by EUR 6.0 billion year-on-year to EUR 42.6 billion. Compared with the end of 2004, however, net debt rose by EUR 3.1 billion due to payments for network infrastructure in the United States and for measures relating to the planned merger of T-Online International AG into Deutsche Telekom.

Net profit increased to EUR 1.0 billion in the first quarter of 2005, representing a year-on-year improvement of around 60 percent in Deutsche Telekom's net profit. This considerable growth is mainly attributable to the positive development of profit before income taxes. Net profit in the first quarter of 2005 was impacted by special factors of EUR 8 million compared with EUR -59 million in the same period last year. Adjusted net profit increased by 45.0 percent to EUR 1.0 billion. Deutsche Telekom Group 1

1) As of the first quarter of 2005, the Deutsche Telekom Group is reporting according to the new IFRS accounting standards for the first time. Prior-year comparatives have been restated.

Mobile Communications

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.telekom.de/investor-relations." 2) For detailed information, please refer to "Reconciliation of pro forma figures" at "www.telekom.de/investor-relations." 3) Average number of employees.

As the growth driver of the Group, the Mobile Communications segment increased its revenue by 7.6 percent or EUR 474 million year-on-year in the first quarter of 2005. The main factor behind this growth – apart from the consolidation of Euro Tel for the first time, which contributed EUR 86 million – was once again T-Mobile USA with a revenue increase of 27 percent or EUR 545 million. Both EBITDA and adjusted EBITDA of the Mobile Communications segment amounted to around EUR 2.1 billion in the first quarter of 2005, representing year-on-year increases of 15.1 percent and 15.6 percent respectively. The largest contribution to adjusted EBITDA was once again made by T-Mobile Deutschland with EUR 825 million, followed by T-Mobile USA with EUR 602 million, and T-Mobile UK with EUR 277 million. The adjusted EBITDA margin of the Mobile Communications business area was 31.3 percent, more than two percentage points higher than in the same period last year. The EBITDA margin in Germany amounted to approximately 40 percent (prior year: 38 percent), in the United Kingdom 28.0 percent (34 percent) and in the United States 23.2 percent (18.0 percent). The margin in the United Kingdom was affected in particular by the cut in termination charges. The number of mobile communications customers served by fully consolidated Group companies increased to almost 79 million, compared with 70.9 in the prior-year period. The number of customers served by T-Mobile's majority-owned subsidiaries increased by 1.5 million in the first quarter of 2005. Of these new customers, 70 percent were fixed-term contract subscribers. T-Mobile USA continued its particularly strong performance, adding 957,000 net new customers in the first quarter of 2005. This subsidiary now has 18.3 million customers, which is about 4 million or 28 percent more than the comparable prior-year figure. T-Mobile USA has been extremely successful in marketing the BlackBerry. More than half a million T-Mobile USA customers now use this terminal device for mobile data communications. In Europe, T-Mobile drove forward the marketing of the Relax calling plans. Across Europe, around 3.1 million customers opted for T-Mobile's Relax rates. This number is equivalent to 14 percent of all European fixed-term contract subscribers. T-Mobile Deutschland continued to focus its marketing activities on fixed-term contract business. The customer growth of 89,000 new additions was almost entirely attributable to the postpay sector. Broadband/Fixed Network

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.telekom.de/investor-relations." 2) For detailed information, please refer to "Reconciliation of pro forma figures" at "www.telekom.de/investor-relations." 3) Average number of employees. 4) In contrast to previous reporting, the investment in Toll Collect has been reported under T-Systems rather than T-Com since April 1, 2004. The prior-year comparatives have been restated to facilitate comparison.

In the Broadband/Fixed Network business area, consisting of the two business units T-Com and T-Online, T-Com's total revenue decreased year-on-year, while T Online's total revenue improved. In total, Broadband/Fixed Network generated revenues of EUR 6.6 billion, 4.4 percent less than in the first quarter of 2004. The majority of this decline of EUR 303 million was caused by lower internal revenues generated with other Group units (decrease of EUR 177 million). Net revenue, excluding the effects of business transactions within the Group, decreased by EUR 126 million, or 2.2 percent, year-on-year. This is primarily a result of losses of market share to competitors in the call market, continuing substitution by mobile communications, and losses of market share and price cuts in the international carrier business. Year-on-year, profit from operations in the Broadband/Fixed Network segment increased by roughly 2.0 percent to EUR 1.5 billion. This positive development is attributable to the decrease in depreciation and amortization. Adjusted EBITDA in the strategic business area decreased slightly by 3 percent in the first quarter of 2005 to EUR 2.5 billion. In the first quarter of 2005, adjusted EBITDA at T-Com was EUR 2.4 billion. T-Com's adjusted EBITDA margin therefore rose from 37.7 percent in the first quarter of 2004 to 38.6 percent in the first quarter of 2005. At T-Online, year-on-year revenue growth was offset by a decrease in adjusted EBITDA from EUR 118 million to EUR 88 million. This decline is a result of the expected start-up costs of the combined DSL and entertainment packages offered in Germany as well as the costs of the aggressive market expansion activities in France and Spain. In the first quarter of 2005, Broadband/Fixed Network again focused its activities on increasing the mass market penetration of its broadband lines. Compared with the end of 2004, the number of broadband lines at T-Com rose by a total of 621,000 to 6.7 million, the second highest net increase within a quarter. Approximately 6.4 million lines were in use in Germany at the end of March 2005, which corresponds to an increase of 581,000 in the quarter under review. At March 31, 2005, the Broadband/Fixed Network segment had marketed a cumulative total of 465,000 DSL lines as part of resale offers; this figure includes net additions of 219,000 lines in the first quarter of 2005. T-Online has also positioned itself as a full-package DSL provider in Germany since February 1, 2005 by marketing the DSL line together with an Internet access and hardware components. The strong growth trend in the broadband sector also continued in the first quarter of 2005 at T-Com's subsidiaries in Central and Eastern Europe. The number of DSL lines operated by subsidiaries increased to 305,000, thus more than doubling year-on-year, thanks to marketing initiatives. Business Customers

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 . The prior-year comparatives have been restated to facilitate comparison. 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.telekom.de/investor-relations." 2) For detailed information, please refer to "Reconciliation of pro forma figures" at "www.telekom.de/investor-relations.“ 3) Average number of employees.

In the first quarter of 2005, the Business Customers segment (T-Systems) reported revenue growth of 1.6 percent compared with the prior-year quarter, increasing the total to EUR 3.12 billion. The substantial revenue growth of over EUR 180 million in the Enterprise Services business unit more than offset the decrease of around EUR 80 million at Business Services. Net revenue growth in the first quarter of 2005 was stronger than the growth in total revenue. This development reflects T-Systems’ successful positioning on the market and the continued substitution of internal revenue with external revenue. The Enterprise Services business unit made a particularly important contribution of 5.8 percent to the year-on-year growth in net revenue. In contrast, considerable price and competitive pressure had a negative impact on revenue at Business Services. Net revenue recorded in this segment was down 2.2 percent on the corresponding prior-year period. In the first quarter of 2005, T-Systems increased both its EBITDA and its adjusted EBITDA by around 1 percent year-on-year. This development was due to EBITDA growth of 2.8 percent at T-Systems Enterprise Services, which offset the decrease at T-Systems Business Services. These figures reflect the success of cost reduction and efficiency enhancement measures in the strategic business area, as well as the first positive effects of the "Focus on Growth" program, which T-Systems is pressing ahead as part of the Group-wide "Excellence" initiative. Group Headquarters and 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.telekom.de/investor-relations." 2) For detailed information, please refer to "Reconciliation of pro forma figures" at "www.telekom.de/investor-relations.“ 3) Average number of employees.

Total revenue of Group Headquarters & Shared Services decreased slightly compared with the first quarter of 2004. The decline may be attributed primarily to lower revenue generated in Real Estate Services due, in particular, to lower real-estate volumes as a result of the conversion to new market-based lease models with the Group's strategic business areas. This effect is only partially offset by the revenues generated by the Vivento business lines Call Center Unit and VTS. Despite lower revenues compared with the same period of the previous year, EBITDA improved by EUR 37 million. Reasons for this development included Vivento's lower costs of personnel as a result of lower staff numbers and higher income from contract or temporary work arrangements. In addition, the costs of trainees, which had previously been reported under Headquarters' costs but are now allocated more fairly based on actual cost generation, will reduce costs at Group Headquarters. This helped to offset the negative EBITDA effect from the lower revenues generated by Real Estate Services. EBITDA also benefited from a decline in EBITDA-related special factors, which amounted to EUR 11 million in the first quarter of 2005. The special factors consist of charges for voluntary redundancy payments and transfer payments to Vivento. In the prior-year period, EBITDA was burdened by voluntary redundancy payments of EUR 33 million. In the first quarter of 2005, Vivento took on 700 employees from the Deutsche Telekom Group. More than 2,000 employees left Vivento in the first quarter of 2005. The number of employees at Vivento – excluding Vivento's own employees/members of management – therefore decreased to 17,000 compared with 18,300 at the end of 2004. Vivento managed to stabilize the placement and qualification rate at a high level of around 80 percent in the first quarter of 2005. Factors contributing to Vivento's high level of placements primarily include the business lines, Vivento Customer Services and Vivento Technical Services, which currently employ around 5,700 staff. An additional 7,100 staff were engaged in contract or temporary positions. In 2005, Vivento's ongoing goal continues to be to place as many employees as possible in permanent jobs inside and outside the Group. Outlook In 2005, Deutsche Telekom continues to expect adjusted EBITDA to be between EUR 20.7billion and EUR 21.0 billion. The Group plans capital expenditures between EUR 7.5 billion and EUR 8.0 billion and expects free cash flow to be in the same order of magnitude. According to current plans, significant additional cash outflows in 2005 will be as follows:

• Around EUR 1.9 billion paid in January for the Cingular network in California and Nevada and the acquisition of mobile communications licenses.
• Up to EUR 2 billion for the purchase of additional spectrum in the United States. 36 licenses have already been purchased for a total of USD 256 million in the so-called Auction 58.
• The merger of T-Online AG into Deutsche Telekom is expected to result in a maximum cash outflow of EUR 2.9 billion. Of this amount, approximately EUR 1.8 billion was already spent to increase the equity holding in T-Online from 73.93 percent before the announcement of the merger plans to the most recent level of 90.14 percent.
• Approximately EUR 2.6 billion have been expended for the distribution of a dividend for the 2004 financial year.

Based on these cash outflows, we do not expect the ratio of net debt to adjusted EBITDA to change significantly for the full year. The future development of dividends will be based on the following key factors:

• The dividend for 2004 is the guideline for future dividends.
• Deutsche Telekom wants be able to continue offering its shareholders an attractive dividend in the future.
• Future dividends will be determined by the development of the profit generated by Deutsche Telekom's activities.

Development of subscriber numbers

1) Telephone lines of the Group (incl. ISDN channels), including for internal use. 2) Broadband lines, excluding for internal use. Prior-year comparatives have been restated. As of February 2005, broadband lines based on DSL technology for consumers have been marketed by T-Online. 3) Definition of resale: sale of broadband lines based on DSL technology to alternative providers outside the Deutsche Telekom Group. 4) Central and Eastern Europe includes the fixed-network business of MATÁV (incl. Maktel), Slovak Telecom (ST) and T-Hrvatski Telecom (T-HT). 5) For the first time, the number of narrowband lines rather than channels are reported. Prior-year comparatives have been restated. 6) Telephone lines excluding internal use and public telecommunications, including wholesale services. Prior-year comparatives have been restated. 7) Subscriber-line figures are recorded including MATÁV's subsidiary Maktel. Re-branding of MATÁV as Magyar Telekom as of the beginning of May 2005. 8) Total calculated on the basis of customers (broadband and narrowband rates) with a billing relationship and Pay as you go < 30 days and Pay as you go > 30 days. Western Europe includes: Ya.com and Club Internet. 9) Including Virgin Mobile. 10) Rebranding as T-Mobile Slovensko at the beginning of May 2005; subscribers were included for the first time in the fourth quarter of 2004. Prior-year figures have been restated. 11) Changes calculated on the basis of figures shown.

This 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 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 IFRS, 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 IFS. For a definition of these pro forma figures, please refer to the explanations under "Reconciliation to pro forma figures" on Deutsche Telekom's Investor Relations website at www.deutschetelekom.com. This release contains financial information that has been prepared in accordance with International Financial Reporting Standards, or “IFRS,” and on the basis of the new strategic business areas. The IFRS financial information contained in this report was prepared on the basis of the assumption that, with the exceptions of IAS 39 “Financial Instruments: Recognition and Measurement” and IFRIC 3 “Emission Rights,” all existing standards and interpretations that have been issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) will be fully endorsed by the EU. The accounting policy for financial instruments takes into account the proposed EU revisions to IAS 39 and complies with the amended IAS 39. IFRIC 3 is not relevant for Deutsche Telekom. Subject to EU endorsement of outstanding standards and no further changes from the IASB, the information presented here is expected to form the basis for reporting Deutsche Telekom’s financial results for 2005, and for subsequent reporting periods. However, Deutsche Telekom cannot assure you that there will not be material changes in IFRS between the date of this Interim Report and the first date on which Deutsche Telekom is required to publish financial statements for 2005, 2004 or 2003 under IFRS.