The letter told the regulator BNetzA that it must impose more effective competition remedies for fixed telephony to avoid the risk of excessive prices being charged by the dominant German operator, Deutsche Telekom.
Brussels is urging the German regulator to follow other national regulators who have tackled uncompetitive markets through regulation. Deutsche Telekom has 94% of the market share of telephone networks in Germany, and Reding feels it has too much power in its domestic market. The German regulator sent a proposal to the commission in May giving details of how to remedy this, but the commission deemed them too weak.
In Europe’s telecom markets, remedies need to be clear and effective in order to improve the competitive situation and to safeguard the interests of consumers, said Reding. I am determined to ensure a high degree of coherence and effectiveness of regulatory remedies throughout the European Union. This includes remedies at the retail level in cases where measures at the wholesale level have not resulted in a satisfactory degree of competition.
The Commission said it endorsed the regulatory measures proposed by BNetzA, but at the same time invited the national regulator to increase the effectiveness of the proposed remedies. It reminded BNetzA that carrier (pre-)selection services which allows end users to select a carrier of their choice, must be provided at a price that is based on actual costs, and said direct charges to subscribers must not act as a disincentive for the use of such facilities.
In order to enhance competition and consumer protection against excessive pricing by Deutsche Telekom, the Commission invited the German regulator to consider imposing a more efficient price-control mechanism. It said a number of other national regulators who found the retail access markets not competitive had already remedied the market failure through ex ante price regulation. It listed regulators in Austria, Ireland, Slovakia, Slovenia, Netherlands, Hungary, Malta, and Spain, who have followed this route.
The Commission also urged the regulator to impose accounting separation requirements on Deutsche Telekom, in order to implement carrier (pre-)selection cost-orientation effectively and to make price-control effective.
This is not the first time Reding has clashed with Deutsche Telekom and the German regulator. For the past six months they have been at loggerheads over Deutsche Telekom’s network exemptions. It follows the decision last November by the German telecoms regulator to permit virtually no government regulation for two to three years for Deutsche Telekom’s new 3bn euro ($3.5bn) high-speed fiber-optic network. The new German coalition government agreed to exempt Deutsche Telekom’s network from regulation in order to ensure it achieved adequate returns.
Reding was furious and sent a letter to Germany’s Federal Networks Agency saying she had serious concerns about the German regulator’s decision to take a hands-off approach to Deutsche Telekom’s new network.
The measure also attracted strong criticism from Deutsche Telekom’s foreign competitors operating in Germany. They were highly critical of the stance of the German government, and said it would allow Deutsche Telekom to set excessive access prices, or even prevent access to its network. They also said it could be a dangerous precedent for other countries.
The Bonn, Germany-based carrier had said it would spend 3bn euros ($3.5bn) over two years to upgrade large parts of its network. The upgrade means it would strip out large parts of its old copper wire network and replace it with high-capacity fiber-optic cable capable of speeds of up to 50MBps. The roll-out would then cover 10 unnamed German cities by mid-2006, and by 2007 this would reach 50 of Germany’s largest cities.
In the end, the pressure from Reding forced Germany to back down. But this humiliating climb-down was not forgotten in Berlin, and Germany now wants a more flexible approach from the regulators, arguing that businesses need to be able to recoup the cost of their investments if they are to remain competitive.
Reding responded in January and issued a blunt warning to European member states, reminding them about the rules governing telecom investments. Deutsche Telekom chief executive Kai-Uwe Ricke then publicly criticized recent draft legislation of Germany’s telecom laws. Ricke said the draft would have to be revised substantially in order to guarantee that Deutsche Telekom would not be forced to share its new network.
