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Announcement:

Moody´s places the long-term ratings of Deutsche Telekom on review for possible upgrade

22 Mar 2011

Prime-2 affirmed

Madrid, March 22, 2011 -- Moody's Investors Service has today placed the long-term Baa1 ratings of Deutsche Telekom AG (DT) and its guaranteed subsidiaries including Deutsche Telekom International Finance B.V. on review for possible upgrade. Concurrently, the rating agency has affirmed the Prime-2 (P-2) short-term issuer rating.

RATINGS RATIONALE

"Today's rating action follows the earlier announcement that DT had agreed with AT&T (A2 on review for possible downgrade) to sell its US subsidiary (T-Mobile US) in a cash and stock transaction, currently valued at approximately USD39 billion," says Carlos Winzer, a Moody's Senior Vice President and lead analyst for DT. "Moody's perceives the agreement to be potentially favorable to DT´s ratings because of: (i) the fairly priced US subsidiary, at an EBITDA multiple of 7.1x; (ii) the amount of cash proceeds involved and DT's public intention to use a significant portion for net debt reduction (c. EUR13 billion); (iii) the fact that Moody's adjusted metrics will also improve post-transaction given that a substantial amount of off-balance-sheet liabilities related to operating leases in the US will be removed from DT's adjusted debt; and (iv) the increased financial flexibility that DT is expected to have due to the debt reduction," adds Mr Winzer.

Of the purchase price, USD25billion is to be paid in cash and USD14 billion in AT&T stock, although AT&T may increase the cash portion of the purchase by USD4.2 billion. AT&T has agreed to a USD3 billion break-up fee, along with committing to dispose of wireless spectrum frequencies to T-Mobile and a 3G roaming agreement if the transaction does not close.

The combination of the No.2 (AT&T) and No.4 (T-Mobile USA) wireless carriers in the US will create a leading operator in the US, which on a pro forma basis will serve some 130 million subscribers, for about 43% market share.

The transaction is expected to be completed in 2012, following an expected close scrutiny by the various regulators and government entities involved. "The review process will focus on: (i) the likelihood of the transaction materializing as described; (ii) the implications on DT's business profile; (iii) the impact on DT's financial policies; and (iv) the timing of the collection of the cash proceeds, its use within DT's financial policy and the extent to which the company will commit to a sustained improvement in financial ratios," continues Mr Winzer. The "comfort zone" guidance given by DT's management prior to this transaction includes a reported net debt/EBITDA ratio of 2-2.5x. Moody's had previously stated that upward pressure could be exerted on DT's rating if the company were to achieve and maintain a ratio of retained cash flow (RCF)/ adjusted net debt of at least 25% with no significant deterioration in business risk.

Today's action places DT's long-term ratings on review for possible upgrade and Moody's does not currently expect negative pressure to be exerted on the rating. However, this could develop if, inter alia: (i) DT's reported net debt/EBITDA ratio were to exceed 2.5x, which is at the top end of the comfort zone guidance stated by DT's management; and/or (ii) the company were to embark on an aggressive expansion/acquisition programme, leading to higher financial, business and execution risk, such that its ratio for retained cash flow (RCF)/adjusted net debt were to drop to 15% on a sustainable basis.

The principal methodology used in rating DT was Moody's "Government Related Issuers Methodology Update" of July 2010 and its "Global Telecommunications Industry Rating Methodology", published in December 2010, both of which are available on www.moodys.com.

Moody's last rating action for DT was implemented on 19 May 2008, when the rating agency downgraded DTs ratings to Baa1 from A3 following the acquisition of a controlling equity stake in Hellenic Telecommunications Organization S.A. (OTE, Baa3 on review for possible downgrade).

Deutsche Telekom, domiciled in Bonn, Germany, is the leading integrated telecommunications provider, servicing 36 million fixed network lines, 16 million broadband lines and 37million mobile customers as of 31 December 2010. DT is represented in around 50 countries worldwide. One of Europe's largest telecommunications providers, the group is also present in the most important markets in Asia and America. DT's activities outside its home country include mobile telephone operations in the US, Greece and Poland, as well as the UK (through the joint-venture with France Telecom), the Netherlands, Austria, the Czech Republic, Hungary, Slovakia, Croatia, Bulgaria, Romania, Albania, Macedonia and Montenegro, and fixed-line operations in France (Club Internet). As of December 2010, approximately 57% of group revenues (EUR62 billion) and 52% of group EBITDA (EUR19.5 billion) was generated outside Germany.

Madrid
Carlos Winzer
Senior Vice President
Corporate Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Espana, S.A.
Barbara de Braganza, 2
Madrid 28004
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody´s places the long-term ratings of Deutsche Telekom on review for possible upgrade
No Related Data.
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