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Edgar Frolov
Edgar Frolov

DT Tele2 Tie Up Could Smooth Path To Industry Consolidation

Inmost of our European markets, competition based on handset subsidies has diminished, but competition based on price, subscription options offered, application offerings, coverage andservice quality remains intense. As European markets have become increasingly saturated, the focus of competition has been shifting from customer acquisition to customer retention and increasing thequality and value of existing customers. Accordingly, if we are unable to offer increased quality andservices, our market share and revenues may not increase as expected in our growth plans. In addition, competition in the European mobile telecommunication market has been intensified by theintroduction of Europe-wide services. In the past, competition was primarily on a national level. Globally, the mobile telecommunications industry has been undergoing consolidation in recent years,which may also increase competitive pressure.

DT Tele2 tie up could smooth path to industry consolidation


T-Systems'business model is focused on implementing major projects in the telecommunications, media & utilities, manufacturing, services, finance and public industrysectors. These projects are subject to contractual agreements that could give rise to extensive customer claims with respect to warranties, damages or contractual penalties where the service providedby T-Systems is deemed to be unsatisfactory. For more information, see "Item 4. Information on the Company—Description of Business and Divisions—T-Systems."

Inaddition, new technologies, whether introduced by us or by others, can be expected to draw customers from existing technologies, including our customers. The competitive dynamics ofthe mobile telecommunications industry, therefore, could change in ways that we cannot predict, which could adversely affect our results of operations and, thus, our financial position.

Followingthe preparatory work of the ERG, in December 2004, the E.U. Commission published a draft recommendation, which establishes principles for the imposition of accountingseparation and cost accounting obligations on operators with significant market power. The proposal would allow NRAs to impose wide-ranging information requirements and provides for aconsolidation of the separate accounting systems operated for purposes of telecommunications regulation and other statutory accounting obligations in case an accounting separation obligation isissued. These requirements could result in additional costs for regulated operators.

Aprolonged downturn in the telecommunications industry could negatively affect the operations of these investments and their ability to generate future cash flows. This could result inchanges to the forecasted cash flows and potential impairment charges, which could adversely affect our future operating results.


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