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Deutsche Telekom Surprises with a Fourth-Quarter Loss

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Deutsche Telekom has reported a surprise fourth quarter loss on an impairment charge and shaken up its management team to focus on regions as opposed to industry segments. The company reported a loss of 730 million (USD920 million), compared to a loss of 750 million a year ago. The loss was blamed on a write down of the value of Greece's Hellenic Telecommunications Organization (OTE).

On the basis of its current structure - excluding OTE - the company expects an adjusted EBITDA around the level achieved in 2008, that is around 9.5 billion. The same holds true for free cash flow, which is expected to be around 7 billion in 2009.

Mobile Communications in Europe and the U.S. operating segments recorded revenue growth of 2.4 percent to 35.6 billion in 2008. This includes net negative exchange rate effects of 1.3 billion. Revenue growth of 7.1 percent in the fourth quarter outperformed the full year. Adjusted EBITDA growth of 6.2 percent to 11.4 billion was significantly stronger for the full year 2008 than the increase in revenue. Exchange rate effects had an offsetting effect of approximately 0.3 billion. In the fourth quarter, EBITDA increased by as much as 12.7 percent.

In the past year, T-Mobile maintained its leadership in the German mobile communications market. The Company gained more than 950,000 new contract customers in 2008, virtually the same high level as in the prior year.

T-Mobile USA continued to post double-digit growth rates. Revenue rose by 13.5 percent year-on-year to USD21.9 billion, while adjusted EBITDA increased by 16.0 percent to $6.2 billion. The weak U.S. dollar resulted in lower revenue and adjusted EBITDA growth on a euro basis of 6.3 percent and 8.5 percent, respectively. The U.S. subsidiary's customer base grew by 4.1 million over the course of the year, of which almost three million were gained organically. 1.1 million customers were also added from SunCom which was consolidated in February 2008. As a result, T-Mobile USA had 32.8 million customers on December 31, 2008.

Business in the UK was negatively affected by continued fierce competition. While revenue fell 2.2 percent to GBP 3.2 billion compared to 2007, adjusted EBITDA decreased by 12.7 percent to GBP 708 million. Measured in euros, the decline is significantly more apparent as a result of the continuing weak pound sterling, with revenue dropping 15.8 percent and EBITDA 24.9 percent. The negative trend in contract customer numbers was reversed over the course of the year following the introduction of new calling plans.

The companies in Central and Eastern Europe remain important growth drivers, with revenue increasing by 10.0 percent to over 6.1 billion and adjusted EBITDA growing by as much as 14.3 percent.

Data revenue excluding messaging continued to grow unabated. In Europe, this figure climbed 44.9 percent to 1.4 billion in 2008. U.S. operations reported an increase of 19.3 percent to USD1.5 billion for the full year, with growth accelerating to 24.4 percent in the fourth quarter. This positive trend is chiefly due to innovative devices such as the Apple iPhone 3G in Europe and the Android-based T-Mobile G1 that was launched in the United States and the United Kingdom in October and has been available in other countries, including Germany, since mid-February.

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