8 Germany
8.1 Introduction to the case study
The deployment of broadband infrastructure in Germany is perceived by members of the private and public sectors as an important element that will help Germany to strengthen its leading economic position in Europe and in the world. In this chapter we describe the evolution of the broadband market in Germany and analyse the role played by the public and private sectors in the expansion of fixed and mobile penetration in the country. We study the broadband developments from 1996 up to and including 2013, consider the achievement of the European Commission Digital Agenda targets for 2020 and assess the effectiveness of the policy measures applied in recent years.
This chapter is divided into the following sections: The public policies related to broadband deployment are described in Section 8.2. Section 8.3 describes the evolution of the broadband market. In Section 8.4 the level of achievement of the Digital Agenda targets is presented, whereas Section 8.5 discusses the lessons that can be learnt from the dynamics of the broadband market in Germany. Finally, the conclusions are presented in Section 8.6.
8.2 Public policies
8.2.1 Public policies related to broadband deployment
According to German constitutional law (Grundgesetz (GG), 2012), exclusive legislative competence in the field of telecommunications lies with the federal level (Art. 73 (1) Nr. 7 GG). Telecommunications are thereby understood as a technical process of signal transmission with the possibility of reproduction at the place of destination, including the provisioning of technical infrastructure and equipment at the beginning and the end of the transmission line (Nettesheim, Reference Nettesheim and Säcker2009).
Moreover, the federal level has an obligation to provide for blanket coverage of the state territory with basic telecommunications services of adequate quality (Art. 87f (1) GG) – universal service. In doing so, the state assumes responsibility as a guarantor of subsistence and will provide for a legal and regulatory framework allowing for a market supply of necessary infrastructure and services (Nettesheim, Reference Nettesheim and Säcker2009).
Content-related issues of transmitted signals, broadcasting and media law remain the domain of the sixteen German federal states (Bundesländer or Länder for short). This does not mean, however, that the Länder are prohibited from any activity that contributes to telecommunications infrastructure development. On the contrary, as long as they comply with competition law and state aid rules, the Länder and municipalities may take measures that complement and enhance telecommunications provision above the minimum level (Kühling and Neumann, Reference Kühling, Neumann, Inderst, Kühling, Neumann und and Peitz2012).
8.2.2 Definition of broadband in Germany
There is no legal definition of broadband in the German telecommunications law (Telekommunikationsgesetz, TKG). The analysis of various policy documents of the German government leads to the conclusion that broadband is a connection whose transmission rate clearly exceeds that of the Integrated Services Digital Network (ISDN): i.e., 144 kbit/s. Until 2009, for statistical purposes, the minimum transmission rate of 384 kbit/s downstream was used (Breitbandatlas 2009-02), but the current broadband strategy of the federal government introduced a more appropriate and up-to-date notion of ʻ1 Mbit/s broadbandʼ, defined as a minimum of 1 Mbit/s downstream and 128 kbit/s upstream, which is considered a basic level provision (Breitbandatlas 2009–02; BMWi, 2009).
8.2.3 The first phase: market liberalization framework and the beginning of broadband promotion
The German telecommunications law adopted in 1996 did not contain provisions directly dealing with the development of the broadband infrastructure nor mentioned the promotion and support for application of innovative and new technologies (TKG, 1996). Its objective was to promote competition and universal coverage with telecommunications services through sector-specific regulation (Art. 1). The only provisions of relevance for the development of infrastructure as an alternative to the copper lines of the Public Switched Telephone Network (PSTN) of the incumbent were those implementing the European Directive 90/387/EEC of 28 June 1990 (European Communities, 1990), on the establishment of the internal market for telecommunications services through the implementation of Open Network Provision (ONP). According to these provisions, a dominant provider of public telecommunications services and infrastructure had to ensure access to and interconnection with its network for its competitors and users under non-discriminatory conditions (TKG, 1996, Art. 33 and 35). Also, sharing of public conduits or ducts was foreseen in the case where the laying of new telecommunications cables was impossible or required disproportionally high expenses (Art. 51).
The initial roll-out of the broadband networks was complicated by the heterogeneity of ownership of various parts of the public telecommunications network. While the backbone telecommunications network belonged to the incumbent Deutsche Telekom, the ownership of the local loop was not uniform. The local access networks were owned (named in the order of diminishing ownership) by Deutsche Telekom, Deutsche Bank, Bosch Telecom and a number of small and very small network operators (Möschel, Reference Möschel2001). Due to this particularity, coordination of investments was necessary both for the backbone infrastructure and the local loop.
Following the European Commission Directive 96/19/EEC, amending Directive 90/388/EEC with regard to the implementation of full competition in telecommunications markets, the German telecommunications market was fully liberalized on 01.01.1998. Subsequently, Germany unbundled the copper local loop, in compliance with Regulation (EC) No 2887/2000 of the European Parliament and of the Council on Unbundled Access to the Local Loop (European Communities, 2000) and Commission’s Recommendation on Unbundled Access to the Local Loop (European Commission, 2000), thus enabling the competitive provision of a full range of electronic communications services, which includes broadband multimedia and high-speed internet.
Similarly to the European Union (EU) broadband policy (Cava-Ferreruela and Alabau-Muñoz, Reference Cava-Ferreruela and Alabau-Muñoz2005), the development of broadband infrastructure in Germany has been considered a policy measure aimed at the realization of the information society and, therefore, was promoted in subordination to the respective initiatives. This approach of ‘embedded broadband promotion’ was adopted in one of the first, but still relevant, policy measures of the federal government: the ʻInitiative D21ʼ. Initiative D21 is a partnership between the political actors at the federal, regional (Länder) and local levels on the one hand, and interested economic partners from all industry sectors on the other. Projects supported through Initiative D21 should be non-profit and practice oriented and contribute to overall societal development and economic growth.
Simultaneously, the German government led the adoption of broadband technologies creating (additional) demand and applying innovative applications and services. In 1999 an eGovernment initiative for local governance – MEDIA@KOMM – started with the aim to develop and apply multimedia in towns and communities (DIW, 2004). Within the initiative BundOnline 2005, launched in 2000, a modernization of the federal administration was carried out, whereby all governmental services suitable for such provision were transformed into online services (BMI, 2006). The measures appeared to be a success such that follow-up projects were launched. MEDIA@KOMM-Transfer was carried out in 2004–2007 for the promotion of regional and local eGovernment and relevant international cooperation. The ongoing MEDIA@KOMM-Innovation project aims to support the development of regional and local eGovernment networks and provides for the exchange of experience and best practices, as well as for harmonization and standardization of eGovernment solutions.
In March 2002, the Federal Government and the members of the Initiative D21 founded the Deutsche Breitbandinitiative, which is an open platform for dialogue amongst industry, science institutes and the government in order to enable networking and experience and knowledge transfer and to strengthen contacts between the decisive actors. It does not have its own budget, but serves as a cross-sectional project active in all the fields where broadband solutions are possible but not yet implemented (DIW, 2004). In June 2003, the Deutsche Breitbandinitiative adopted an action plan which was to complement the infrastructure development by supporting the creation of broadband services, applications and content, stimulating demand, enhancing security and raising users’ awareness (BMWi & BMBF, 2003). The promotion of an investment-friendly climate was intended to attract private investors, who were to assume the main financial burden of the broadband roll-out.
8.2.4 The second phase: greater consideration of information society requirements
The eEurope 2005 Action Plan for the development of the information society (European Commission, 2002), which focused in part on broadband as a necessary infrastructure to provide high-speed connectivity – and thus stimulate and enable use of advanced applications and services by public and private parties – required all member states to adopt national broadband plans. The German action programme Informationsgesellschaft Deutschland 2006 was adopted in December 2003 and continued the line of embedded broadband promotion (BMWi and BMBF, 2003). To realize the information society, the development of an appropriate infrastructure was deemed indispensable and telecommunications and broadband were identified as the very first spheres of activity of the German ICT policy. The action programme had the objective of making broadband the dominant access technology by 2005 and of reaching a broadband penetration level of over 50% by 2010 (BMWi and BMBF, 2003).
The responsibility for implementation was divided between the Federal Ministry of Education and Research, which deals with technological development, and the Federal Ministry of Economics and Technology, which is in charge of promoting the application of technologies (DIW, 2004). The federal action programme largely embraced the key steps proposed by the Deutsche Breitbandinitiative, notably the central role of private investments in broadband development. It renounced subsidies as distorting competition, making an exception only for financing from the EU structural funds – the European Regional Development Fund and the European Agricultural Fund for Rural Development. Furthermore, the action programme followed the strategy of stimulating the supply by promoting the demand. Internet usage and eGovernment initiatives were to be promoted as part of this programme. In this context, the programme DeutschlandOnline of 2003 became an umbrella project for federal, regional and local levels of governance (Thome, Reference Thome2006).
The new version of the German telecommunications law of 2004, implementing the revised EU framework, aimed at improving the general investment climate for infrastructure projects. Yet, the promotion of broadband and next-generation networks was not singled out as a priority. Rather, the promotion of efficient investments in infrastructure and the support of innovations were listed among the objectives of the law (TKG, 2004, Art. 2). Accordingly, a number of provisions were designed to secure the planning and investments for the undertakings. Article 21 of the TKG, which deals with the imposition of access obligations on dominant infrastructure providers, stated explicitly that, when considering this regulatory measure, the Bundesnetzagentur (BNetzA), the German telecommunications regulator, had to take into account the initial investments of the infrastructure’s owner as well as the necessity to create incentives for further investments in infrastructure in order to promote competition in the infrastructure market. Where access obligations were imposed on a dominant provider, the Bundesnetzagentur had also to regulate its interconnection prices (TKG, 2004, Art. 30(1)). When fixing the price, the regulator had to take into account infrastructure- or service-specific risks connected to the capital invested (Art. 31(4)). All adopted regulatory measures were part of the ex-ante sector-specific regulation, meaning that the intensity of the regulation depended on the existence of effective competition within the market at hand and of significant market power of the network provider in question (Christmann, Ensslin and Wachs, Reference Christmann, Enßlin and Wachs2005).
The subsequent action programme of the federal government iD2010 – Informationsgesellschaft Deutschland 2010, was adopted in 2006 in line with the EU i2010 strategy ʻA European Information Society for growth and developmentʼ (European Commission, 2005) and continued the promotion of information-society-oriented broadband development (BMWi, 2006) applying the two-prong strategy: the supply should be improved and the demand created. By that time, the supply had increased rapidly and the federal government announced that a new realistic objective was household penetration of 98 per cent by 2008, irrespective of the type of network. The creation of an interactive broadband atlas would permit a better assessment of broadband coverage and demonstrate broadband access potential for the users, industry and policy-makers. Further studies of broadband development and dialogue within the Deutsche Breitbandinitiative were to pursue the same objective. On the demand side of the market, a steady growth was predicted, such that a 50% level of uptake by German households was expected well before 2010. It could be enhanced by further innovation related to services and content and be supported by creating the appropriate conditions for it: the digitalization of information channels and the convergence of the media.
In 2007, the so-called ʻregulatory holiday’ provision was introduced as Article 9a of the TKG, intended to directly promote broadband development. Accordingly, new markets were not to be regulated unless there were sufficient grounds to assume that lack of regulation would hinder development of sustainable competition in the market in question in the long term. The regulatory holiday provision exempted Deutsche Telekom from having to grant competitors access to its new VDSL network. The new market definition encompassed those markets for services or products that differed substantially from services and products already available and did not merely replace them (TKG, 2004, Art. 3 Nr. 12a), thus embracing both various broadband and new generation technologies and services (BMWi, 2009).
The European Commission raised objections against this provision, claiming violations of Articles 6 to 8(1) and (2), 15(3) and 16 of Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (European Communities, 2002b) and violation of Article 8(4) of Directive 2002/19/EC of the European Parliament and of the Council of 7 March 2002 on access to, and interconnection of, electronic communications networks and associated facilities (European Communities, 2002a), as well as a violation of Article 17(2) of Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002 on universal service and users’ rights relating to electronic communications networks and services (European Communities, 2002c). The Court of Justice of the European Union upheld the Commission’s claim, finding that the amendment to the TKG meant an undue legislative interference into regulatory competences of the national regulatory authority that seriously restricted regulatory discretion of the Bundesnetzagentur regarding the market definition and market analysis (CJEU, 2009). As a consequence, Art. 9a had to be removed in the new version of TKG in 2012.
8.2.5 The third phase: intensified and targeted policy of broadband promotion
After almost ten years of subordination of broadband development to the needs of the information society, the so-called broadband strategy of the federal government adopted in 2009 ‘broke ranks’ in terms of its approach: it deals exclusively with broadband development, leaving other information society topics outside its scope (BMWi, 2009). Another novelty is the differentiation between the broadband data rates (1 Mbit/s, 2 Mbit/s and 50 Mbit/s). The federal government set two objectives, which correspond to the measures to strengthen the German economy declared in the second recovery package approved in January 2009 (Pakt für Beschäftigung und Stabilität in Deutschland zur Sicherheit der Arbeitsplätze, Stärkung der Wachstumskräfte und Modernisierung des Landes, – Bundestag, 2009):
1. to close the gaps (‘white areas’) in broadband coverage and to ensure an ubiquitous availability of 1 Mbit/s broadband by the end of 2010 and
2. to provide a 50 Mbit/s broadband access to 75 per cent of all households by 2014. This will constitute a basis for further fast deployment of high-data rate connections for the whole territory.
To realize the objectives of the German broadband strategy, several measures were proposed, to be kept updated and adjusted depending on the progress of the strategy’s implementation:
For example, the existing infrastructure and facilities will be shared in order to avoid duplication of infrastructure.
A broadband atlas and a database on all relevant building sites and projects will be developed.
Furthermore, demand-oriented empty ducts will be laid and construction of telecommunications infrastructure will be undertaken in cooperation and coordination with other utility sectors (for instance, water supply).
The described measures will be carried out in close cooperation with the Länder and the local authorities and this teamwork will be strengthened through the establishment of working groups within the Federal Ministry for Economics and Technology, consisting of representatives of the Länder and the federal government.
In this context, financing through the so-called ʻjoint tasksʼ has been improved. Already in 2008, the financing of broadband infrastructure roll-out became possible for rural areas, where broadband development was not commercially profitable, within the Joint Task for the Improvement of Agrarian Structures and Coast Protection (GAK) of the Federal Ministry for Food, Agriculture and Consumer Protection. The Länder can propose their own measures to be included in the GAK framework at the federal level, containing principles and general requirements for integrated rural development. When approved, the framework plan is to be implemented at the Länder level (GAK-Gesetz, Art. 7-9). This plan expired at the end of 2013 and foresaw in Part B financial support for rural areas that lack or are short of sufficient broadband provision and can prove business and household demand (GAK-Rahmenplan, 2011). The respective local authorities or associations could apply for financing through subsidies, grants or loans from the federal government. With these means they can complement private and communal investments in projects for infrastructure roll-out and accompanying activities (planning, consulting, informational events, etc). In the new framework the laying of empty ducts has been rendered eligible for financing and the federal subsidy ceiling has been increased from 60% to 90% with the remainder provided by the Land. The limit of the subsidy per project was also raised up to EUR 500,000.
The laying of empty ducts is perceived to be a decisive measure for the development of high-speed communications networks. For its promotion, a special umbrella framework has been created at the federal level that provides general conditions for subsidies at the local level and eliminates the necessity to notify the Commission (Bundesrahmenregelung Leerrohre, 2011) of every single community measure. It was approved by the Commission in July 2010 and provides EUR 600 million over the period of five years (until 2015) for development of passive infrastructure in ʻwhiteʼ and ʻgreyʼ areas.
Additionally, since mid-2009 structurally weak areas, especially in eastern Germany, can rely on financing through the Joint Task for the Improvement of Regional Economic Structure (GRW) of the Federal Ministry of Economics and Technology for the development of a high-quality broadband network that provides a minimum service of 2 Mbit/s. Similar to GAK, a coordination framework defining eligibility for financing areas and measures was adopted to be implemented by the Länder (GRW-Gesetz, Art. 4-6). The conditions for a subsidy require a higher data rate (at least 2 Mbit/s) and evidence of an inadequate cost-performance ratio in comparison to adjacent urban areas (GRW-Koordinationsrahmen, Attachment 4, Number 3.2.4.).
It appears that the available funds have been actively used. The EUR 10 million provided annually by the federal state under the GAK was overdrawn in 2011 and 2012 (EUR 19.2 million and EUR 14.7 million, respectively) which became possible due to the remaining sums from the early years of the fund and thanks to excess payments from the Länder. Due to this success, the fund, originally to end in 2013, will continue its operation until 2018 (Goldmedia, 2013). Funding via GRW has had a more modest success (2012 with EUR 2.9 Million was the peak year) because GRW financial means are committed not to broadband development but to development of structurally weak regions in general and are used for various projects (Goldmedia, 2013).
Under the second recovery package, which expired at the end of 2010, additional financing was available for the cases not falling under the Joint Tasks (Börnsen, Reference Börnsen2009). The attractive features of this mechanism were the absence of the subsidy limit per project and the possibility to apply for regional projects not being carried out by local authorities.
One more source of financing has been established directly for undertakings: according to the Law on Future Investments (Zukunftsinvestitionsgesetz – ZuInvPG, 2009) the Länder can provide local authorities with finances which they in their turn can make available to undertakings developing or operating broadband networks. The Länder have the competence to decide whether and under what conditions financing provided by the Law on Future Investments will be used. For instance, undertakings may apply for guarantees by the federal government and/or Länder that assume a default risk of up to 90 per cent.
Besides the joint financing, some Länder (Bavaria, North Rhine-Westphalia, Rhineland-Palatinate, Schleswig-Holstein and Thuringia) have their own financing programmes that offer cheap long-term loans allowing 10 to 20 years return on investment (Goldmedia, 2013). It will also be noted that the aforementioned EU structural funds – European Regional Development Fund (founded in 1999) and European Agricultural Fund for Rural Development (founded in 2005) – present an additional funding possibility which is, yet, of a secondary character in relation to the national financing opportunities (BMWi and BMELV, 2009).
The latest amendments to the German telecommunications law of 2012 follow the line of the governmental strategy to strengthen the promotion of broadband development and declare the ʻacceleration of development of heavy-duty public telecommunications networks of next generationʼ as one of the major objectives of telecommunications regulation (TKG, 2012, Art. 2(2) Nr. 5). Having dropped the ʻregulatory holidayʼ provision, TKG 2012 relies strongly on enhancing security of planning and investment for undertakings, thus further developing the approach launched in TKG 2004, as well as on facilitating risk sharing and cooperation among investors (Körber, Reference Körber2011).
Over time, the regulatory framework has stabilized and become more precise, thus enhancing the security of planning and investment. The law aims at objective, transparent, non-discriminatory and proportional regulatory principles underpinning the work of the Bundesnetzagentur, which will be substantiated by maintaining the same regulatory concept over longer appropriate periods of time, to increase predictability of regulation, and by considering investors’ risks in case of access obligations, by allowing for risk-sharing agreements between undertakings, by prohibiting discrimination and promoting competition, as well as by recognizing the complementary and transitional character of regulatory measures in relation to competition (TKG, 2012, Art. 2(3)).
A more straightforward measure to improve the investment climate is the possible adoption by the Bundesnetzagentur of periodic administrative rulings (Verwaltungsvorschrift) describing the general regulatory requirements. To assess efficient investments and innovation regarding new and enhanced infrastructure, a methodology for risk determination, criteria for establishment of access conditions and prices for risk-sharing models, and examples of risk-sharing models will be considered by the regulator (TKG, 2012, Art. 15a(2)). On the basis of such administrative rulings and upon request of any provider of a public telecommunications network contemplating development of new-generation networks, the Bundesnetzagentur is to provide region-specific information about expected changes in the regulatory framework or measures (TKG, 2012, Art. 15a(4)). To further improve consistency and predictability of regulation, as well as the security of planning and investment for undertakings, the Bundesnetzagentur has the potential to expand market regulation periods from three to a maximum of six years, provided the European Commission has no objections to such prolongation (TKG, 2012, Art. 14(2)).
Next to the already mentioned provisions of Article 15a(2) facilitating risks sharing, the regulatory measures on the basis of Articles 30 and 32 of the TKG create additional incentives for this practice. When regulating the prices charged by dominant network providers for access (both services and facilities), the Bundesnetzagentur will consider initial investments and allow for an appropriate return (risk premium) upon the invested capital, as well as take in utmost account special risks and risk-sharing agreements between undertakings regarding next-generation networks (TKG, 2012, Art. 30(3) and 32(3) Nr. 3).
In addition to sharing investment risks, TKG 2012 seeks to promote actual infrastructure sharing between undertakings. Previous legislation dealt with only one aspect of these issues, namely with cooperation when laying ducts and wires. According to Art. 21(2), the Bundesnetzagentur, acting upon a request or ex officio, may impose on a dominant provider of public telecommunications networks, among other obligations, the requirement to ensure open access to certain network elements or facilities, including unbundled broadband access. At the same time, a number of obligations are to be imposed on a dominant provider under Art. 21(3), including access to passive network elements and open access to technical interfaces, protocols and other key technologies necessary for services or interoperability of services, as well as collocation and other types of sharing of buildings, ducts, poles and other facilities.
In order to achieve the targeted data rate of 50 Mbit/s and more, and to prevent signal degradation, it is necessary to at least partially upgrade the copper wire between the distribution frame in the local exchange and the subscriber terminal with fibre. To do this, the new Art. 77a (TKG 2012) guarantees access to the relevant network infrastructure on the premises in two ways: either by collocation of wires of competing providers in the same conduits or by sharing the existing wires if duplication of the infrastructure is economically inefficient or technologically impossible (Kind and Schramm, Reference Kind and Schramm2012). The Bundesnetzagentur’s order to co-locate or share the wires and conduits in question can be addressed not only to network providers but also to other owners of (passive) infrastructure who do not operate the networks. Moreover, the imposition of the obligation does not depend on the market power of the addressee but has the objective of achieving synergy effects in relation to the network infrastructure (TKG, 2012, Art. 77a(1); Kind and Schramm, Reference Kind and Schramm2012). The Bundesnetzagentur can create an inventory of all facilities that can be used for telecommunications purposes (for instance, ducts, poles, antennas, etc.) and can request the relevant information from telecommunications providers and other legal entities in possession of such facilities (TKG, 2012, Art. 77a(3)).
In order to further minimize the costs of the development of new broadband networks, TKG 2012 allows the collocation of telecommunications infrastructure with other facilities (water, gas pipes, power lines). Upon a written request from an interested provider of public telecommunications networks, undertakings and legal persons in possession of facilities that can be used for the development and laying of next-generation networks are obliged to make an offer to share such facilities (TKG, 2012, Art. 77b(1)). Additionally, Art. 77c-77e provide for sharing of roads, waterways and railway infrastructure belonging to the federal government.
The investment climate for broadband development is further improved by initial regulation of the deployment of innovative laying techniques. Commonly, telecommunications infrastructure will be laid in compliance with the standards set by the German Institute for Standardization (Deutsches Institut für Normung, DIN) in the General Technical Instruction for the usage of roads for cables and telecommunications lines (Allgemeine Technische Bestimmungen für die Benutzung von Straßen durch Leitungen und Telekommunikationslinien, ATB-BeStra) which prescribes, for instance, a certain depth and width of trenches for the wires. Art. 68(2) of TKG 2012 provides for an exhaustive list of requirements to be fulfilled for a request to be approved by the carrier of public easement allowing the requesting provider to lay fibre infrastructure with the help of micro- or mini-trenching techniques in deviation from the aforementioned DIN standards.
An important measure to promote innovative broadband technologies is the decision of the Bundesnetzagentur of Summer 2013 to slightly ease the incumbent’s obligation to provide access to the sub-loop segment of the network. Now Deutsche Telekom may refuse access to the sub-loop if it is necessary to enable implementation of vectoring at the street cabinet (by Deutsche Telekom itself or another company). All competitors will still be able to interconnect at the cabinet using optical fibre and implement vectoring if they offer an appropriate bitstream product under open access arrangements.
8.2.6 Broadband-related radio frequency spectrum measures
Like other national policies in the radio spectrum field, German policy is subject to the limitations imposed by decisions about radio frequency allocation and uses adopted at the international (International Telecommunications Union, ITU) and regional (European Conference of Postal and Telecommunications Administrations (CEPT)) and EU institution levels (Bundesnetzagentur, 2013a; TKG-Kommentar, 2013). Implementing the international allocation of spectrum frequencies, the federal government adopted a national frequencies regulation that allocates certain frequency bands for certain uses. On its basis, the Bundesnetzagentur draws up a detailed spectrum frequency plan which is then used to assign frequencies to individual operators (TKG 2012, Art. 52 ff.). Furthermore, physical characteristics of spectrum frequencies impose further constraints on their use for broadband provision. Due to this, measures in the field of spectrum frequencies are dubbed ʻsupporting policyʼ (ʻUnterstützende Frequenzpolitikʼ), meaning that they will be used in order to close the gaps in the provision of broadband in rural areas and in order to improve mobile use of ICT (BMWi, 2012).
Arguably, the relevance of radio spectrum for high data rate transmission has become apparent with the development of the Universal Mobile Telecommunications System (UMTS) standard and its commercial deployment. In contrast to the second-generation standard (Global System for Mobile Telecommunications, GSM), in addition to voice UMTS would allow transmission of data and video at a much higher rate of up to 2 Mbit/s, with all participants constantly sending data packets on the same frequency band. This led both operators and policy-makers to believe that in the near future UMTS would replace not only GSM but also parts of the landlines used for Internet provision (Petzel, Reference Petzel2006). These and other factors played a decisive role in the auction for UMTS licences in summer 2000, total proceeds of which were an exceptionally high sum of about EUR 50 billion paid by six winners. The licences included an obligation to deploy an own UMTS network by 2003 and to reach a theoretical supply rate of 25% of population by the end of 2003 and 50% by the end of 2005 (Petzel, Reference Petzel2006). The auction was strongly criticized by its participants, scholars and other observers and the ʻUMTS euphoriaʼ soon died away as the winners struggled – and ultimately failed – to fulfil their licence obligations (Virnich, Reference Virnich2003; Petzel, Reference Petzel2006).
Radio frequency spectrum policy has come to play an increasingly important role again during the third phase of broadband policy development due to the launch of the commercial use of the Long-Term Evolution (LTE) standard. It has been recognised that mobile and wireless solutions in general are instrumental in closing the gaps in the provision of basic broadband to rural and remote areas. Their effective application depends, however, on the availability of spectrum and its efficient use.
In May 2010, promptly following the requirements of the EU law (European Commission, 2010a) and in compliance with the broadband strategy, Germany auctioned the 800 MHz frequencies for mobile operators. Herewith, Germany was the first EU member state to make use of the Digital Dividend. As a result of the auction, in autumn 2010 new licences were issued for more than 11,000 locations to use LTE base stations. The licence conditions obliged the operators to provide mobile broadband in a particular priority order, starting with towns and communities short of infrastructure of less than 5,000 residents (Bundesnetzagentur, 2013a; Goldmedia, 2013).
Germany intends to stay at the forefront of the exploitation of the radio spectrum for broadband development. Thus, in the context of the discussions in the ITU about reallocation of frequencies of 700 MHz spectrum (Digital Dividend II), the federal government launched a discussion process, established a Mobile Media 2020 Forum and developed an ICT strategy in order to identify the demand for frequencies and their possible use (BMWi, 2010; 2012). In this context, in 2013 the Bundesnetzagentur launched public consultations on the basis of the discussion paper on the process of assignment of 700 MHz and 1.5 GHz frequencies as well as the 900 MHz- and 1800 MHz frequencies, of which the rights of use expire in 2016 (Bundesnetzagentur, 2013b). Besides, the regulatory authority drafted scenarios of possible future allocation of these frequencies and started a formal procedure for demand assessment for the time after 2017 (Bundesnetzagentur, 2011; 2012).
8.3. Progress in the broadband market
The broadband market in Germany was initially driven by the existing fixed-network infrastructure. This infrastructure was essentially based on copper and cable access networks. At a later stage the deployment of high-capacity transmission wireless networks enabled the provisioning of ubiquitous wireless access to the Internet. As is explained in this section, the incumbent and alternative operators played a key role in the development of the broadband market.
8.3.1 Background about the incumbent operator
The incumbent operator, Deutsche Telekom, belonged originally to the Deutsche Bundespost, a public institution created in 1947 which was in charge of postal and telecommunications services in the later Federal Republic of Germany. Before that time, the Deutsche Bundespost was called the Reichspost. In 1989 the Deutsche Bundespost was divided into three public companies: Deutsche Bundespost Postdienst for the postal service, Deutsche Bundespost Postbank for the postal banks and Deutsche Bundespost Telekom for the communications service. The Deutsche Bundespost Telekom became the Deutsche Telekom AG in 1995 and was subsequently privatized in 1996. Currently, the German federal government has a direct ownership of 15% of the shares of Deutsche Telekom and owns further 17% indirectly through the Kreditanstalt für Wiederaufbau (KfW) bank.
Traditionally Deutsche Telekom has been the company that invested in telecommunications assets. But, when comparing the investment made in fixed, mobile and cable networks which provide broadband, telephony and video services, the alternative operators combined have invested more than Deutsche Telekom in every year of the period 2002–2013. For the period considered, the alternative operators have contributed 53.7% of the total investment, whereas Deutsche Telekom has provided 46.3% (Dialog Consult-VATM, 2013).
8.3.2 Differences between the new and old Bundesländer
After the reunification of Germany in 1990, the government made important efforts such that the PSTN infrastructure in the new Bundesländer and in the old Bundesländer would become similar. But there are still differences between the regions as regards broadband infrastructure. For low-capacity broadband services, which have a data rate up to 1 Mbit/s and which are available through fixed and wireless networks such as Digital Subscriber Line (xDSL), Wireless Local Area Network (WLAN), LTE, UMTS, cable, Fibre to the X (FttX) and Worldwide Interoperability for Microwave Access (WiMAX), all the Bundesländer had a broadband household coverage of more than 98.5% in 2013 (Breitbandatlas, 2013).
However, for broadband services of more than 50 Mbit/s which can be provided through xDSL, Fttx, cable and WLAN networks, there are differences. In 2013, ten of the old Bundesländer had a household broadband coverage of 50 to 95%, whereas only one old Bundesland had a coverage of 10 to 50%. The five new Bundesländer had a broadband availability of 10 to 50% (Breitbandatlas, 2013).
8.3.3 Fixed broadband market
Fixed broadband penetration
In 2012, the fixed broadband penetration of Germany was 34.2% (see Table 1.3 in Chapter 1 Introduction). In terms of fixed broadband penetration the situation in Germany, as compared to other OECD countries, has changed over time. Until 2006 Germany was behind the average of OECD countries in terms of fixed broadband penetration, but since 2006 the fixed broadband penetration of Germany is better than that of the average of OECD countries (OECD, 2013).
Competition in the fixed broadband market
The predominant network in the fixed broadband market in Germany is the copper wire-based access network. Figure 8.1 depicts the different types of fixed access used for the period 2002–2013. The figure reflects the xDSL, coaxial cable and fibre-based networks. Other types of access networks, such as power-line- and satellite-based networks, were not included due to the limited number of broadband lines deployed.
In 2002 the only type of fixed broadband deployed was through copper lines. In 2013, 80% of broadband lines were based on xDSL. The average annual increase between 2002 and 2009 was 38%. The incumbent operator is the provider of the majority of xDSL lines, including the wholesale lines used by the alternative operators.
In recent years the cable networks have been playing an increasingly important role. For the period 2007–2013 the average annual increase of cable access lines was 35%. With only 0.3 million homes connected with Fibre to the Home/Building (FttH/B) networks, the fibre-based access networks represented only 1% of the broadband lines in 2013.
At the beginning of 2007, the xDSL lines amounted to around 95% of the fixed broadband access lines. There were six major DSL providers in Germany: Deutsche Telekom with 48.2%, United Internet with 14.9%; HanseNet (which later became Telefonica) with 13.3%; Arcor (which later became Vodafone) with 13.1%; Freenet (later 1&1) with 7.4%; and Versatel with 3.2% market share (DSLWEB, 2007).
In 2013, the total number of all types of fixed broadband lines was 28.3 million. Deutsche Telekom had still the majority of broadband access lines with a 43.8% market share, followed by 1&1 with 12.0%, Vodafone with 10.6%, UnityMedia Kabel BW with 8.5%, Telefonica with 8.1% and Kabel Deutschland with 7.1%. EWE Gruppe, Versatel, NetCologne and M-Net had less than 3% market share each (Dialog Consult-VATM, 2013).
Cable operators play an increasingly important role in broadband provisioning: in 2006 only 3.4% of the broadband lines were provided by cable operators, whereas in 2013 this has increased to 18.9% of the lines.
The reuse of the copper lines
Deutsche Telekom owns and operates the majority of xDSL lines. In 2013, Deutsche Telekom provided 54.1% of the DSL lines in retail mode, whereas 7.9% of the lines were sold in resale mode. Another 38% of the xDSL lines were provided on a wholesale basis to be managed by alternative operators. It has to be taken into account that the majority of the lines managed by alternative operators use the unbundled copper lines of Deutsche Telekom.
The transmission capacity of the copper-based access lines has improved over time. The ADSL lines employed in 1999 provided a downlink data rate of 0.7 Mbit/s. The downlink data rate of the xDSL lines in 2002 and 2004 were 1.5 and 3 Mbit/s, respectively. ADSL2+ lines provided a data rate of 16 Mbit/s at the beginning of 2006. Between 2006 and 2012 over 22 million lines were switched to ADSL2+ in more than a thousand cities in Germany. VDSL2 lines deployed since 2006 provide a download speed of up to 50 Mbit/s. As of 2012, 11.6 million households in fifty cities were covered with VDSL2.
Operators in Germany have been considering the possibility of improving the capacity of access lines by using techniques such as vectoring and bonding, which can enable a data rate of 100 Mbit/s for certain segment lengths. To achieve these rates, fibre to the street cabinet (Fibre to the Cabinet, FttC) or to the distribution point (Fibre to the Distribution Point, FttDP) is to be deployed. With these broadband capacities it is possible for xDSL lines to compete on data rates with fibre and cable networks. If operators deploy vectoring and G.fast, which provides up to 1 Gbit/s over 100 m, then the lifespan of copper lines will be extended further. In 2012 Deutsche Telekom announced that it was going to use xDSL lines with vectoring to provide downstream transmission rates of up to 100 Mbit/s, and in the summer of 2013 a regulatory basis was established for this deployment.
The importance of cable networks
The German Bundespost constructed the RTV-cable network at the beginning of the 1980s. This cable network was separated from Deutsche Telekom in 1998 and transferred to Kabel Deutschland GmbH (KDG), which was fully owned by Deutsche Telekom. The network managed by KDG was divided into nine regions in order to prepare it for sale to potential investors. The operator Ish, which was owned by Liberty Global, acquired the cable network in Nordrhein-Westfalen in 2002, whereas iesy, also owned by Liberty Global, acquired the network in Hessen. Kabel BW bought the network in Baden-Württemberg. The other six networks were sold to Kabel Deutschland Gruppe in 2003. The operators ish and iesy merged in 2007 and created the cable operator UnityMedia. Kabel Deutschland operates networks in the other Bundesländer, with the exception of Nordrhein-Westfalen, Hessen and Baden-Württemberg. In 2011 Liberty Global, which owns Unity Media, bought Kabel BW.
Figure 8.1 shows than since 2007 the growth of CATV-based broadband lines exceeds that of PSTN-based access lines. By deploying the Data Over Cable Service Interface Specification (DOCSIS) 3.0, the transmission capacity of cable networks has increased significantly, achieving 100 Mbit/s and more.
In comparison with fibre-based operators, cable network operators are in a better position in terms of coverage. In 2011, around 48% of the households were passed by cable and only 2% by FttH/B networks. In 2013 cable operators had 5.4 million broadband subscribers. The most important cable operators in 2011 were Kabel Deutschland, UnityMedia, Kabel BW, TeleColumbus and Primacom (WIK, 2012). Cable operators provide video, broadband and telephony services. As of 2011, 13.7% of the customers base of the cable operators had a broadband subscription, whereas 72.6% had only a TV subscription (Dialog Consult-VATM, 2011).
Limited FttH/B roll-out
In Germany, there is little deployment of FttH/B networks. As of 2012 there were 0.8 million households passed and 0.3 million households connected to FttH/B networks (Dialog Consult-VATM, 2012). Plausible reasons for this lack of massive FttH/B deployment are: the competition from cable operators, the volume of investment needed to deploy the passive infrastructure of fibre-based networks, the current massive use of copper-based xDSL lines and the possibility of upgrading them for continued use into the future.
So far Deutsche Telekom has not made a massive investment in FttH/B networks. Deutsche Telekom makes investments in FttH/B networks where it sees a clear positive business case. For example, it has deployed fibre-based networks to connect apartment buildings or in urban areas where there is a significant number of potential subscribers that are likely to sign a contract with the incumbent operator. Many of the current FttH/B networks deployed in Germany have been built by city carriers and municipal public utilities companies (Stadtwerke). In several cases, these companies already owned the passive infrastructure and they needed only to deploy the fibre, which meant a strong reduction of the total cost.
8.3.4 Mobile broadband market
Mobile operators
In January 2013 there were 33.6 million subscribers, which had access to mobile broadband networks. This represents a penetration of 41.1%. Since 2008 the number of mobile broadband subscribers – initially only through UMTS and later through LTE networks – has grown steadily over the years: in 2008 it was 13.6 million; in 2009 it was 19.0; in 2010 it was 21.2; in 2011 it was 28.6; and by January 2013 it had reached 33.6 million (Bundesnetzagentur, 2013c).
The operators that own physical infrastructure to provide wireless services in Germany are Telekom Deutschland (which belongs to the Deutsche Telekom group), Vodafone, E-Plus and Telefónica O2. As of 2013, the total number of SIM cards activated, which are used to provide telephony and broadband services, was 114.1 million. Telekom Deutschland, Vodafone, E-Plus and Telefónica O2 had market shares of 32.9%, 28.0%, 22.0% and 17.1%, respectively, measured on the basis of the SIM cards provided (Dialog Consult-VATM, 2013).
Evolution of wireless networks
A succession of wireless broadband networks has been introduced in the German market over the last years. The first wireless broadband networks were based on GPRS (General Packet Radio Service) and HSCSD (High Speed Circuit Switched Data), which were denoted as 2.5G (Generation) networks. In theory it was possible to achieve 115 kbit/s with GPRS and 57.6 kbit/s using HSCSD.
It took some time to deploy 3G UMTS networks after the auction of the licenses for the spectrum was concluded. The auction took place in 2000, while Vodafone was the first mobile operator to start using this network in 2004. One of the reasons for this delay was the lack of appropriate mobile handsets. With UMTS it became possible, in theory, to achieve 384 kbit/s for downstream transmission.
In 2006 the UMTS-based system High Speed Packet Access (HSPA) was able to provide, in theory, downstream and upstream data rate of 1.8 Mbit/s and 384 kbit/s, respectively. In 2007 the High Speed Downlink Packet Access (HSDPA) and High Speed Uplink Packet Access (HSUPA) networks were able to provide downlink rates of up to 7.2 Mbit/s and 3.6 Mbit/s, respectively. HSPA+ networks, denoted as HSPA Evolution, are able to provide up to 28 Mbit/s on the downlink and 11 Mbit/s on the uplink. HSPA+ networks are also called 3.5G networks.
The first broadband services based on the 4G LTE network were announced by Vodafone and Telekom Deutschland for a few villages and communities in Germany at the end of 2010. Telekom Deutschland, Vodafone and Telefonica O2 started providing services using the LTE networks in rural areas first, as was agreed in the conditions for the auction of the spectrum. In theory, the downstream transmission capacity could be up to 100 Mbit/s. In practice, with very good transmission conditions and a very reduced number of users generating traffic in the same cell, it is possible to reach around 50 Mbit/s. An improvement of LTE is LTE-Advanced which, again in theory and under optimal conditions, could provide up to 1 Gbit/s on the downlink; in practice carrier aggregation could provide up to 225 Mbit/s. First small-scale tests were reported by Vodafone and Telefonica in November 2013.
8.3.5 Fixed versus mobile broadband
As a result of the deployment of the 3G and 4G LTE wireless networks, and the increasing use of smartphones, the usage of mobile broadband services has grown. As an illustration, Table 8.1 shows the development of the monthly volume of data on fixed and mobile access lines and the corresponding percentage of increase. While the volume of data transmitted through the fixed networks is much higher than that transmitted using the mobile network (15 GB vs. 261 MB in 2013), the growth in mobile data use is much higher.
Table 8.1: Monthly volume of data per user and annual increase, Germany, 2008–2013
It remains to be seen to what degree the deployment of LTE networks, which provide higher data rates, will continue motivating users to replace their fixed broadband access lines with mobile broadband access.
8.4 Realizing the Digital Agenda targets
The objectives of the German broadband strategy were set in anticipation of the European strategy for smart, sustainable and inclusive growth, known as Europe 2020, and at first glance appear to be far more ambitious. However, they do not correspond fully with the benchmarks of the Digital Agenda as they address the supply side exclusively. The EU Flagship Initiative ʻA Digital Agenda for Europeʼ aims at broadband access for all citizens by 2013, access for all to 30 Mbit/s or above by 2020, with 50% or more of European households subscribing to Internet connections above 100 Mbit/s (European Commission, 2010b). By contrast, the German broadband strategy envisages ubiquitous coverage with 1 Mbit/s broadband by the end of 2010 and 50 Mbit/s broadband access to 75% of all households by 2014. In 2012, due to the progress of implementation, these objectives were adjusted to include a universal availability of 50 Mbit/s by 2018.
As of mid-2013, 58.4% of all the households in Germany had the possibility of gaining access to a fixed or wireless broadband network with a minimum capacity of 50 Mbit/s, 77.2% to a capacity of 16 Mbit/s and 99.8% to 1 Mbit/s. Regarding access through fixed broadband networks, 58.2%, 85.7% and 95.5% of households were passed by networks with a minimum capacity of 50 Mbit/s, 16 Mbit/s and 1 Mbit/s, respectively (Breitbandatlas, 2013). In 2012 Next Generation Access networks that support a downstream capacity of at least 30 Mbit/s covered 66.2% of households (European Commission, 2013). In January 2013, the fixed broadband penetration rate was 34.2%. The penetration rate of high-speed connections of at least 30 Mbit/s was 12%, whereas the penetration rate of very fast connections of at least 100 Mbit/s was 1.2% (European Commission, 2013).
With regard to mobile networks, in 2012 access to HSPA 3G networks was available to 90.4% of the population, whereas 4G LTE networks were available to 51.7%. As of mid-2013, the broadband wireless networks with capacities of 16 Mbit/s, 6 Mbit/s and 1 Mbit/s were available to 4.6%, 48.9% and 95.8% of the households, respectively (Breitbandatlas, 2013). The broadband mobile penetration rate was 41.1% as of January 2013 (European Commission, 2013).
8.5 Case analysis
8.5.1 Operators
The fixed broadband market is characterized by an extensive use of xDSL lines, dominated by the incumbent operator Deutsche Telekom. Alternative operators have been relying on the regulated unbundled lines of Deutsche Telekom for competition. Infrastructure-based competition is provided by cable operators who own their own access networks. By using DOCSIS 3.0 cable operators are able to provide a high-speed broadband service and they have been able to realize the highest growth rate in fixed broadband lines in recent years.
In the wireless broadband market four operators own physical wireless access infrastructure and the competition between them is quite strong.
8.5.2 Main features of policy developments
Cooperation between the federal, regional and local levels of government has proven to be the central element of the policy measures aimed at broadband development in Germany. Coordinated efforts were first made to boost the demand side in the early years of broadband deployment, while the supply side was expected to be driven more or less by market forces alone, once the competition had been introduced and some general anti-competitive regulatory safeguards related to the market power of the incumbent had been adopted. However, over recent years governmental efforts have become increasingly concentrated on support of the supply side and range from incentive measures to promote and facilitate investment (risk and infrastructure sharing, consideration of investment for price-setting measures, etc.) to the provision of financial support in various forms. Market failures in rural areas have required an even more direct public involvement in the form of infrastructure and services provision by Stadtwerke (communal enterprises) and laying of empty ducts by municipalities for their subsequent rental to the broadband providers. At the same time, demand-promoting measures have retreated to the background, so that currently German policy can be called a bit one-sided.
These developments indicate a possible (re)turn of German telecommunications policy towards industrialism, at least with regards to fixed broadband development.
Throughout most of the period considered, Germany has been a close follower of the policies developed by the European Commission in Brussels. However, realizing the growing importance of broadband for Germany’s competitiveness and its status as a European and global economic power has resulted in attempts to anticipate – and even determine to a degree – the EU’s information society policies and broadband policy in particular. For instance, Germany was hard on the Commission’s heels auctioning the first Digital Dividend and nowadays it is preparing most thoroughly for the second round.
Against this background, one should consider the fast growing importance of the radio spectrum policy as part of the broadband developments during recent years. So far, the policy measures in this field are very different from the measures for the promotion of fixed broadband: the federal government is mostly concerned with the provision of the scarce resource of radio frequencies.
8.5.3 Expectations based on theory
Taking the theory of the ladder of investment as a way to analyse the level of competition achieved by the different operators in the fixed network market, the following points can be observed:
Alternative operators have not had the motivation to deploy their own fixed broadband access infrastructure. The conditions to use the copper lines of the incumbent operator were quite clear and attractive, and hence they have been using the local loop of Deutsche Telekom to provide broadband services. This has brought competition to the services market.
Introduction of new broadband technologies (vectoring), extending the life of copper wire is likely to cement this situation and further postpone the emergence of infrastructure-based competition from alternative operators.
Cable operators are using the access networks that were initially deployed to provide TV services. By employing DOCSIS 3.0, they are able to provide a high-speed broadband access service. Cable networks are not regulated: that is, they are not subject to any access or price regulation. Increasing infrastructure-based competition has been the result.
There is limited deployment of FttH/B networks. Neither the incumbent operator nor the alternative operators have identified an attractive business case to make the necessary investment in large-scale roll-out of fibre-based networks.
8.5.4 Lessons learned
The following lessons can be derived from the case analysis made:
– Our analysis shows that even though German telecommunications policy and regulation are technologically neutral, they impact the deployment of xDSL-, cable- and fibre-based networks in different ways. While policy measures seem to respond beneficially to the needs of xDSL and cable providers, fibre providers – both the incumbent and alternative operators – lack motivation and resources to roll out infrastructure.
– The policy and legal framework has failed to provide sufficient measures for alternative operators to enter into infrastructure-based competition with the incumbent. However, the latest (2012) amendments to the German Telecommunications Law are intended to address this issue; their full effect is yet to be seen.
– Setting high data rate targets as part of the broadband strategy – i.e., pushing beyond the capabilities of xDSL networks – could be instrumental in promotion of fibre and cable development. However, the recent development in vectoring and bonding technologies will extend the life of the copper lines. It may move the alternative operators down the ‘ladder of investment’, as unbundling becomes more complicated and potentially less attractive, driving alternative operators to procure bitstream-like access instead. With this development, effective infrastructure-based competition becomes more unlikely in the near future.
– With about half of all households being covered by cable networks, infrastructure-based competition nevertheless is likely to grow as users demand increasingly higher data rates.
– The market strength of the incumbent operator remains significant and, thus, justifies continued asymmetrical regulation.
– Mobile broadband networks play an increasingly important role due to the higher data rates they can provide, but at the moment they are predominantly used to ensure basic broadband coverage (1 Mbit/s) and to close the gaps in fixed broadband provision. Fixed access networks continue to provide much higher data rates. Moreover, mobile networks are becoming increasingly dependent on fibre-based fixed backhaul networks.
8.6 Conclusions
In this chapter we have analysed the development of the broadband market in Germany and the results in terms of broadband penetration and competition that have been achieved so far.
The results show that in the fixed broadband market alternative operators have been competing strongly with the incumbent operator by using the regulated copper-based access network of Deutsche Telekom. On the other hand, cable operators have upgraded their networks with DOCSIS 3.0 and have been using their networks to compete head-on with other fixed broadband operators. In the wireless broadband market there are four different operators who are competing intensely to serve end-users.
Policy and regulatory measures have played central roles in these developments, enabling and facilitating access to infrastructure and resources and promoting an investment-friendly climate. However, one-sided incentives and demand-stimulating measures seem to encounter their limits as the market does not react to them according to expectations, especially in failing to supply high-speed broadband to the rural areas. The government is becoming more intensively involved in the supply-side, de-emphasizing demand-oriented activities. Implications of this policy shift may be felt more strongly in the near future, when the announced objectives beyond the basic broadband coverage are to be realized.
Technology is another important driver of the broadband development in Germany as the case of the mobile broadband suggests. Commercial use of the LTE standard combined with the prompt auctioning of the required radio spectrum has allowed the closing of the gaps in basic broadband provision and achievement of ubiquitous coverage. Further technological developments in this area are likely to enhance the significance of mobile and wireless broadband beyond the subsistence provision, and current radio spectrum policy consultations are providing the pathway for its deployment.
