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Report: No Workable Competition on the German Telecommunications Market

In Berlin, Wednesday, the Association of the Providers of Telecommunications and Value-Added Services (Verband der Anbieter von Telekommunikations- und Mehrwertdiensten, or VATM for short) presented its double report on "Market Leadership and Market Restriction on Telecommunications Markets".

The authors of the study, Professor Hermann-Josef Bunte of Hamburg and Professor Paul Welfens of Potsdam, have reached the unanimous conclusion that Deutsche Telekom AG still controls the telecommunications market, and that therefore there is no workable competition in this market.

According to the professors, since it is important from the point of view of economic policy not to gamble away the initial successes of competition intensification through premature deregulation, the regulatory authorities should continue with their established remuneration regulation and further develop that regulation accordingly.

The report also warns against giving in to demands - from the political arena, for instance - and using market restriction to negate the requirements of market leadership. Market restriction should not be used as a "trick" to reduce the regulation necessary according to the purpose of the Telecommunications Law.

The study thus confirmed the view of the VATM that in the current stage of competition, it is absolutely necessary for Telekom prices to receive authorization before they are introduced; this is the so-called ex-ante regulation. Otherwise, give-away prices, cross-subsidization, and obstructive practices will be given free reign.

The DSL offers from Deutsche Telekom are a striking example of this. In this area, the company achieved a market share of over 90 percent before the subsequent abuse proceedings could even get underway. In light of this, the regulatory authorities' decision - now just a few hours old - to exempt connections in Turkey from price regulation seems especially dubious to competitors.

This is even more surprising because the department responsible for the decision has itself established that, with its market share of over 33 percent, Deutsche Telekom AG has greatly surpassed the critical limit for control of the market. According to the VATM, there is also growing danger to competition from the increasing number of strategic bundled offers from Deutsche Telekom AG.

The ex-monopolist is managing to avert efficient price control through complex bundled rates. At the same time, a transfer of power is taking place on the market from monopolized market segments, such as customer connections, to areas that already display a considerably higher degree of competitive intensity, such as long-distance and international calls.