Competition in the retail fixed-line telephony markets has continued to intensify over the past two years. This applies to the call termination markets and, in particular, to the market for local loops. Unlike two years ago, the Monopolies Commission is now convinced that competition in the market for local loops is also sustainably competitive. Regulation of this market can be discontinued. Should the incumbent operator attempt to defend its market position through abusive practices, such as price-cost spreads or the setting of predatory prices, this can be appropriately addressed through the means of competition law.
Regulation of the majority of wholesale services remains essential, as competitors’ offerings in the retail markets depend to a large extent on the infrastructure of the dominant provider.
The German mobile telecoms market is characterised by intense competition, which is driven largely by smaller network operators and service providers. As the market is shielded from potential competition by structural factors, such as high barriers to market entry, the intensity of competition in the market depends largely on the current market structure—with four independent network operators—being maintained. If one of the two smaller network operators were to exit the market and the market shares were to accrue to the remaining network operators, a market could emerge in which three network operators—with similar resource endowments, comparable corporate strategies and almost equal market shares—would be in competition with one another. Theoretical and empirical arguments suggest that the intensity of competition in such a market would decline.
Threats to competition in the mobile telecoms sector stem from overly stringent regulation of termination and roaming charges, which could impair the competitiveness of smaller network operators in particular. Problems for competition may also arise from the fact that the asymmetry in the allocation of terrestrial frequencies below 1 GHz between network operators has continued to increase. The Monopolies Commission recommends using the reallocation of the 900 MHz frequencies on 1 January 2017 as an opportunity to reduce this asymmetry.
The expected further growth in mobile data traffic volumes, if current trends continue, will require the provision of additional spectrum resources for mobile communications below 1 GHz by 2018/2020 at the latest. This spectrum could be obtained from a ‘digital dividend 2’ by making further frequencies below 790 MHz – which have hitherto been allocated to terrestrial broadcasting – available for mobile communications.
Reasons for the insufficient expansion of fibre-optic networks to date include the high costs of network roll-out and the low demand so far for high-speed broadband connections. The costs of network expansion can be reduced through the shared use of existing and planned infrastructure, in particular federal infrastructure – such as federal trunk roads and railway networks. The Monopolies Commission welcomes the inclusion of corresponding provisions in the Telecommunications Act. A critical issue arises when regulatory authorities allocate the costs incurred by energy suppliers for the co-location of fibre-optic cables in electricity and gas pipeline trenches to electricity and gas network charges, as this makes it impossible to completely avoid cross-subsidisation of telecommunications networks. The idea of setting up a separate register, similar to the land register, to improve the financing of fibre-optic investments is not convincing. It is to be expected that the costs of such a register would outweigh its benefits.
To avoid the potentially inefficient parallel roll-out of fibre-optic and cable networks outside conurbations, the Monopolies Commission advocates opening up TV cable networks upgraded for telecommunications purposes to non-discriminatory access by other providers. In this context, a voluntary opening of the networks as part of an open-access strategy is preferable to regulatory opening. To ensure a level playing field between telecommunications network operators and cable network operators, unjustified competitive advantages enjoyed by cable network operators, such as the ‘ancillary costs privilege’, must be abolished.
The Monopolies Commission opposes the enshrinement of a universal broadband service with specifications on certain transmission rates in the Telecommunications Act. Arguments against this include the associated negative investment incentives, the competition-distorting effects and the high costs. Broadband roll-out in Germany must continue to be market-driven. Where coverage gaps remain, these can be closed in a much more targeted and cost-effective manner through support programmes that are compatible with European state aid rules.
Further regulations aimed at ensuring net neutrality – in the sense of prohibiting price and quality differentiation in internet traffic – should also be rejected. The existing legal framework is sufficient to proactively counter any restrictions on competition. In order to make more efficient use of transmission capacity, it may be appropriate to treat end-users, applications and services differently. Restricting the scope for price and quality differentiation in internet traffic could result in a loss of welfare and cannot be justified across the board.
