Deutsche Telekom intends to grow in the mobile communications and fixed network mass market in the coming years, particularly on the back of broadband offers. With voice rates designed to increase usage, Internet based services such as messaging, innovative terminal equipment and access to attractive content, Deutsche Telekom plans to convince its customers and establish itself as a service provider enabling personal and social networking. "We want to give our customers rapid and easy access to communication, information and entertainment at home, on the move, and at work," said Chairman of the Board of Management René Obermann presenting his strategy on Thursday. "Focus, fix and grow that will be our way."

Deutsche Telekom intends to expand further internationally, possibly into new markets and regions, on the back of mobile communications. Funds to do so are to be generated by the sale of non-strategic business units, for example. The ICT business with key account customers is to be developed further. The Company is seeking to do this on the basis of a strategic partnership. This could also provide resources for successful development.

In the domestic consumer market, Deutsche Telekom plans to use a new media platform to attract around 1.5 million customers to Internet-based television by the end of 2010. By 2008, 50 cities will be upgraded with VDSL and connected to the platform, and an additional 750 or so towns and cities will be covered using ADSL2+. Internationally, Deutsche Telekom expects to continue increasing its customer numbers considerably in almost all markets in which it is present. The focus is on the United States, where more than 5 million new customers are to be added by 2008. The number of customers in Europe is also expected to increase significantly.

The Board of Management defined four key areas for the further development of the Company's strategy and presented them to the Supervisory Board on Wednesday:

1. Concrete measures to improve competitiveness in Germany
2. Growth abroad with mobile communications, possibly with acquisitions
3. Mobilizing the Internet and the Web 2.0 trend
4. Developing the ICT key account business further with a strategic partner

1. Improving competitiveness in Germany

The improvement of the Company's competitiveness in Germany is primarily aimed at the following key areas:

• Clear improvement of cost structure
• Sales and services from a single source; significant improvement of customer care situation
• Growth through broadband offers and innovation in services
• Simplification of the brand identity in the consumer market

Clear improvement of cost structure

Deutsche Telekom has already initiated a comprehensive cost-saving program to ensure the competitiveness of the Group in terms of prices and customer service in Germany in particular. The main elements are: the migration of the network infrastructure to IP-based technology, integration of the IT infrastructure, increased efficiency and productivity in customer care, and continued exploitation of economies of scale in mobile communications and much more. The cost-saving target for 2007 remains unchanged at EUR 2.0 billion. The target for 2010 remains to reduce costs by somewhere between EUR 4.2 billion to EUR 4.7 billion from 2005 levels.

Sales and service from a single source; significant improvement of customer care situation

One focal point of efforts to improve the Company's position in Germany is to improve customer service. The focus in the first phase is on the availability of call centers, processing customer orders and deadline compliance. The concentration of call centers, technical infrastructure units and technical customer service in independent units within the Group also contributes to improving customer care within Germany. At the same time, the Company wants to maintain as many jobs in the Group as possible. The key factor is that the productivity and cost problems in these areas have to be significantly reined in. Negotiations on this will be started with the trade unions as quickly as possible.

In addition, the aim is to achieve high quality standards for processes and IT systems in customer service. In 2008, Deutsche Telekom's service units are to maintain levels of rapid availability of 80 percent, ensure that 90 percent of all service appointments are kept, and 80 percent of matters raised by customers are to be resolved upon first contact.

Growth through broadband offers and innovation in services

In the domestic fixed-network and mobile communications market, Deutsche Telekom will boost its position as the leading provider by offering new products and innovative services. The key starting point for the fixed network is growth in the number of customers with high-speed Internet access. Deutsche Telekom intends to attract more than 40 percent of new customers in this market in 2007.

The network infrastructure is being rolled out further for IPTV and bundled (triple-play) services in 2007. Deutsche Telekom will give around 17 million households in Germany access to IPTV services via rapid network connections by the end of 2007 through the construction of a new media platform. Other cities will be upgraded with VDSL and connected to the platform step by step, and around 750 further towns and cities will be covered using the ADSL2+ technology. With transmission rates of up to 50 Mbit/s, VDSL allows new, interactive forms of television and HDTV quality. In cities equipped with ADSL2+ technology allowing speeds of up to 16 Mbit/s, TV services will be available in standard quality, together with services such as video and TV on demand. This way, Deutsche Telekom will make the media platform, which was developed in the course of the rollout of VDSL accessible to a large group of users.

In the German mobile communications market, T-Mobile is a leading provider with products like @Home and web’n’walk, and in terms of network availability and quality as well as the broadband upgrade of the network. The Company plans to continue building on this position. New products will be launched on the German market in the course of the year, such as MyFaves that has been very successful in the United States. MyFaves allows users to personalize their mobile handsets and configure symbols on the user interface for preferred callers. Calls to these people are particularly inexpensive. T-Mobile Deutschland's web’n’walk service is also to be expanded.

This product and rate strategy is accompanied by a clear focus on the aspects of sales, customer service and marketing. The goal is to market 10 million product bundles from the 3x3 portfolio by the end of the year and 1 million T-Vorteil packages, i.e. the attractively priced combination of fixed network and mobile services.

Simplification of the brand identity in the consumer market

Better orientation for customers, together with increased efficiency, remain the main goals in simplifying the brand architecture. The differentiation will be far clearer than before: T-Home will offer services for the home and T-Mobile for on the move. T-Systems will remain in place in the business customer market. Apart from that, T-Mobile is the international consumer brand. Deutsche Telekom’s T will be the overarching brand. "We plan to create a simpler brand architecture that provides our customers with a better orientation and enables resources to be used more efficiently," said Obermann.

Deutsche Telekom plans to leverage the potential of the future broadband and mobile markets with an independent second brand that will be launched before the summer with its own identity and simple products such as fixed-network and mobile bundles at especially competitive prices to address particularly price-sensitive customer groups. This brand will be aimed at young customers in particular.

2. Growing abroad with mobile communications

Deutsche Telekom is well positioned internationally with T-Mobile which generates economies of scale of more than EUR 1.2 billion per year and is a leader in terms of service and makes innovative use of efficient technologies. The Group therefore intends to exploit its growth opportunities further in the future. Various trends can be seen in the mobile communications markets from which the Group wants to benefit: Additional growth in lines and voice traffic, particularly through fixed-mobile substitution, the increase in data traffic, and rising WLAN use. Rising sales of data handsets (laptops, BlackBerry devices, etc.) and web’n’walk-enabled cell phones will ensure a positive development in mobile data communications. In total, Deutsche Telekom expects to continue increasing its customer numbers considerably in almost all its markets between 2007 and 2008.

In addition, Deutsche Telekom does not rule out acquisitions in the mobile communications sector as part of this growth strategy. This relates both to markets where Deutsche Telekom is already present and the possibility of activities outside the Company's current footprint. Both possibilities are subject to clear conditions: Deutsche Telekom is in solid financial shape and is to remain so in the event of acquisitions. "We want to use our expertise to be able to grow in mobile communications, including the possibility of acquisitions, based on our strict business criteria," said Obermann.

3. Mobilizing the Internet and the Web 2.0 trend

"The mobile Internet is becoming as much of a mega-trend as Web 2.0, a synonym for an active role in shaping the Internet as well as personal and social networking between users. That's why we are also working on services for 'communities' such as families, friends, and so on," Obermann continued. This also includes making personal and social networking available everywhere via mobile communications, such as for mobile blogging. Deutsche Telekom can build on already having an innovative presence in this area, for example with web’n’walk that allows open, multiportal use of the Internet. In addition to its own developments, the Group is looking at partnerships with other providers to integrate popular Internet services, making investments as well as entrepreneurial involvement in relevant products and concepts.

4. Developing the ICT key account business further with a partner

The main trends in the business customer market from now until 2010 are that while the margins in the telecommunications sector are shrinking, the IT market is growing. The ICT growth sector, with products such as dynamic computing, is developing as the result of business process outsourcing in particular and the intensifying convergence between IT and telecommunications. What is crucial is to have an international footprint and an appropriate size. Deutsche Telekom plans to further develop this business with international key accounts. It is looking to enter into a strategic partnership to gain the necessary resources for successful development.

Disposal of non-core assets

Deutsche Telekom also plans to sell off business units that do not fit its strategy. Specifically under review for disposal are the T-Systems Media & Broadcast unit, a service provider for the broadcasting and media industry, DeTeImmobilien, Club Internet and Ya.com, the Internet companies in France and Spain respectively, and radio towers in Germany and the United States (Deutsche Funkturm GmbH and US Towers), and the remaining shares in the real estate company Sireo.