Binding commitments undertaken by Telekom and EWE for joint fibre-optic deployment
05.12.2019
Telekom Deutschland GmbH and EWE AG would like to cooperate in the development of fibre-optic networks in parts of Lower Saxony, North Rhine-Westphalia and Bremen. The companies have now undertaken to the Bundeskartellamt to carry out an extensive deployment and in future to grant third companies access to their network.
Andreas Mundt, President of the Bundeskartellamt: “Under the right conditions cooperations can ensure that the networks are quickly expanded and the provision of households with high bandwidths is improved. If the largest providers of internet connections in the region work together in the future, this will have considerable effects on competition. We therefore have to make sure that the cooperation will really accelerate the deployment and not make it difficult for third companies to also operate in the region. In order to achieve both these aims we have requested corresponding commitments from EWE and Telekom. These also apply to deployment in rural areas. Only a competitive environment ensures that consumers obtain attractive products at reasonable prices
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The companies have undertaken the following commitments:
- They have undertaken to carry out a commercially operated, not publicly funded upgrade of 300,000 connections reaching the end customer with fibre optic cable in the next four years, to some extent also in rural areas. As a result the fibre-optic network will be expanded to a greater extent than was originally planned as part of the cooperation and than could be expected if the companies were to carry out the development independently of one another.
- Both companies still independently participate in tender procedures for the funding of gigabit-ready telecommunication networks, especially in rural areas where commercial development is not possible.
- The companies will refrain from specific strategic defence measures vis-a-vis telecommunications companies also intending to expand fibre-optic networks, and from solely focussing on urban areas which already have cable networks.
- Third companies will also be granted non-discriminatory access to the new network and to high-quality technical upstream services. Within a specific period a certain share of the expanded connections will be handed over to competing telecommunications companies which can then market them to the end customers.
The parties first communicated their intention to cooperate in fibre-optic deployment to the Bundeskartellamt at the end of 2017. They subsequently negotiated the specific arrangements for the cooperation. After agreement had been achieved on the essential issues, the proceeding was formally notified on 21 March 2019.
In a formal decision limited to six years the Bundeskartellamt has today declared the commitments as binding. The decision is not yet legally binding.
Apart from the assessment of the planned cooperation under the provisions on the prohibition of cartels, the proposed establishment of a new joint venture is also subject to merger control by the Bundeskartellamt. The merger control proceeding must be concluded by January 2020. The commitments that have now been declared binding must also be taken into account in the merger control proceeding.
Additional information on the competition concerns and the commitments
Effects of the cooperation on the deployment
According to the preliminary assessment of the Bundeskartellamt the cooperation could have slowed down the deployment of gigabit-ready networks. The demand by end customers for such very high bandwidth connections is currently still low. Purely fibre-optic networks are still not very common in Germany and only cover a relatively low number of all connected households. For the companies involved the key driver of expansion in the current market phase is to be faster than competing telecommunications companies and to secure a first-mover advantage for the future phase of increasing demand for higher bandwidths. A cooperation of the major providers in the market areas concerned raises the risk that the competitive pressure with regard to the deployment could at least be dampened and that the companies could have less incentives to make the necessary high investments.
Telekom and EWE are among the strongest competitors in the region concerned. EWE, in particular, is a company represented in north-west Germany with telecommunications services based on a substantial infrastructure. In its home region it has a good starting position with regard to the development of last-mile fibre-optic connections. In 2016, the company had therefore already announced its intention to make large investments in this sector. With its telecommunications network across Germany and its strong brand, Telekom is best placed to expand its network in any case. These market positions have resulted in the current expansion race between the two companies which, according to the Bundeskartellamt’s preliminary assessment, would be considerably dampened if they were to coordinate their conduct in future.
The companies have now undertaken the commitment to carry out a commercially operated (i.e. not publicly funded) upgrade of 300,000 connections reaching the end customer with fibre-optic cables within the next four years, to some extent also in rural areas. This will ensure that the fibre-optic network expansion will start without delay and that the network in the area concerned will be expanded to a greater extent than was originally planned as part of the cooperation and than could be expected if the companies were to carry out the development independently of one another.
In addition to the commercial development agreed upon in the commitment, the companies will still independently participate in tender procedures for the funding of gigabit-ready telecommunication networks, especially in rural areas where commercial development is not possible. Overall the extent of expansion in the region concerned will thus be even higher. Originally the parent companies had planned not to compete with each other for the development of these areas, but to transfer this activity to the joint venture as well.
Effects of the cooperation on third companies
In its original form the cooperation would have enabled Telekom and EWE to take measures against competitors in order to prevent them from carrying out any expansion in the region. There was also the risk that the expansion would have taken place predominantly in existing cable network areas, because above all the cable network operators with their high-performance networks exert a certain pressure on the parties concerned.
In their commitments EWE and Telekom have undertaken to refrain from specific strategic defence measures vis-à-vis telecommunications companies that also deploy fibre-optic networks. The companies have also undertaken to refrain from solely focussing on urban areas which already have cable networks.
Network access for third companies
Furthermore, according to the Bundeskartellamt’s preliminary assessment, EWE and Telekom would clearly have less incentives in a cooperation to grant third telecommunications companies access to their network thus enabling the companies to compete with them on the end customer market. Without the cooperation, however, EWE in particular would have to provide upstream services to third telecommunication services providers in order to be able to ensure utilisation of its network. With the cooperation most of this is no longer necessary as the parties concerned already jointly provide a substantial part of the households/end customers in the cooperation area with internet and telephony services. It is relatively easy for them to migrate their existing customers to the new fibre-optic network.
In this respect, the parties had to undertake that they will grant third companies non-discriminatory access to their network. After a transition period, third companies will be able to use upstream services on the basis of the same technical conditions than the parent companies. Furthermore, a specific minimum amount of developed connections must be handed over within a specific period of time to third telecommunications companies which can then market them to end customers. It is expected that this will result in improved competition on the end customer markets.
Regulation
The Bundeskartellamt’s decision does not pre-empt the current discussion on whether and to what extent the fibre-optic networks should be subject to regulation by the Bundesnetzagentur. In particular, the commitments do not include any specific scheme of prices and conditions for third-party access to future networks. They solely address the specific competition concerns with regard to the proposed cooperation between EWE and Telekom.
