ETIB Update: Country profile — Germany (Part 2)

Table of contents
DT focus
Subsidiaries
Regulatory concerns
In comes Mannesmann…
Competition vs. profits
Internet interest
Acknowledgement

The German communications industry is among the most dynamic in Europe and has benefited from a progressive regulatory approach to market liberalization since the industry was opened to full competition in 1998. Dozens of new phone companies have entered the market and lowered the cost of calls dramatically.

DT focus (Back to top)
Already Europe's largest telecommunications company, Deutsche Telekom has been actively looking outside Europe for further growth, and its planned acquisition of U.S. mobile communications operator, VoiceStream, will also open up the fastest growing telecoms sector in the United States. To secure a leading position within the global telecoms market, Deutsche Telekom is focusing on four main areas—mobile telecommunications, Internet, Data/IP, and system solutions and network access. The company expects that these sectors will experience significant growth and mobile communications is one of the major drivers of DT's business.

To effectively meet the challenging market developments in this area, DT bundled its T-Mobil shareholdings and several other European mobile activities under a Bonn-based holding company, T-Mobile International in January 2000. Last year saw DT's mobile communications businesses generate revenues of 3.9 billion euros (11% of the Deutsche Telekom consolidated revenues). During the first half of 2000, the number of T-Mobil customers increased by 4.3 million to reach 13.4 million. Mobile activities acquired more additions during the first half of this year than in the whole of 1999. Overall, DT's mobile communications companies gained more than one million new subscribers per month during this period and 40% of T-Mobile International customers are now located outside of Germany.

Subsidiaries (Back to top)
Deutsche Telekom's T-Online Internet subsidiary serves over six million customers (it is 90% owned by DT), and through this venture Deutsche Telekom has consolidated its position as Europe's leading Internet access provider with approximately 2.6 million new subscribers in the past year. T-Online customers go online over one billion times per year and the company grossed 428 million euros in total sales in the 1999 financial year.

T-Online acquired Ya.com Internet Factory from Jazztel of Spain in September 2000 for 550 million euros, even though the deal was previously believed to have fallen through following the resignation of T-Online Chief Executive Wolfgang Keuntje in August due to reported clashes with DT Chief Executive Ron Sommer.

Ya.com is Spain's second largest Internet portal with 2.3 million registered customers and marks a major move for T-Online into the Iberian region. The purchase raises T- Online's total subscribers to more than 6.4 million, the largest in Europe and means that it reaches over 53% of the EU with operations in Germany, France, Austria, and Iberia. Fresh from the Ya.com deal, September also saw T-Online agree to a wide-ranging tie-up with Japan's largest fixed-line ISP, Nifty Corp. This deal will enable subscribers to both share content and technology, such as instant messaging.

Regulatory concerns (Back to top)
However, in the same month Germany's telecoms regulator, RegTP, announced that it was launching an enquiry into whether DT was exercising a discriminatory policy for Internet access charges against some ISPs. This enquiry follows allegations that DT operates an anti-competitive pricing policy for ISPs that use its network to access their customers. The regulator fears that Deutsche Telekom may be discriminating against ISPs by restricting charges for services to a per-minute basis only, even though ISPs offer services to customers on a flat-rate basis.

In addition, the regulator was concerned that Deutsche Telekom's own provider, T-Online, may be paying less than rival companies for the same services. Several analysts believed that RegTP's initiative could prove to be the first step toward the establishment of a flat-fee pricing system throughout Europe for the services that ISPs receive from network operators.

DT's total number of fixed-network phone lines increased in 1999 by around 3% to reach 47.8 million. Strong growth in demand for ISDN also continued with a 32.1% increase in 1999 to approximately 13.3 million channels. By the end of 1999, ISDN channels accounted for nearly 28% of all fixed lines in the DT network. DT is still pushing ahead with the expansion of the broadband Internet access by T-Online and 500,000 new T-DSL lines (the broadband technology on which T- Online operates) are planned for year-end.

The company anticipates 90% T-DSL coverage of Germany by year-end 2001. In August 2000, Deutsche Telekom confirmed that it was raising its international mobile phone call charges but denied that the rise was linked to high costs for gaining a next generation UMTS license. From September DT will add a charge of 0.29 marks per minute for phone calls into 30 European countries, which could originate from a fixed-line or mobile phone. DT stated that this increase in connection prices was European-wide and had not been instigated by itself.

In comes Mannesmann… (Back to top)
Mannesmann has overtaken Deutsche Telekom as Germany's largest provider of mobile services, with more than eight million customers and 40% penetration in the German market. The company anticipates significant growth, particularly in its wireless business and its business volume increased by 138% in the first half of 2000 (excluding the total sales of 2.7 billion by the newly added companies Omnitel and Infostrada, this growth would have been 42%). Mannesmann's mobile division D2 exceeded the figure for 1999 by 41%.

Mannesmann D2 gained around 4.3 million customers in the first half of 2000, 22% more than in 1999. Mannesmann's fixed line division Arcor has successfully expanded its leading position among the new carriers in a market characterized by strong competition and its ISDN service, currently available in 20 local areas, is to be extended to additional cities. The growth in sales of 48% to around 800 million is due in part to the inclusion of fixed line operator o.tel.o and ISIS Multimedia Net. ISIS is a Dusseldorf-based city carrier that has installed a 400 km fiber-optic cable network around its home city.

Another alternative operator, debitel, announced in August that its profit before interest and tax (EBIT) fell 33% in the first half of 2000 to 24 million euros. In Germany, EBIT was flat in the first half while revenues rose 48% to 872 million euros. The company attributed the drop in profits to enormous growth of its customer base in Europe, with a 63% increase to 6.3 million subscribers. Its customer base in Germany grew by 1.3 million to about 4.5 million customers in the first half and has trebled in the last 12 months.

Competition vs. profits (Back to top)
The company blamed intensifying competition in the German mobile phone market for its steep first-half drop in profits (debitel re-sells services from third-party mobile network operators and blamed the drop on acquiring new customers in Germany, where it generates three-quarters of its revenue). German mobile operators and service providers have been subsidizing new uses to increase market share as they attempt to buttress their position ahead of the introduction of third-generation services in three to four years.

Debitel's results came a day after Deutsche Telekom said its mobile telephony operation had seen its EBIT margin halve in the first six months of this year. DT put the cost of acquiring new customers in Germany at 150-200 euros a head. The company is 74% owned by Swisscom, and its customer base in Germany (4.5 million users) grew fourfold compared with the same period in 1999, while customer acquisition costs had almost doubled to 99 million in the first half. The company was the only bidder for a German 3G license to drop out of the auction but is in co-operation talks with five of the six license winners.

Mobile telephony in the German market is responsible for most of debitel's revenues and earnings, rising by 48% to 835 million euros in the first half of 2000, from 563 in 1999. Now that sufficient numbers of handsets are available, WAP services are becoming increasingly popular. Fixed-line telephony revenues and subscribers have increased slightly and a contract was secured at the end of June with Tesion as a second supplier of fixed-line services.

Internet interest (Back to top)
In the Internet segment, both customer base and earnings figures increased with 27% subscriber growth and revenues increasing by 200%. Debitel is also pushing forward with its mobile portal product development and will concentrate on the sector if e-commerce and m-commerce.

Hamburg-based HanseNet Tellekommunikation, the telecoms unit of German utility Hamburgische Elektricitaets-Werke (HEW) is being acquired by E.Biscom, a Milan-based Internet and telecoms group. The company says it intends to create a market for true broadband communications services. HanseNet is the leading facilities-based competitor to Deutsche Telekom in the Hamburg region and is building and operating a fiber-optic network of more than 600 kilometres.

Gigabell, the financially troubled telecommunications and Internet company based in Frankfurt is faring less well and filed for insolvency in September. The business portal of the e-commerce division at multi-service provider Gigabell is called Yellowww and the company also offers a free Internet service called freeOKAY.net.

Elsewhere, MobilCom has requested the help of bankers in the sale of its 70% stake in Freenet.de, Germany's third-largest ISP. MobilCom needs the cash to fund the investment required to develop the 3G mobile license that it and France Telecom were awarded. The French operator owns 28% of MobilCom and has an option to purchase another 40%.

Freenet.de has experienced difficulty competing with T-Online and AOL Europe and is neck and neck with Germany.de, a unit of Vodafone's Mannesmann unit. While Freenet.de is Germany's largest free ISP, it is only the tenth most popular portal according to June figures from MMXI, a market research company. It ranked behind pure content providers such as Web.de, a general interest portal and GMX, a free e-mail service.

However, Freenet may attract the interest of acquisitive online operators such as T-Online, Tiscali, Terra Networks (online arm of Spain's Telefonica), and Wanadoo (France Telecom's Internet portal). It is considered an attractive target as it would give any buyer critical ISP subscriber mass in Europe's largest Internet market.

Contact:
RegTP
Tulpenfeld 4, 53113 Bonn,
Postal address: Postfach 80 01, 53105 Bonn,
Federal Republic of Germany
Telephone: 49 228 14-0 (switchboard)
Fax: 49 228 14-8872
poststelle@regtp.de

Acknowledgement (Back to top)
This article appears courtesy of European Telecoms Intelligence Bulletin, SMi Publishing Ltd; 1 New Concordia Wharf, Mill St., London SE1 2BB UK. Phone: 44 (0) 207 827 6110. Fax: 44 (0) 207 827 6111. Email: bscanlon@smi-online.co.uk