The fibre-optic market is now being rolled out. But can competitors even compete for customers on the same terms as Telekom?
Germany is facing a crucial phase in the transition from copper to fibre. The amendment to the Telecommunications Act (TKG) is intended to establish a framework ensuring that competition continues to function effectively in the fibre era. A new study by DIALOG CONSULT on behalf of the VATM shows that, ironically, it is precisely in those areas where customers are being courted most intensively that current regulation is leading to competition problems.
Competitors generally have to purchase wholesale services from Telekom, which holds significant market power, and use these to develop their own retail offers. If Telekom’s prices for these wholesale services are too high, or if Telekom’s retail prices are too low, competition is hindered. “Acquiring customers becomes more difficult and Telekom’s dominance continues to consolidate,” analyses the study’s author, Prof. Dr Peter Winzer. “Such re-monopolisation also slows down the transition from copper to fibre-optic networks, as fair competition then practically ceases to exist in the battle to attract customers to the new networks.” As long as Telekom entices customers with cheap offers for its copper network, this makes it difficult for alternative fibre-optic roll-out providers to fill their networks.
The Federal Network Agency should prevent such a development by means of so-called price-cost gap tests. However, the study shows that the Federal Network Agency’s current analysis overlooks precisely those offers that are particularly relevant to new customers who are willing to switch.
The fiercest competition is taking place precisely amongst price-conscious customers who are willing to switch.
“We can see that the market-dominant company almost constantly offers special and promotional prices, some of which are significantly below the regular list prices,” explains VATM Managing Director Dr Frederic Ufer. “What still appears unproblematic in the Federal Network Agency’s average calculations has long been a problem in genuine competition. Particularly when it comes to online customers who are willing to switch, competitors are unable to match Telekom’s offers in a way that covers their costs. This development is only positive for customers at first glance. Ultimately, it stifles competition, leading to re-monopolisation – with fewer providers, poorer products and rising prices.”
The VATM is therefore calling for a reality check on the BNetzA’s assessment. What matters is not the mathematical average, but genuine competition for customers. Promotional prices, discounts and online offers must be fully taken into account. Otherwise, the figures look sound, whilst competitors have long since been unable to keep up in the market.
“A competition test that overlooks existing competition problems does not protect competition,” says VATM Managing Director Dr Frederic Ufer. “The legislator should clearly enshrine this review in the Telecommunications Act (TKG). Competitors also need the opportunity to initiate a binding review and have decisions scrutinised.”
The short study ‘Function and significance of analyses on replicability and price-cost gaps for the broadband market’ (in german) can be found here.