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MEMO/06/308
Brussels, 21 August 2006

Commission gives green light for access of new market entrants to Deutsche Telekom’s broadband networks – Frequently Asked Questions

Which market is concerned by the German bitstream case?

The case refers technically to the market for “wholesale broadband access”, which is a market listed in the Commission's 2003 recommendation on relevant markets where ex-ante regulation under the EU telecom rules is deemed justified. It is the wholesale market where competitors of the incumbent are seeking to connect their (core) networks with Deutsche Telekom's IP network in order to reach mainly private and small business customers.

This wholesale market is relevant in particular for the telephone access and high-speed internet-market, but prospectively also for “triple play”-offers which could include telephony, internet, and television services.

What is bitstream access and why does it promote competition?

Bitstream access allows competitors to have access to the established operators' infrastructure in order to offer broadband services (for example high-speed internet, telephony) directly to end customers (households and business customers). This is of crucial importance for competition on the end user market:

  • In particular outside metropolitan areas, it is often uneconomic for competitors to lay out double infrastructure up to the street cabinet – the crossroad quite near the homes that serves a limited number of households, in particular if broadband uptake is not high. (The access to the street cabinet is also called “local loop unbundling”).

• So competition does in general not work well without bitstream access, in particular outside densely populated areas. The case of Germany demonstrates this particularly well as here, bitstream access has been refused for years. As a result of this, the dominance of Deutsche Telekom is particularly high in non-metropolitan areas, which has led to substantially higher prices for broadband connections there.

  • With bitstream access, competitors have a higher control about the quality parameters of their services compared to mere reselling of the products of the established operator. Bitstream access allows competitors to distinguish their offer from the incumbent's, for example as regards bandwidth, uploading vs. downloading speed, variation in bandwidth etc.

What is the difference between IP- and ATM-bitstream access?

ATM bitstream is important to compete in the segment for business customers as it allows competitors to offer particular high quality services to their end customers, such as videoconferencing or the connection of workplaces at home at a quality level which is offered in an office environment.

IP bitstream access is more relevant for the connection to private end customers as it allows for example “triple play”, i.e. combined offerings of fixed telephony, internet access and television services.

The notification by the German regulator, endorsed by the Commission today, concerns only IP bitstream access. The Commission urges the German regulator to notify as soon as possible also an efficient ATM bitstream access remedy.

Why did this case end up in Brussels?

According to European law, national telecom regulators are required to notify their market analysis with regard to several pre-defined markets to the Commission. One of these markets is the market of bitstream access, also called "wholesale broadband access”.

If national telecom regulators find that a company has a position of significant market power, they have to impose remedies in order to ensure effective competition.

The Commission has the right to veto the definition of the markets and the finding of significant market power. On the notified remedies, the Commission can issue comments which have to be taken into utmost account by national regulators.

This approach assures harmonised regulation and is important to ensure the internal market in the European Union. Wildly different regulatory regimes would imply higher costs for enterprises that have activities in different EU Member States. The harmonised approach assures also a higher degree of legal certainty.

Today, the Commission endorsed a measure notified to it by the German telecom regulator Bundesnetzagentur (BNetzA) which has the purpose of remedying the significant market power of Deutsche Telekom on the German market for wholesale broadband access. Already in December 2005, the Commission had endorsed the market analysis and BNetzA’s finding of significant market power by Deutsche Telekom on this market. With regard to the market analysis, the Commission had initially launched a second-phase investigation (which could have ended in a Commission veto) as the German regulator had initially refused to include the new VDSL infrastructure of Deutsche Telekom in the market definition. After BNetzA had however modified its market analysis and had included, in principle, VDSL, the Commission could endorse the market analysis (see IP/05/1708).

What did the Commission decide today?

The Commission, apart from welcoming the fact that access to IP bitstream has been mandated by BNetzA, issued a series of comments today which will have to be taken into utmost account by BNetzA when applying the remedy of IP bistream access in the German market:

  • Access to the broadband networks of Deutsche Telekom should be granted immediately and without further delay irrespectively of the underlying technology of the network. Any exclusion from the access obligation would jeopardise the working of competition in the market. Therefore access to all infrastructures including VDSL has to be granted, from the outset.
  • The access obligation should enable competitors to provide broadband services to their customers without the obligation to buy a telephone line from Deutsche Telekom. This is called the so called "stand alone bitstream access" This should enhance competition further. Currently in Germany broadband customers are required to buy a telephone line from Deutsche Telekom if they want to have broadband access from a competitor.
  • The Commission emphasises the need for effective regulation. In line with the established praxis of other European regulators, the Commission asks BNetzA not to base the price regulation on benchmarking (prices demanded in other countries) as the network conditions in the respective countries are too specific to be comparable.
  • The Commission asks BNetzA to notifiy the remedies on the ATM bitstream markets without further delay. This access enables competitors to serve business customers.

When will bitstream access now be granted to competitors of Deutsche Telekom?

The Commission expects BNetzA to grant IP bitstream access immediately. It asks to notify the remedies for ATM access without delay; access should then be granted immediately afterwards.

How will this work in practice?

Based on the access obligation now to be imposed by BNetzA, competitors should be able to demand IP bitstream access from Deutsche Telekom regardless of the technology used on its broadband infrastructures. This access obligation will be legally enforceable in Germany.

Will the obligation to grant bitstream access also apply to the new VDSL-network currently build by Deutsche Telekom?

BNetzA confirmed in its notification that no infrastructure is excluded from the access obligation. The Commission made clear in its letter with comments today that therefore a priori access has to be granted also for VDSL infrastructure.

Is Germany early or late with granting bitstream access, compared to other EU Member States?

The vast majority of EU member states has mandated bitstream access some time ago. Bitstream access thus is today a reality on the broadband markets of Austria, Belgium, Cyprus, Denmark, Finland, France, Greece, Hungary, Ireland, Italy, Lithuania, Portugal, Slovenia, Spain. Sweden and the UK, with bitstream access in preparation also in the Czech Republic, while other countries (such as the Netherlands) are profiting from strong infrastructure-based competition. Germany notified the wholesale broadband access market in question only belatedly, after having being reminded by the Commission. (See SPEECH/06/422, page 9).

What is the state of competition on the German market, compared to other EU Member States?

The dominance of the established operator, albeit decreasing, is among the highest in the EU. Deutsche Telekom holds today a 62% market share on DSL access, 60% on broadband in general. In EU-average the competitors managed to have a market share of 50%, with access obligations having been imposed on them already in 2004 and 2005. Moreover, many products marketed by competitors in Germany are pure resale products of Deutsche Telekom, which do not allow the alternative operators to distinguish their offer from Deutsche Telekom’s offer as far as technical or quality characteristics of the products are concerned (such as bandwidth).

It should be noted also that alternative infrastructures are particularly weak in Germany, which still has the highest share of DSL technology in the EU25 after Greece, while alternative technologies (such as cable or wireless), which are normally used by new market entrants, still have only a negligible share on the German broadband market.

How does broadband penetration in Germany compare to that of other EU Member States, the US and Japan?

Broadband penetration measures broadband subscriptions per number of population. Germany has been constantly falling behind in broadband penetration in the international rankings. Once above EU-15 average, Germany has even fallen slightly behind EU-25 average in the beginning of 2006.


[Graphic in PDF & Word format]

What lessons are to be drawn from the German bitstream access with regard to the efficiency of remedies in Europe’s internal market?

Given that bitstream access has been considerably delayed in Germany, competitors to the incumbent are in a position of severe disadvantage as compared with most other EU Member States.

In general, it cannot be excluded that insufficient application of remedies might impede effective competition further. This is why the Commission had to issue today a string of comments to ensure effective application of the remedies proposed on the German broadband market.

Currently, the Commission can only ensure the implementation of its comments on remedies via a cumbersome Treaty infringement procedure, or in the context of national court proceedings where national courts take the Commission’s comments into account as a means of legal interpretation. This could lead to a delayed and inconsistent application of remedies in the internal market, leading to substantial distortions of competition. On 29 June 2006, the Commission opened an EU-wide debate on how to ensure a timelier and more efficient application of the EU telecom rules in the future (see IP/06/874 and SPEECH/06/422). The proposals under discussion reach from the creation of an independent European telecom regulator to a stronger say of the Commission on the timing and the appropriateness of remedies by national regulators. A public consultation on these proposals is open for comments until 27 October.
Further information is available at:

http://ec.europa.eu/information_society/policy/ecomm/tomorrow/roadmap/index_en.htm#communication1

See also today’s press release: IP/06/1110


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