Growth opportunities

In view of the dynamic market development of fiber-optic connections, mobile internet, and cloud applications, our growth opportunities are clearly apparent: universally accessible, increasingly powerful broadband connections are enabling new and more sophisticated cloud applications. These internet-based programs for end users and companies will remain our growth drivers over the coming years – both as stand-alone products in our Applications division as well as in combination with landline and mobile access products in our Access division.

With our many years of experience as an access and applications provider, our expertise in software development, the operation of networks and data centers, marketing, sales, and customer support, as well as our strong and well-known brands, and our customer relationships with millions of private users, freelancers, and small companies in Germany and abroad, we are well placed to fully exploit the expected market growth in our business fields.

Access division

In the Access division, our operations are pooled in the two segments Consumer Access and Business Access.

Consumer Access segment

The Consumer Access segment comprises our landline-based broadband products as well as our mobile internet products for private users (including the respective applications, such as home networks, online storage, telephony, or IPTV).

These internet access products are offered to our customers as subscription contracts with fixed monthly fees (and variable, volume-based charges) as well as contractually fixed terms.

With the broadband products of the 1&1 brand (especially VDSL/vectoring and fiber-optic connections), we are one of Germany’s leading suppliers.

We use 1&1 Versatel’s own fiber-optic network as the transport network. This is connected to regional networks and thus provides access to the VDSL/vectoring connections, as well as the direct fiber-optic connections (FTTH), of city carriers and Deutsche Telekom. In the case of ADSL connections (a business which is currently being phased out), further advance service providers are used.

Landline infrastructure for private customers

With our mobile internet products, we are the leading Mobile Virtual Network Operator (MVNO) in Germany.

Indirectly via 1&1 AG, we are the only MBA MVNO in Germany with long-term and guaranteed rights to up to 30% of the used network capacity of Telefónica Germany and thus have extensive access to one of Germany’s largest mobile communications networks. In addition to our privileged access to the Telefónica network, we also purchase standardized mobile advance services from Vodafone.

These purchased network services are enhanced with end-user devices of major manufacturers, as well as self-developed applications and services in order to differentiate us from the competition.

Our mobile internet products are marketed via the premium brand 1&1, as well as discount brands like yourfone and smartmobile.de, which enable us to target a wide range of specific user groups in the mobile communications market.

As part of the planned rollout of our own powerful mobile communications network – and following the successful bid for two frequency blocks of 2 x 5 MHz in the 2 GHz band and five frequency blocks of 10 MHz in the 3.6 GHz band during the 5G spectrum auction in 2019 – we concluded long-term agreements in the fiscal year 2021 and now have key elements in place to drive forward the rollout of our 5G network and thus significantly extend our added value in this market – as in the landline market. These agreements include the national roaming agreement between 1&1 and Telefónica concluded on May 21, 2021, which secures nationwide mobile coverage for our customers during the construction phase of our own network through shared use of the Telefónica network, as well as the partnership announced on August 4, 2021 between 1&1 and Rakuten for the construction of Europe’s first fully virtualized mobile network based on the innovative OpenRAN technology. In addition, 1&1 signed an intercompany agreement with its affiliate 1&1 Versatel on December 9, 2021, which in particular will provide the access network (especially fiber-optic cables) and data centers for operating 1&1’s mobile network on a rental basis, and on the same date an agreement was concluded between 1&1 AG and Vantage Towers AG, one of Europe’s leading companies for radio tower infrastructure, which among other things includes the renting of Vantage antenna locations and the installation of 1&1’s 5G high-performance antennas by Vantage.

Our brands

In addition to preparations for the rollout of our own mobile communications network and the expansion of our fixed network coverage, the Consumer Access segment focused on adding further valuable broadband and mobile internet contracts in the fiscal year 2021. The total number of fee-based contracts in the Consumer Access segment rose by 600,000 contracts to 15.43 million in 2021. A total of 670,000 customer contracts were added in the mobile internet business, thus raising the total number of contracts to 11.19 million. The number of broadband connections fell slightly to 4.24 million.

Development of Consumer Access contracts in fiscal year 2021

In view of our strong brands, innovative products, customer-oriented services, flexible pricing policy, and our excellent value for money, we believe the Consumer Access segment is also very well positioned for the future. In 2022, the main focus will once again be on marketing mobile internet products. With regard to our broadband products, we aim to maintain our strong positioning as far as possible.

Business Access segment

In the Business Access segment, we offer a wide range of telecommunication products and solutions for business customers via the 1&1 Versatel brand.

The core of 1&1 Versatel’s business model is a cutting-edge fiber-optic network with a length of around 52,500 km, which is one of the largest networks in Germany and is constantly being expanded.

Via this network, 1&1 Versatel offers its business customers telecommunication products – from fiber-optic direct connections to tailored ICT solutions (voice, data, and network solutions). In addition, the 1&1 fiber-optic network is used for infrastructure services (wholesale) for national and international carriers and ISPs.

The fiber-optic network directly connects commercial buildings and local authority sites (FTTB = fiber-to-the-building).

Fiber-optic infrastructure for business customers

In the fiscal year 2021, the key topics in the Business Access segment were the expansion of the fiber-optic network and the addition of further sites. The network was expanded from 50,904 km in the previous year to a length of 52,574 km, while the number of connected sites increased from 19,836 to 21,738.

In 2022, the Business Access segment will continue to expand its fiber-optic network and connect new locations. In addition, growth is targeted for the business customer and wholesale business.

The German telecommunications market is of particular importance for the Access division. The industry association Bitkom forecasts that the market’s moderate growth of the previous year will continue. Total sales are likely to grow by 0.9% (prior year: 1.2%) to € 67.3 billion in 2022.

According to Bitkom calculations, revenues from telecommunication services are expected to increase by 1.7% (prior year: 1.7%) to € 49.2 billion. Sales of user devices, and especially smartphones, are likely to fall significantly by -3.1% (prior year: 0.2%) to € 11.2 billion. Investments in telecommunication infrastructure are expected to grow by 2.2% (prior year: -0.9%) to € 6.9 billion.

Market forecast: telecommunications market in Germany

Source: Bitkom, January 2022

Applications division

The Applications division comprises our activities in the two segments Consumer Applications and Business Applications.

Consumer Applications segment

Our applications for home users are pooled in the Consumer Applications segment. These mainly comprise Personal Information Management applications (e-mail, to-do lists, appointments, addresses) and online storage (cloud), as well as domains, website solutions tailored to consumer needs, and office software.

By steadily expanding our portfolio, we have developed the GMX and WEB.DE brands – the most widely used e-mail providers in Germany for many years now – from pure e-mail service providers into complete command centers for communication, information, and identity management.

From e-mail service to command center for communication, information, and identity management

Our consumer applications are nearly all developed in-house and run at the Group’s own data centers.

The products are offered as fee-based subscriptions (pay accounts) or in the form of ad-financed accounts (free accounts). These free accounts are monetized via classic – but increasingly also via data-driven – online advertising, which is marketed by United Internet Media.

Our ad-financed applications and fee-based consumer applications are marketed actively via the GMX and WEB.DE brands primarily in Germany, Austria, and Switzerland, where we are among the leading players.

Market standing in Germany

Since the acquisition of the US provider mail.com, we have been driving our international expansion in this segment. In addition to the USA, mail.com targets other countries, such as the UK, France, and Spain.

Activities in the Consumer Applications segment continued to focus on the establishment of data-driven business models in 2021.

The number of our fee-based pay accounts (contracts)rose by 100,000 to 2.47 million in the fiscal year 2021, while ad-financed free accounts increased by 920,000 to 40.32 million. All in all, the total number of Consumer Applications accountsincreased by 1.02 million to 42.79 million.

Development of Consumer Applications accounts in fiscal year 2021

With its strong and specialized brands, constantly growing portfolio of cloud applications, and already established business relationships with millions of home users, our Consumer Applications segment is well positioned to exploit emerging opportunities in the cloud computing market for home users, as well as in the advertising-oriented big data business.

In the fiscal year 2022, we will once again focus on raising the number of customer relationships and expanding data-driven business models.

Business Applications segment

In the Business Applications segment, we open up online business opportunities for freelancers and SMEs, while also helping them to digitize their processes. We do this by offering a comprehensive range of powerful applications, such as domains, websites, web hosting, servers, cloud solutions, e-shops, group work, online storage (cloud), and office software, which our customers can use via subscription agreements.

Based on our tried and tested, million-selling hosting packages, our product range has been expanded over the past few years with the addition of numerous cloud-based e-business solutions.

From web host to e-business solutions provider

Our business applications are developed at our in-house development centers or in cooperation with partner firms and run on over 90,000 servers at 10 data centers.

In the Business Applications segment, we are also a leading global player with activities in various European countries (Germany, France, UK, Italy, Spain, Netherlands, Austria, Switzerland, Poland, Hungary, Romania, Bulgaria, Czech Republic, and Slovakia), as well as in North America (Canada, Mexico, USA).

International footprint

Our business applications are marketed to specific target groups via the differently positioned brands IONOS, Arsys, Fasthosts, home.pl, InterNetX, STRATO, united-domains, and World4You. In addition, we offer our customers professional services in the field of active domain management via the Sedo brand, while we22 offers other hosting suppliers a white-label website builder for the creation of high-quality websites.

In the fiscal year 2021, the Business Applications segment focused on the sale of additional features to existing customers (e.g., further domains, e-shops, and business apps), as well as the acquisition of new customer relationships. The total number of fee-based contracts increased by 330,000 contracts in fiscal 2021. This growth resulted from 200,000 new contracts in Germany and 130,000 abroad. All in all, the total number of contracts rose to 8.78 million.

Development of Business Applications contracts in the fiscal year 2021

With our strong and specialized brands, a steadily growing portfolio of cloud applications, and existing relationships with millions of home users, freelancers, and small businesses, we are also well positioned in our Business Applications segment. We aim to further exploit the domestic and international opportunities offered by the cloud computing market for business clients. In the Business Applications segment, the focus will continue to be on expanding business with existing customers and gaining new high-quality customer relationships in 2022.

The trend toward the increasing use of cloud applications is working in favor of our Applications division – both for Consumer and Business Applications.

Following the very strong growth of 2021 (23.1%), Gartner forecasts global growth for public cloud services of 19.6% from USD 332.35 billion to USD 397.50 billion in 2022.

Market forecast: global cloud computing

Source: Gartner, April 2021

After the strong rise in online advertising in 2021 (6.5%), PricewaterhouseCoopers expects a further increase in 2022 with total market growth (mobile advertising and desktop advertising) of 7.5% to € 10.21 billion.

The strongest growth is expected for video advertising and display advertising with increases of 16.5% and 9.7%, respectively.

Market forecast: online advertising in Germany (mobile advertising & desktop advertising)

Source: PricewaterhouseCoopers, September 2021