Sector Inquiry into Submetering of Heating and Water Costs

The Bundeskartellamt recommends measures to stimulate competition in the provision of submetering services. The authority has today presented its final report on its sector inquiry into submetering. Submetering services cover the consumption-based metering and billing of costs for heating and water supplied to individual dwelling units within buildings as well as the provision of the necessary metering equipment such as heat cost allocators or water and heat meters.

Andreas Mundt, President of Bundeskartellamt: "The market for the submetering of heating and water costs is dominated by a few large companies. Switching provider generally involves high costs and is made more difficult by long contract periods and technical hurdles. A basic problem is that the costs of submetering are generally borne by the tenant but the choice and commissioning of the submetering service are made by the landlord. Stimulating competition in the sector can ultimately mean that consumers will have to pay less. In our report we have formulated legal measures to achieve this. In future we may also decide to examine any foreclosure practices of the providers in more detail."

In 2014 the volume of turnover achieved from submetering in Germany amounted to approx. 1.47 billion euros. Disregarding the differences in the scope of services provided, the companies active in the sector achieved an average turnover per housing unit and year of approx. 74 euros. However, the results of the inquiry show large differences between the individual providers. The profits earned by the submetering service providers are relatively high.

The Bundeskartellamt's sector inquiry has revealed that the supply side is highly concentrated. In 2014 the two market leaders Techem und ista together accounted for more than 50 per cent of the total market volume and the largest five providers together accounted for more than 70 per cent. According to the results of the investigations conducted as part of the inquiry there are strong indications of the existence of an uncompetitive oligopoly consisting of at least the two market leaders and possibly some or all of the five major providers.

The results of the inquiry also indicate that both a number of structural features as well as certain practices of submetering service providers make it difficult for customers to switch provider and are therefore likely to restrict competition between providers.

One of the key structural obstacles to competition are the long contract periods which are attributable amongst other things to the different calibration periods for different types of meter.

Price sensitivity on the demand side is weak. This is partly due to the fact that the consumers have to bear most of the costs of submetering without themselves being the contractual partner of the submetering provider. The property owners and landlords are usually the contractual partners who pass the costs on to their tenants. In order to completely remove the resulting obstacles to more competition, this constellation as such would have to be called into question and the costs of submetering imposed on the entity commissioning the submetering provider.

In addition, submetering costs are to some extent non-transparent or difficult for consumers to assess because they only appear in aggregated form in the statement of utility costs.

The lack of interoperability between the meter systems and the low level of comparability of prices and quality of the services offered also make it difficult to switch provider. Legislative intervention has triggered a general development towards more interoperable systems, which could make switching easier in future. The Bundeskartellamt will closely follow the legislative processes.

The Bundeskartellamt proposes the following legislative measures to remove the obstacles to competition mentioned above:

• improvement of interoperability of meters,
• standardisation of calibration periods and service life of meters,
• improved transparency for tenants through information rights and obligation to tender.

The report (in German) is available for download on the Bundeskartellamt's website.

General information on sector inquiries:
The Bundeskartellamt may conduct an investigation into a specific sector of the economy if special circumstances suggest that domestic competition may be restricted or distorted (so-called sector inquiry, Section 32 e German Competition Act, GWB). It should be noted that sector inquiries are not proceedings against specific companies. Proceedings can follow on after a sector inquiry if there is an initial suspicion that competition rules have been violated.