On September 13 2006 the German Federal Network Agency issued a regulatory order regarding the wholesale broadband access market. The agency had previously defined two relevant markets: the asynchronous transfer mode (ATM) bitstream access market and the Internet Protocol (IP) bitstream access market. The agency had concluded with both markets that Deutsche Telekom had significant market power. Regulatory Order
Services based on IP bitstream access address the mass market and enable Deutsche Telekom's competitors to offer their own broadband internet access products to consumers instead of merely reselling Deutsche Telekom's digital subscriber line (DSL) products.
The regulatory order obliges Deutsche Telekom to grant competitors Internet Protocol-based bitstream access upon request. This covers access to xDSL-lines, including access to very high bit-rate DSL (VDSL) infrastructure which the Federal Network Agency had originally excluded from its market definition. Access agreements must be based on non-discriminatory conditions. Deutsche Telekom's access tariffs are subject to prior approval by the Federal Network Agency. According to the relevant legal provisions, tariffs requiring prior approval must be based on the costs for efficient service provision.
'Standalone' Bitstream Access
In its August 21 2006 comments to the notified regulatory order, the European Commission expressly welcomed the Federal Network Agency's confirmation to impose in the future a 'standalone' bitstream access obligation. This would allow competitors of Deutsche Telekom to offer broadband connections to end customers without them having to buy a telephone connection from Deutsche Telekom. However, it is unclear when this obligation will be imposed. Since the issued regulatory order does not expressly include standalone bitstream access, the European Commission requested the Federal Network Agency to impose this obligation without further delay.
Regulatory Holidays
Meanwhile, the discussion over regulatory holidays for new broadband infrastructure continues in the parliamentary debates on the draft amendment to the Telecommunications Act presented by the German government last May. The draft includes a provision according to which new markets should be subject to regulation only if there is a justified assumption that the development of sustainable competition in telecommunications services and network markets will otherwise be impeded in the long term. The Federal Council supported this provision in principle in comments issued on July 7 2006. A proposal submitted by one of the federal states to include a statutory definition of the term 'new market' was not accepted by the Federal Council. Further, a recommendation of the Economic Committee of the Federal Council to delete the requirement for a 'long-term' competition impediment was not accepted.
The European Commission has repeatedly indicated that such national provisions would not conform to the EU regulatory framework. However, the German government seems determined to pursue the adoption of the controversial provision in the revised Telecommunications Act. The parliamentary debates, which were resumed in September, continue to come under severe criticism from industry, particularly from competitors of Deutsche Telekom.
Public Consultation on Regulatory Treatment of 'New Markets'
Against this background, the Federal Network Agency had held a public consultation regarding the definition and regulatory treatment of 'new markets', on which the controversial draft amendment is focused. The consultation closed in April 2006. The agency has not yet published its evaluation of the comments received. It is clear, however, that a number of respondents from industry strongly oppose the concept of a privileged legal/regulatory framework for new markets. In particular, they argue that:
- there is no clear definition of 'new markets';
- the current framework already provides sufficient flexibility to prevent undue regulatory measures which could impede innovation; and
- the proposed draft amendment was triggered by Deutsche Telekom's claim for an unregulated VDSL network and is thus aimed at protecting Deutsche Telekom from unwanted competition.
The Federal Cartel Office also issued a critical comment stating, among other things, that Deutsche Telekom's investments in VDSL infrastructure were driven by competition in the DSL end-customer market and were necessary for Deutsche Telekom to preserve its market position. In the opinion of the Federal Cartel Office, it was not acceptable to "honour" such investment by protecting the incumbent from competition. Further, the Federal Cartel Office clearly indicated that in its view, a temporary suspension of regulatory measures as an investment incentive and reward for the incumbent, while accepting the incumbent's market monopolization, was unacceptable.
ATM Bitstream Access Order Still Not Finalized
The draft regulatory order regarding the ATM bitstream market - the second relevant broadband market defined by the Federal Network Agency - has not yet been finalized. The draft was published on March 22 2006 and the consultation closed on April 24 2006. In its comments of August 21 2006 on the notification of the regulatory order on IP bitstream access, the European Commission requested the Federal Network Agency to submit the notification of the ATM bitstream access order without further delay.
