Germany
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Germany |
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The German telecommunication
market is considered to be the 3rd largest in
the world. Today it amounts to about 40 billion ECU. The
Deutsche Telekom AG (DETAG) expects that this market will
rise to about 55 billion ECU by the year 2005. Other
estimates go as far as 65 billion ECU in the year 2002.
In any case this additional market volume provides enough
incentive for competitors to enter the market. Although
competition has already started in some market segments
(e.g. mobile telephony, data networks for closed groups),
the DTAG will now have to share some of the expected
increases in telecommunication volume with a considerable
number of competitors pushing into the market with the
liberalisation in January 1998. In addition to several
large telecom alliances about 100 municipal network
operators are starting to compete. The future German
telecommunication market will thus be heterogeneous. This
paper will summarise the main characteristics and
activities centred on the so-called "alternative
network operators".
1. Characteristics of the Alternative Network Operators in Germany Alternative network operators (ANO) are enterprises who own or have access to fixed networks (conventional copper or fibre optics cables) which can be used for telecommunication purposes. These networks can be cabled along gas pipelines, railroad tracks, water lines, etc. A large group of ANOs are the city (municipal) network operators (CNO). The CNOs are commonly either 100 % affiliated firms of energy suppliers or public utilities or joint ventures of these firms with financial institutions, telecommunication firms, and others. Additional ANOs have developed through joint ventures e.g. a consortium around the Deutsche Bundesbahn AG and from regionally operating large energy suppliers e.g. Viag, Veba, RWE. The majority of the current and planned telecommunication activities are based on fixed networks. This is a major reason why CNOs are being founded and on the other hand why they (and their networks) are of prime interest to the new telecommunication players. The city network operators have at their disposal - in many cases extensive - communication infrastructures and/or free ducts and conduits for cable installation (which greatly reduce the cost of installing new communication cables). This includes direct access to customer premises (the famous "last mile"). This is generally not the case for supraregional or national telecommunication firms (with the exception of the DTAG).
2. Market Structure and Major Players The German telecommunication market can be structured according to the activity range into three levels:
The largest number of entries into the market is taking place at the local level where about 100 city network operators are competing with the DTAG for business and private customers. This field has been booming lately. In some larger metropolitan areas such as Düsseldorf, between 8 and 10 network providers will compete with each other starting in 1998. This includes one of the first CNOs Isis Multimedia Net as well as supraregional players e.g. the DTAG, Mannesmann Arcor, o.tel.o and even foreign firms e.g. Colt and WorldCom. At the national level the number of competitors is much smaller. Here the DTAG is challenged by large consortia such as Mannesmann Arcor, o.tel.o, VIAG Interkom. In some market segments players such as WorldCom and Thyssen Telecom will compete for market shares. A number of other telecommunication firms have already indicated their intention to become active at the national level by obtaining a corresponding telecommunication licence for data networks or telephone services. Finally, internationally active (level (c)) today are the DTAG, Mannesmann Arcor, WorldCom, and VIAG Interkom. Comparing the strongest competitors in the field (i.e. Mannesmann Arcor, o.tel.o., VIAG Interkom, and Thyssen) with the incumbent DTAG one has to consider the great differences in volume. Between 1990 and 1995 the DTAG has invested a total of 135 billion DM (68 BECU). In comparison the three competitors Arcor, o.tel.o., and VIAG are planning to invest together a total of less than 20 billion DM (9.5 BECU) over the next five to ten years. Estimates are (Datapro study, 1997) that by the year 2002 the DTAG will reduce their share of the telecommunication market to about 61 % (from 80 % in 1996). In spite of this loss the DTAG is still expected to grow due to the increasing market. At the same time Arcor will obtain about 13 %, the other major competitors about 3 % each of the market. One of the reasons for the predicted success of Mannesmann Arcor will be the second largest fixed network (40 000 km) and its very good international position due to the partners (and part owners) AT&T and Unisource. In the 2nd quarter of 1998, the new private telecommunication firms managed to increase their share of the market volume to 7 % which represents a three fold increase over the 1st quarter. The more than 30 newcomers handle already 35 million connection minutes per day out of a total of 480 million daily telephone conversation minutes in Germany. Leaders with about 8 million minutes are Mannesmann Arcor and MobilCom. For long-distance calls the market share has increased to about 12 % according to the Regulation Office for Telecommunication and Post (RegTP). According to a more recent study carried out by the Boston Consulting Group (BCG), Munich, the new private telecommunication firms managed to increase their share of the market volume on long distance calls to 20 % by the end of 1998.
Today in Germany only the Deutsche Telekom AG (DTAG) is offering a complete line of services from standard telephone service and connected lines through ISDN, ATM or high speed networks, internet access, mobile communication, and cable TV. Up to the end of 1997 the alternative network operators have focused their activities on providing data networks and infrastructure for business applications such as image service or high speed data communications. This has changed with the opening of the TC market. Several ANOs have set their business goal to become full service providers. This includes telephone services for private and business customers, fast data transfer, video telephony, and Internet services which can be successfully implemented especially by those firms already owning fast networks. In the field of data networks complete services include installation and service of all needed hard- and software. Starting January 1, 1998, private telephone customers in Germany are now able to choose their carriers for the various types of communication needs. This means they can make the local calls with service provider A and the long distance calls with service provider B. There exist, however, a number of factors which are preventing many interested customers to change i.e. use the new telecom offers. The charge impulse cannot be transmitted across different networks (making accounting difficult). The large offer of different and complex tariffs confuses people. The new ANOs try to attract customers mainly with lower long distance calls. In many cases there are hooks attached in form of a minimal required turnover. ANOs that offer "call by call" services without the need for pre-registration of a call appear at this time to be most successful in catering new customers. The German market for Internet service providers (ISP) continues to grow at a considerable rate. Not only the online services led by T-Online of the DTAG but also the other ISPs are experiencing in many cases growth rates of 10 % or more. In order to reach the business goal of becoming full service providers (including Internet) the large alternative network providers are also entering this field. The Thyssen Telekom AG already owns the IS Internet Services, NetCom Stuttgart co-operates with Seicom, o.tel.o has increased its ownership in Germany.net (ISP number 3 in Germany) to 90 %. Others are preparing to enter this market by establishing the necessary infrastructure (e.g. ARCOR has started to build up a Europe-wide high-speed IP network which will offer customers transmission rates of 64 and 512 KBit/s or 2 MBit/s; Talkline has just recently introduced their new Internet offer Talknet for direct access to the Internet).
4. The Interconnection Aspects Although the alternative network operators commonly have their own fixed networks with connections up to the customers, they still have to connect their networks to other carriers for national and international communication needs. In return, the supraregional, national, or international carriers and communication providers need "last mile" access in order to connect to their customers. This is especially important for private customer connection. For large business clients the costs for installing new lines might pay off. A controversial issue has been the pricing for the interconnection. The DTAG hesitated to fix the cost for allowing their competitors to use their lines. Finally on September 12, 1997, the German Ministry for Posts and Telecommunication fixed the tariffs for the interconnection. The set rates have not been received with much favour by neither the DTAG nor their competitors. As these rates will also apply to interconnections offered by the city network operators it could mean lower investment returns for them. The DTAG went to court against the Ministry's decision on October 13, 1997. Although this action will delay the enforcement of the interconnection tariffs already a number of ANOs (e.g. Isis Multimedia Net, Düsseldorf, tesion GmbH, Stuttgart, and KomTel Gesellschaft für Kommunikationsdienste und Informationsdienste mbH, Flensburg) and the major nationally active telecommunication operators such as Arcor, o.tel.o., and VIAG have made preliminary agreements with the DTAG on interconnections. Some problems have arisen during the last months in the definition as to who qualifies for the interconnection fees set by the former Ministry for Posts and Telecommunication. The DTAG argues that the low fees apply only to providers that already have customers connected to their own network. The German Telecommunication Regulation Office (RegTP) on August 12, 1998 ruled that this is not a requirement and ordered the DTAG to connect a new provider who does not meet these requirements. This decision could have far reaching consequences. In addition to economic difficulties, the interconnection of networks will continue to provide a great technical challenge. Differing communication protocols and interfaces will have to be resolved in order to guarantee a trouble free transmission of the quality expected. A final decision on the interconnection rates is now scheduled to be announced by the Regulation Office for Telecommunication and Posts by April 30, 1999.
More than 100 days after liberalisation the situation of the new service providers is still somewhat ambiguous. Although most of them claim to be successful in catering to former customers of the Deutsche Telekom AG, the switch especially of private customers to the alternative service providers is a slow process. According to a study carried out by Roland Berger & Partner (March 1998), business customers are in many cases aware of the new service providers, but most of them have no direct plans to change providers. In the case of private customers, the overwhelming majority was not interested in changing telecoms. In fact, most of them (57 %) were not at all concerned with the new possibilities. Study results indicate that only about 9 % of business and 2 % of private customers have changed from the DTAG to the new providers. Another survey carried out by the magazine "Stern" is more optimistic. According to this survey, 5.3 % of the Germans are determined to change to a new telecom and about 35 % are seriously considering a change. By July 1998, the scene has not changed significantly. Surveys (e.g. Market Research Institute Target Group, Nürnberg) show that after about 6 months of free competition still only 2 % of the private households have change to the new telecommunication providers. More than 80 % do not intend to change at all and only 3 % are playing with the idea to look for a new fixed net provider during the next 12 months. A considerable increase has been experience in call-by-call telephony. Already more than 9 % of the German households have used this service.
At this time, the new telecommunication firms are focussing their business activities in large metropolitan areas. They are catering mainly to big businesses and firms with attractive offers for corporate networks or fast data services and networks as well as telephone services at reduced costs. The list of customers, which the private telecommunication firms could cater so far, includes many of the biggest German businesses. There exist considerable fears and uncertainty, however, among firms and organisations located in the rural areas that they will not benefit from the expected lower tariffs and costs. Today the main arguments for signing up with an alternate service provider are based on lower tariffs. Reductions of 25 % or more for telephone services are being offered by many of the new telecommunication firms. However, it is generally understood that cost alone will not be enough for a success in the new highly competitive market. The proper service will at least be as important in satisfying customer needs. In this respect customers are expecting high standards from the new providers. Some disappointments in this respect have been reported especially in the some times scarce availability of free telephone lines. Competition for long distance calls in Germany has caused pressure on the prices for telephone calls. This was also felt by the Deutsche Telekom AG. It has submitted new tariffs for long distance calls to the Regulation Office for Telecommunication and Posts which, in the mean time, has approved the planned price reductions for regional and long distance telephone calls to become effective January 1st, 1999. Thus, the DTAG can react to the pressure from their competitors who have been offering reduced rates for regional and long distance calls as a means to cater customers since the beginning of 1998. As a reaction to the DTAG’s new tariffs the competitors have on their part announced additional price reductions. The move to less expensive telephone calls, at least for regional and long distance calls, will thus continue in 1999. Many of the alternative network operators (especially the CNOs) are still in the development phase and have not yet become full-fledged telecommunication network and service providers. For most of the ANOs telecommunication is a new business field. There exists a mutual dependence between the ANOs and new national telecommunication providers. Co-operations between local ANOs and the big national service providers are currently being formed. Some of the factors that will influence the future development of the German telecommunication market are:
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