Further information

Glossary Index 203 V VII Contacts/Financial calendar Deutsche Telekom worldwide Key data of the Groups operating segments
To our shareholders Letter to our shareholders

Dear shareholders,

We set ourselves a whole range of ambitious targets in the 2007 financial year and achieved almost all of them. Following the appointment of a new Chairman of the Board of Management, we had to take many important decisions. We had to restructure the Board of Management team and, right at the beginning of the year, adjust our results forecast for the financial year. We also developed a new strategy, Focus, fix and grow, which has four main aims: to improve competitiveness in Germany, to grow abroad with mobile communications, to mobilize the Internet, and to realign T-Systems. Another major focus in 2007 was to push ahead with the necessary personnel-related and structural changes within the Group, which are geared towards improving our cost structure and providing our Company with new prospects for the future. We plan to increase our dividend by more than 8 percent. We saw considerable progress from one quarter to the next. We have succeeded in achieving the financial targets we communicated at the beginning of 2007: We increased net revenue by 1.9 percent to EUR 62.5 billion. Adjusted EBITDA was slightly above target at EUR 19.3 billion, while free cash flow increased to EUR 6.6 billion, thus exceeding both the prior-year figure of EUR 6.3 billion by 4.4 percent and the raised forecast of around EUR 6.5 billion that we made in November. And we reduced net debt to EUR 37.2 billion. Based on these figures we have decided together with the Supervisory Board to propose to the shareholders meeting an 8.3-percent higher dividend payout of EUR 0.78 per share for the 2007 financial year. We have significantly improved our competitiveness in Germany. In what ways? For instance, we have reclaimed the top spot in the crucial broadband sector and boosted our share in the new customer business to around 44 percent, after 18 percent in 2006. The rapid roll-out of our broadband infrastructure has also enhanced our competitive position. Our VDSL network has been up and running in 27 cities across Germany since the end of 2007. Together with the approximately 750 towns that are linked up to ADSL2+, our high-speed Internet lines are currently available to around half of all households in Germany. Our new products are also being well received on the market. Among them are our Entertain complete packages comprising voice telephony, broadband Internet and TV entertainment, with 150,000 packages sold since the launch in early September. And we are just as delighted with our second brand, Congstar, which had attracted around 200,000 new customers by the end of January 2008. Another major issue is raising service levels and improving customer satisfaction. Our new service companies got off to a successful start in the summer. Our on-site service teams now succeed in keeping three quarters of all customer appointments. Call center availability is currently around 90 percent. More than 75 percent of incoming calls are answered within 20 seconds. Our customer service was awarded the CCF Quality Award 2007, an accolade presented by the Call Center Forum (CCF), Germanys largest trade association in this industry, for its performance in the Customer Satisfaction category. Even so, that does not mean everything is perfect there is still much to improve. We will not achieve our goal of becoming the best service company in our industry overnight, but we are putting everything into it.

Deutsche Telekom AG and its shareholders.
Deutsche Telekom AG has around 2.6 million shareholders worldwide. Due to the wide distribution of shares, the Company makes every effort to keep its shareholders up to date on company developments. To enable a continuous flow of information, the Company operates the T-Share Forum (Forum T-Aktie) which offers shareholders news on current developments and events on a regular basis. The Deutsche Telekom AG website (www.telekom.com) also contains extensive information for retail and institutional investors. A company newsletter, which appears at regular intervals, is another source of useful information for shareholders. The German-language newsletter can be ordered online at the Deutsche Telekom website (German section only). Non-classified company information is published on the Deutsche Telekom website in German and English. Shareholders are eligible to participate in the shareholders meeting and to exercise their voting rights at the shareholders meeting if they are entered in the shareholders register and have registered with the Company on time. Voting rights may also be exercised by a proxy. Deutsche Telekom AG is one of the first companies in Germany to broadcast its shareholders meetings to the public over the Internet and to enable proxies to be appointed and voting instructions conveyed over the Web. Voting instructions to Deutsche Telekom AGs proxy voters can be changed via the online dialog even during the shareholders meeting, until shortly before votes are cast.
Cooperation between the Supervisory Board and the Board of Management.
The Supervisory Board and the Board of Management work closely together for the good of the Company and maintain regular contact. The Supervisory Board of Deutsche Telekom AG holds four regular meetings a year. In 2007 there were also four extraordinary meetings and one in-depth conference on the strategic alignment of the Company. The Board of Management keeps the Supervisory Board fully and regularly informed in good time of all relevant business developments, plans, potential risks, risk management, compliance, as well as of any deviations from original business plans. The Board of Management regularly submits written reports. The reporting obligations of the Board of Management have been specified by the Supervisory Board and go beyond statutory requirements. The activities of the Board of Management and the Supervisory Board are specified in separate Rules of Procedure. The Rules of Procedure of the Board of Management provide guidance in particular with regard to the departmental responsibilities of its individual members, matters reserved for the Board of Management as a whole, and the majorities required for resolutions. The chair of the Board of Management regularly exchanges information with the chair of the Supervisory Board.

Accounting and audit of financial statements.
An agreement has been reached with the external auditors that the chair of the Supervisory Board/the Audit Committee shall be advised immediately of any issues uncovered during the audit that might give rise to statements of exclusion or reservation in the auditors report, unless these issues can be resolved forthwith. Moreover it has been agreed that the auditors shall immediately report any findings and issues which emerge during the audit and which have a direct bearing upon the tasks of the Supervisory Board. According to this agreement, the auditors undertake to inform the Supervisory Board or make a note in their report of any facts discovered during the audit which might indicate a discrepancy in the Declaration of Conformity with the German Corporate Governance Code submitted by the Board of Management and Supervisory Board.
Securities-based incentive systems.
Specific details of the securities-based incentive systems of the Company are contained in the notes to the consolidated financial statements on pages of this Annual Report under Stock-based compensation plans and on pages under Compensation of the Board of Management and Supervisory Board in accordance with 314 HGB. These details in the notes to the consolidated financial statements are also an integral part of this Corporate Governance report.

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equally weighted success parameters. For the 2007 financial year as for 2005 and 2006 one absolute and one relative plan target have been set. The absolute plan target is related to the increase in value of the Deutsche Telekom share. The relative plan target requires the total return of the Deutsche Telekom share to outperform the Dow Jones Euro STOXX Total Return Index. No payments were made against the 2005 MTIP, as neither target was attained. The 2001 Stock Option Plan was closed for the Board of Management already in 2004. Options granted to current and former members of the Board of Management from tranches of the 2001 Stock Option Plan can still be exercised, provided that the necessary conditions are met. For details, please refer to pages 191192 in the notes to the consolidated financial statements in this Annual Report. These details in the notes to the consolidated financial statements are also an integral part of this Corporate Governance report. The terms of the agreements of the Board of Management members are linked to the term of appointment as a member of the Board of Management. To account for the Companys entitlement to terminate the appointment without this constituting cause for the simultaneous termination of the service agreement, the agreements of all the members of the Group Board of Management contain a clause specifying the maximum severance amount payable to the Board members in the event of their departure in such circumstances. The Board members agreements stipulate a clause prohibiting them from joining a competitor within one year after their departure. The members of the Board of Management are on principle entitled to a company pension. The amount is based on their final salary, which means that Board of Management members receive a company pension based on a fixed percentage (between 5 and 6 percent) of their last fixed annual salary for each year of service rendered prior to their date of retirement. The maximum pension entitlement, attainable after ten years of Board of Management membership, is 50 (or 60) percent. The rights to benefits are generally vested in accordance with statutory provisions (or contractually vested immediately, in specific cases). Benefits are paid in the form of a lifelong old-age pension, an early-retirement pension, disability pension, and widow and orphans pension. All other required details can be found in the notes to the consolidated financial statements on pages of this Annual Report under Compensation of the Board of Management and Supervisory Board in accordance with 314 HGB. These details in the notes to the consolidated financial statements are also an integral part of this Corporate Governance report.

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Prof. Dr. Norbert Bolz Born in Ludwigshafen in 1953, Prof. Dr. Norbert Bolzs background in philosophy and media theory makes him one of Germanys most exciting forward thinkers. He teaches at the Institute of Language and Communication at the Berlin University of Technology and in his books, which include Die Wirtschaft des Unsichtbaren (The economy of the invisible, 1999) and Das konsumistische Manifest (The consumerist manifesto, 2002), he analyzes social upheaval and revaluations resulting from the media age. The response to his most recent publication, Die Helden der Familie (The heroes of the family, 2006), demonstrates once again that he is always one step ahead of the mainstream.
No futurologist would have been able to predict that blogs virtual diaries that anyone can produce would become the biggest ever challenge for the mainstream media. A decade ago, e-commerce turned the Internet into a bazaar. Today, blogging has transformed the Web into a new communication channel where users provide each other with an audience. Observers of the blogosphere are acutely aware that the prevailing tone is opinionated, polemic and biased. For bloggers, authenticity beats objectivity. An authentic voice is the most prominent characteristic of the Web 2.0 world. The Web writing style is direct, provocative, personal, urgent, concise, topical, simple, polemic, confessional, and unashamedly biased. The tendency to use the Web as a personal confessional is not limited to the written word, as evidenced by the images on MySpace and YouTube. Broadcast yourself!
Yet this brave new world has a problem. You can only ever hold down one conversation at a time. Listening to a lecture while reading a novel is impossible. And because maintaining friendships eats up a lot of time, it is impossible to genuinely be friends with a large number of people. Measured in terms of time and attention, it is getting cheaper to give, but increasingly expensive to receive. The challenge we are facing as a result, says renowned economist and computer science expert Herbert Simon, is attention management.

The future has begun.

The dynamic growth of Germanys broadband market will continue in future and is clearly driving the trend for mobile Internet access in the direction of connected everyday life. This is the conclusion reached by a study presented in January 2008, which surveyed a total of 142 experts and more than 14,000 consumers. Designed as a review of the current situation, Deutschland Online. Getting Connected is one of the most comprehensive surveys combining expert and consumer opinions on broadband Internet to be carried out in Germany. The main ndings: The number of broadband lines will grow to just under 30 million in Germany by 2015, compared to 0.2 million in 2000 and almost 15 million in 2006. Mobile use of the Internet will also become a more and more everyday experience: Experts estimate that the number of mobile broadband Internet devices will more than triple between 2006 and 2015. 75 percent of consumers surveyed agree that Internet communities, forums and blogs are booming and will become increasingly routine parts of our day-to-day lives.

Frank Kreuz, Product Development
I was born in Poland and went to school there. Recently I received a link to the Our Class forum at www.nasza-klasa.pl. I actually found our old class photo there! Were going to meet up in Poland twenty years later thats for sure! The forum gave me inspiration I am now organizing another reunion for my former classmates who live in Germany. For me it is like going back in time and also looking into the future a bit.
Margarethe Ballon, Internet Marketing

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Years after we finished college, I am still in touch with my friends from back then almost every day through a small online community. Our strong bond has thus survived us being scattered by our first jobs and then quite a few moves across Germany. Today, our favorite content is, without a shadow of a doubt, photos of the kids and the whole family. Now we organize our annual reunion online, of course in real life.
Dr. Harald Meiner, Corporate Communications
My son Fabian was excited about the idea of taking part in Deutsche Telekoms Home away from home exchange program right from the start. The first step was simple. The programs Internet portal makes contacting colleagues around the world childs play. Fabian got in contact with the Marsh family in London via the portal and organized his stay in England. Fabian and the Marshes son Nick were in close contact via the Internet before the trip. They got on well straight away. The exchange was a complete success and they might visit each other again in the future.
Marie Christine Novaro-Kirschbaum, Telekom Training
I work as an innovation manager at Deutsche Telekom in Bonn and as a guest lecturer at the Technical University in Berlin. By the way, I hold all of my lectures using my iPhone. When I was waiting for my return ight from Berlin in January, there was a cold spell, the ight was delayed, and the heating in my place in Bonn would have switched off by the time I arrived. However, as I have access to the computer in my apartment via WLAN, I was able to call up the temperature there, check the weather conditions using my webcam and just reset the timer for my heating added value that you can really feel!
Frank Bindel, Innovation Management

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Creating frameworks. Setting standards.
Access to powerful broadband networks for both mobile and fixed-line communications is a prerequisite for connected life and work. Our highspeed VDSL network was up and running in 27 cities by the end of 2007 and more will be added this year. A total of almost 94 percent of all households are now connected to Deutsche Telekoms broadband network. This makes Internet access at increasingly higher bandwidths ever easier also for mobile users. We are permanently expanding our broadband infrastructure as a platform for products and services that stand out by intelligent access and their ease of use. The next two pages demonstrate some of the highlights.

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social networks, for instance using our community application, MyFaves. They can also access their digital content and services around the clock, no matter where they are, what device they are using, and what network they are on. These strategic goals will determine our innovation activities over the next few years.

Christopher Schl ffer

In December 2006, Christopher Schl ffer (38) became Group Product & Innovation Officer of Deutsche Telekom and Member of the Executive Committee of T-Mobile International, responsible for Products and Innovation. In his previous function as Corporate Development Officer (CDO) he was responsible for Group Strategy, Innovation, R&D, and Venture Capital at Deutsche Telekom. Until September 2006, he was also in charge of the central Deutsche Telekom departments for Technology & Platforms and Processes & IT.
Focus, x and grow is the motto of our Group strategy that focuses on four areas of action: improving competitiveness in Germany and in Central and Eastern Europe, growing abroad with mobile communications, mobilizing the Internet and the Web 2.0 trend, and expanding network-centric ICT. Our strategy has already produced positive results: We increased net revenue by 1.9 percent to EUR 62.5 billion. At EUR 19.3 billion, we managed to slightly exceed our adjusted EBITDA target, and we increased free cash ow by EUR 3 billion to EUR 6.6 billion.

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We succeeded in signicantly boosting our competitiveness. By considerably expanding our broadband market share, we reached the target we had set ourselves, namely to increase our share of net additions in this eld to around 44 percent in the course of the year. With T-Mobile, a world leader in mobile communications, we successfully retained our leading position in the German market, and we grew abroad through the acquisition of Orange in the Netherlands. By taking over SunCom, we aim to further strengthen our competitive position in the United States.

Group management report.

Net revenue for the Group up 1.9 percent year-on-year to EUR 62.5 billion; proportion of net revenue generated outside Germany increased to over 50 percent // Group EBITDA up 3.5 percent to EUR 16.9 billion; adjusted EBITDA of EUR 19.3 billion; excluding exchange rate fluctuations, adjusted EBITDA increased to EUR 19.6 billion year-on-year // Net profit decreased from EUR 3.2 billion to EUR 0.6 billion; net profit adjusted for special factors decreased from EUR 3.9 billion to EUR 3.0 billion // Free cash flow before dividend payments up from EUR 3.0 billion to EUR 6.6 billion // Proposed dividend increased to EUR 0.78 Number of mobile customers, including newly acquired companies, up 11.1 million to 119.6 million year-on-year // Number of broadband lines increased by 2.7 million year-on-year, reaching a total of 13.9 million; total number of fixed-network lines down 2.4 million to 36.6 million at year-end 2007 // Volume of new orders in the Business Customers operating segment totaled EUR 12.9 billion in 2007, compared with EUR 14.4 billion in 2006 New strategy leads to positive development.

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Mobile Communications segments expand customer base to 119.6 million.
The Mobile Communications segments also drove forward growth within the Group in 2007. T-Mobile Deutschland added 4.6 million new customers in the Mobile Communications Europe operating segment in the 2007 reporting year. At the end of the financial year, the number of customers had increased to 36.0 million. This success is the outcome of intensive market activities to win over new customers and to enhance customer retention. In addition, a change in the legal situation and, as a result, a modified procedure for deactivating prepaid customers in Germany led to an increase in the customer base. In October 2007, T-Mobile Netherlands acquired the Dutch mobile communications company Orange Nederland N.V. from France Tlcom. With a customer base of 2.2 million, Orange Nederlands consolidation contributed to the growth of the Mobile Communications Europe segment. In the United Kingdom, T-Mobile UK (including Virgin Mobile) added around 0.4 million new customers in the reporting year. Customer figures developed just as encouragingly for the T-Mobile groups Eastern European companies. The mobile communications subsidiaries in Hungary, Slovakia, Croatia, Montenegro, and Macedonia won a total of 1.2 million new customers, pushing the mobile communications customer count to 11.3 million. In November 2006, the Mobile Communications Europe operating segment fully consolidated the Polish company Polska Telefonia Cyfrowa Sp.z o.o. (PTC) for the first time. PTC posted growth of 0.8 million customers year-on-year, bringing the total to 13.0 million customers at the end of 2007. In the Mobile Communications USA operating segment, T-Mobile USA once again substantially increased its customer base. With a total of 3.7 million new customers in 2007, the number of customers at the end of the reporting year increased to 28.7 million. Its planned acquisition of regional mobile communications provider SunCom Wireless Holdings, Inc. will enable T-Mobile USA to expand its presence to the southeastern United States, as well as to Puerto Rico and the Virgin Islands. This transaction is expected to be completed during the first six months of 2008.
Key financial figures for the Deutsche Telekom Group.
millions of Net revenue Of which: international revenue EBITDA a EBITDA (adjusted for special factors) a Profit after income taxes Profit after income taxes (adjusted for special factors) a Net profit Net profit (adjusted for special factors) a Shareholders equity Net debt b Free cash flow (before dividend payments) c Employees (average)

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The collective agreement also offers employees in the service companies a greater chance than ever before to influence their own income levels by offering them performance-related, variable salary components. The annual target salary in all three companies consists of a fixed and a variable salary component. Employees and their superiors will set personal or team targets for this purpose. The actual payout level for the variable component depends on the target achievement level. This tool will enable Deutsche Telekom to remunerate its employees far more specifically for their personal commitment and team success. Deutsche Telekom substantiates its special responsibility towards junior staff with the employment bridge that was agreed as part of the Telekom Service negotiations. In future, the lower but, in a market comparison, still attractive starting salaries in the service companies will enable Deutsche Telekom to take on over 4,000 new recruits by the end of 2009. In combination with the resulting reduction in the average age of the workforce and the so-called skill mix, this also represents a major contribution to staff restructuring. T-Punkt Vertriebsgesellschaft GmbH is a successful example of this model, where following the move to become an independent company in 2004 management and trade unions reached agreement on lower starting salaries, longer customer-oriented working hours and a higher variable pay component. The agreement also affected employees of Deutsche Telekom AG in its fixed-network segment and at Group Headquarters. The collective wage agreement that expired on July 31, 2007 was extended until December 31, 2008 without a collectively agreed wage increase. In return, Deutsche Telekom agreed to pursue its policy of abstaining from compulsory redundancies until the end of 2009.
The Group also established a Service Academy in the reporting year. Its goal is to increase the service orientation of executives in Germany through a combination of imparting theoretical knowledge and having them undergo a practical period in direct customer contact. Human resources development in the reporting year also focused on continuing the STEP up! program (Systematic & Transparent Executive Development Program) and introducing Go Ahead!, a staff development program for expert careers. STEP up! is a Group-wide program that identifies top performers and promotes their targeted development and recruitment. Deutsche Telekom fine-tuned the content of STEP up! in 2007 by performing an analysis of strengths and weaknesses. Go Ahead! is a competency-based development model for expert staff established by the Group. The framework model provides Group-wide guidelines for the systematic presentation of career paths and development at each individual stage. The aim is to tie expert staff into the Group long term, ensure that competencies in success-critical functional areas are developed systematically, and that the wide-ranging development opportunities for expert staff is made transparent within the Group. Telekom Training, the further-training provider for the Group and the external German market, coordinates and designs training programs for expert and executive staff. There is a clear focus on demand-based training as part of staff restructuring and strategic human resources development. Even with major projects such as training seminars for service staff training is tailored to demand. In the reporting year, Telekom Training ran a total of 17,071 seminars, with 108,943 people receiving 459,124 days of training.

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initial recognition and derecognition. This is the day on which the asset is delivered to or by Deutsche Telekom. In general, financial assets and financial liabilities are offset and the net amount presented in the balance sheet when, and only when, the entity currently has a right to set off the recognized amounts and intends to settle on a net basis. To the extent that contracts to buy or sell a non-financial item such as goods or electricity fall within the scope of IAS 39, they are accounted for in accordance with this standard. Financial assets are measured at fair value on initial recognition. For all financial assets not subsequently measured at fair value through profit or loss, the transaction costs directly attributable to the acquisition are taken into account. The fair values recognized in the balance sheet generally correspond to the market prices of the financial assets. If these are not immediately available, they must be calculated using standard valuation models on the basis of current market parameters. For this calculation, the cash flows already fixed or determined by way of forward rates using the current yield curve are discounted at the measurement date using the discount factors calculated from the yield curve applicable at the reporting date. Middle rates are used. Cash and cash equivalents, which include cash accounts and short-term cash deposits at banks, have maturities of up to three months when initially recognized and are measured at amortized cost.
Trade and other current receivables are measured at the amount the item is initially recognized less any impairment losses using the effective interest method, if applicable. Impairments, which take the form of allowances, make adequate provision for the expected credit risk; concrete cases of default lead to the derecognition of the respective receivables. For allowances, financial assets that may need to be written down are grouped together on the basis of similar credit risk characteristics, tested collectively for impairment and written down if necessary. When the expected future cash flows of the portfolio are being calculated as required for this, previous cases of default are taken into consideration in addition to the cash flows envisaged in the contract. The cash flows are discounted on the basis of the weighted average of the original effective interest rates of the financial assets contained in the relevant portfolio. Impairment losses on trade accounts receivable are recognized in some cases using allowance accounts. The decision to account for credit risks using an allowance account or by directly reducing the receivable will depend on the reliability of the risk assessment. As there is a wide variety of operating segments and regional circumstances, this decision is the responsibility of the respective portfolio managers. Other non-current receivables are measured at amortized cost using the effective interest method. Financial assets held for trading are measured at fair value. These mainly include derivatives that are not part of an effective hedging relationship as set out in IAS 39 and therefore have to be classified as held for trading. Any gains or losses arising from subsequent measurement are recognized in the income statement. Certain types of investment are intended and expected to be held to maturity with reasonable economic certainty. These financial assets are measured at amortized cost using the effective interest method.

the offering of new data products and services, for which only limited historical information on customer demand is available. If the demand for these products and services does not materialize as expected, this would result in less revenue, less cash flow and potential impairment to write down these investments to their fair values, which could adversely affect future operating results. The determination of the recoverable amount of a cash-generating unit involves the use of estimates by management. Methods used to determine the fair value less costs to sell include discounted cash flow-based methods and methods that use quoted stock market prices as a basis. Key assumptions on which management has based its determination of fair value less costs to sell include ARPU, subscriber acquisition and retention costs, churn rates, capital expenditure and market share. These estimates, including the methodologies used, can have a material impact on the fair value and ultimately the amount of any goodwill impairment.
Financial assets include equity investments in foreign telecommunications service providers that are principally engaged in the mobile, fixed-network, Internet and data communications businesses, some of which are publicly traded and have highly volatile share prices. As a rule, an investment impairment loss is recorded when an investments carrying amount exceeds the present value of its estimated future cash flows. The calculation of the present value of estimated future cash flows and the determination of whether an impairment is permanent involve judgment and rely heavily on an assessment by management regarding the future development prospects of the investee. In measuring impairments, quoted market prices are used, if available, or other valuation parameters, based on information available from the investee. To determine whether an impairment is permanent, the Company considers the ability and intent to hold the investment for a reasonable period of time sufficient for a forecasted recovery of fair value up to (or beyond) the carrying amount, including an assessment of factors such as the length of time and magnitude of the excess of carrying value over market value, the forecasted results of the investee, the regional geographic economic environment and state of the industry. Future adverse changes in market conditions, particularly a downturn in the telecommunications industry or poor operating results of investees, could result in losses or an inability to recover the carrying amount of the investments that may not be reflected in an investments current carrying amount. This could result in impairment losses, which could adversely affect future operating results. Management maintains an allowance for doubtful accounts to account for estimated losses resulting from the inability of customers to make required payments. When evaluating the adequacy of an allowance for doubtful accounts, management bases its estimates on the aging of accounts receivable balances and historical write-off experience, customer credit worthiness and changes in customer payment terms. If the financial condition of customers were to deteriorate, actual write-offs might be higher than expected.

6 Other operating expenses.
millions of Goodwill impairment losses Loss on disposal of non-current assets Miscellaneous other operating expenses 257 1,177 1,2005 1,1,572 3,635
The increase in other operating expenses is mainly attributable to the reduction of the carrying amount of goodwill of T-Mobile Netherlands and miscellaneous other operating expenses.

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The reduction of the carrying amount of goodwill of T-Mobile Netherlands was not the result of an impairment test, but of the recognition of deferred tax assets for tax loss carryforwards that were acquired by the Group in connection with the acquisition of Ben Nederland but were not considered to meet the criteria for recognition at the time. Since, based on an assessment of all available evidence, Deutsche Telekom determined that it had become probable that these previously unrecognized loss carryforwards would be realizable in the near term and deferred taxes would have to be recognized correspondingly, it was required by IFRS 3.65 in conjunction with IAS 12.68, also taking the accounting interpretation IDW RS HFA 19 of the Institute of Public Auditors in Germany (Institut der Wirtschaftspr fer IDW) into account, that the carrying amount of goodwill has to be reduced accordingly. Besides expenses in connection with the sale of call centers of Vivento Customer Services and the transfer of operations of Vivento Technical Services, miscellaneous other operating expenses in the reporting year are mainly accounted for by a variety of expense items which, individually, are not material.
Accrued interest payments from derivatives (interest rate swaps) that were designated as hedging instruments in a fair value hedge in accordance with IAS 39 are netted per swap contract and recognized as interest income or interest expense depending on the net amount. Finance costs are assigned to the categories on the basis of the hedged item; only financial liabilities were hedged in the reporting period.
8 Share of profit/loss of associates and joint ventures accounted for using the equity method.
millions of Share of profit (loss) of joint ventures Share of profit of associates 2006 (89) 2005 (1) 215 214

7 Finance costs.

millions of Interest income Interest expense Of which: from financial instruments relating to categories in accordance with IAS 39: Loans and receivables Held-to-maturity investments Available-for-sale financial assets Financial liabilities measured at amortized cost * (2,775) (2,514) (2,837) (2,540) (2,799) (2,401)

This stock option plan expired on June 30, 2007. The following table provides an overview of the development of Magyar Telekom stock options:

Magyar Telekom

SOP 2002 Stock options (thousands) Weighted average exercise price (HUF) 944.00 944.00 944.00 944.00
Stock options outstanding at January 1, 2007 Of which: exercisable Granted Exercised Forfeited Stock options outstanding at June 30, 2007 Of which: exercisable Supplemental information for 2007 Remaining contractual life of options outstanding at end of period (years, weighted) Expected remaining life of options outstanding at end of period (years, weighted)

1,307 1,0 0

Mid-Term Incentive Plan (MTIP)/ Long-Term Incentive Plan (LTIP).
Mid-term incentive plans (MTIPs) exist at Deutsche Telekom AG (including the plans at the former T-Online International AG issued prior to the merger) T-Mobile USA, T-Mobile UK and Magyar Telekom to ensure competitive total compensation for members of the Board of Management, senior executives and other beneficiaries at the Deutsche Telekom Group. Additionally, T-Mobile USA and PTC have established performance cash plan programs with long-term incentive plans (LTIPs). Deutsche Telekom AG. Mid-Term Incentive Plan 2004/2005/2006/2007. In the 2004 financial year, Deutsche Telekom introduced its first MTIP to ensure competitive total compensation for members of the Board of Management, senior executives of the Deutsche Telekom Group, and for other beneficiaries mainly in the United States and the United Kingdom. The MTIP is a global, Group-wide compensation instrument for Deutsche Telekom and other participating Group entities that promotes mid- and long-term value creation in the Group, and therefore combines the interests of management and shareholders. The MTIP as a revolving plan launched annually for five years takes the form of a compensation component with long-term incentives. A decision will be made each year on whether to re-launch the plan, as well as on the specific terms of the plan, in particular the performance targets. The ambitiousness and strategic relevance of the performance targets are reviewed and adjusted if necessary prior to each new rolling issue of the MTIP. The nature or thresholds of the performance targets cannot be changed once the plan has begun. The MTIP is a cash-based plan pegged to two equally weighted, sharebased performance parameters one absolute and one relative. If both performance targets are achieved, then the total amount earmarked as an award to the beneficiaries by the respective employers is paid out; if one performance target is achieved, 50 percent of the amount is paid out, and if neither performance target is achieved, no payment is made. At the end of the term of the individual plans, the General Committee of Deutsche Telekom AGs Supervisory Board will establish whether the absolute and relative performance targets for the Board of Management have been achieved. Based on the findings of the Supervisory Board General Committee, the Board of Management will establish whether the target has been achieved for Deutsche Telekom AG and all participating companies as a whole and will communicate this decision. Once it has been established whether one or both targets have been achieved, the relevant amounts will be paid out to the beneficiaries.

The annual variable remuneration of Board of Management members is based on the achievement of targets set by the General Committee of the Supervisory Board of Deutsche Telekom AG for each member of the Board of Management prior to commencement of the financial year. The set of targets is composed of corporate targets and personal targets for the individual members of the Board of Management, based on the parameters of revenue, EBITDA, net profit adjusted for special factors and customer satisfaction. The level of target achievement is determined by the General Committee of the Supervisory Board for the respective financial year (for detailed information, please refer to the table Total compensation and expense). At its discretion and after due consideration, the Supervisory Board of the Company may also reward extraordinary performance by individual or all Board of Management members in the form of a special bonus. According to market-oriented and corporate standards, the Company grants all members of the Board of Management additional benefits under the terms of their service contracts, some of which are viewed as non-cash benefits and taxed accordingly. This mainly includes being furnished with a company car and accident and liability insurance and being reimbursed in connection with business trips and maintaining a second household. Sideline employment generally requires prior approval. No additional compensation is paid for being a member of the Board of Management or Supervisory Board of other Group entities. Arrangements in the event of termination of a position on the Board of Management. The terms of the service contracts of the Board of Management members are linked to the term of appointment as a member of the Board of Management. If the Company is entitled to terminate the appointment as a Board of Management member without this also constituting cause for the simultaneous termination of the service contract under civil law, the Board of Management member shall be entitled to a contractually defined severance payment. This is calculated (subject to being discounted) on the basis of the imputed remaining term of appointment in the current term of office of the Board of Management (up to a maximum of 36 months) on the basis of 100 percent of the fixed annual salary and 75 percent of the variable remuneration based on an assumed 100 percent achievement of targets. The service contracts for members of the Board of Management at Deutsche Telekom AG do not include any benefits in the event of the termination of a position on the Board of Management as result of a change of control. Board of Management member service contracts generally stipulate a postcontractual prohibition of competition. Unless otherwise agreed, members of the Board of Management are prohibited from rendering services to or on behalf of a competitor for the duration of one year following their departure. As compensation for this restricted period, they receive a payment in the amount of the annual fixed compensation last received.