Germany: The New Telecommunications Act - Part 3 - Regulation of Undertakings with a Domi

Last Updated: 22 October 1996
The Telecommunications Act contains particular provisions governing companies which have a dominant market position. The regulation of companies with a dominant market position will be of major importance in the liberalisation process. The main purpose of such regulation is to prevent distortions of competition and to create real competition in a market, which has until recently been subject to state monopolies.

The new Telecommunication Act does not define the term market domination. It refers to the definition contained in Section 22 of the German Act against Restraints of Competition (GWB). The initial drafts of the TKG considered each company with a market share of 25 % to be a company with a dominant market position; this particular criterion, however, was removed during the legislation procedure.

The Telecommunication Act distinguishes between those companies, which have a dominant market position on a market other than telecommunications, and those, which have a dominant market position in a territorial and pertinent telecommunication market. The first criterion is of importance to electricity companies, which share certain exclusive rights on the electricity market and are considered to be the main competitors of Deutsche Telekom AG. The second criterion is especially aimed at Deutsche Telekom AG, the former state monopolist. Defining a "telecommunication market" may prove to be very complex. The Telecommunications Act does not lay down any criteria for such a definition and the situation is further complicated by the fact that the EU-Commission is of the opinion that the territorial market may exceed the geographical area granted by a license. The German cartel authorities however tend to assume that the relevant market does not exceed the area of the Federal Republic. It therefore has to be seen how the market for telecommunications will be defined. If the view of the EU-Commission prevails, even a competitor with significant market power may not be considered as having a dominant market position.

The Act contains detailed restrictions on companies which have a dominant market position.

Companies which have a dominant market position on a market other than a telecommunication market must pursuant to Section 14 TKG provide their telecommunication services through legally independent companies (structural separation). The intention of the legislator in this regard is to prevent companies with a monopoly status in another market from using profits from this market to subsidize the telecommunications sector or providing their telecommunications services at dumping prices. This will be particularly important in relation to undertakings which currently have a monopoly position in another market, e.g. electricity.

Undertakings, which enjoy a dominant position on a telecommunications market, must keep separate books for those services which are subject to a license and those which are not. The purpose of this separate bookkeeping is to ensure acceptable price regulation for telecommunication undertakings.

As to whether these provisions will, in fact, prevent such subsidization or the offering of services at dumping conditions remains to be seen. It is, however, to be noted that cross-subsidization, for example, is not expressly disallowed and, therefore, this might be difficult to prevent.

In addition to Section 14 TKG mentioned above, the Act contains further provisions the purpose of which is to ensure fair and discrimination-free competition. Besides the Act empowering the regulatory body to obligate dominant undertakings to supply so-called basic universal services (details of which will be discussed in part 4 of this series of articles), the Act also provides that the fees such undertakings charge for providing their services are subject to the review of the regulatory body (Section 24 ff. TKG). Pursuant to Section 24 TKG, fees have to correlate to the costs of making such services efficiently available. Unless there is a justifiable reason, fees must not be abusively high or low nor must they be in any other way discriminating.

Particularly strict requirements apply to dominant undertakings which are licensed to operate a public network (license class III) or provide telephony services to the public (license class IV) and are also dominant on these markets. The fees schedule and the fee-relevant parts of the Standard Business Terms and Conditions for services in license classes III and IV are subject to prior approval by the regulatory body before being introduced to the market (Section 25 TKG). The reason for this latter strict requirement is the current monopoly position of Deutsche Telekom AG. As this undertaking will for the foreseeable future be the main service provider in these two licensable areas, the aim of the legislator is to prohibit this company from systematically offering lower prices for its services in these areas because it is able to offer over-high prices in markets where it currently has a monopoly position (and will continue to have de facto), thus restricting competition. Section 27 TKG distinguishes between two kinds of fee approval, the so-called "single fee" approval and the "price cap" approval. In both cases, the regulatory body's power is limited to investigating those cases where it is evident that the fees charged are abusively high, low or obviously discriminating. The reason for this is that the regulatory body has to make its decision within six weeks after the application is made. This period can be extended up to a further four weeks only.

The fees and the fee-relevant parts of the Standard Business Terms and Conditions of dominant companies which provide telecommunication services other than those in license classes III and IV are subject to an ex post review by the regulatory body (Section 30 TKG). The regulatory body will undertake such a review, if it has reason to believe, that the fees do not comply with the legal guidelines laid down in Section 24 TKG.

If the regulatory body determines that the fees do not meet the conditions laid down by the TKG, it can require the telecommunication undertakings to adjust its fees and, if it does not, it can take legal action against it. Contracts which stipulate fees that have not been approved or adjusted are not void. The fee clauses will, however, be substituted by the approved or adjusted fee. The regulatory body has, in addition, the power to prohibit such agreements from being implemented altogether (Section 29 TKG).

The regulatory body may also make it a condition of the license that a licensee with a dominant position in a particular market may not merge with other companies having a dominant market position (Section 32 TKG). However, the regulatory body may only do so, if the number of licenses that can be granted is restricted because there are an insufficient number of frequencies and the other undertaking acts or will act on the same telecommunication markets as the licensee.

Finally, companies with a dominant market position have to grant every user access to their telecommunication network (Section 35 TKG) and must ensure interconnection of their telecommunication network with the public telecommunication networks or networks of other operators. Access to the net can only be refused for reasons based on essential requirements namely: the security of network operations, the maintenance of network integrity, the interoperability of services and the protection of data. Specific details will be discussed in part 5.

For further information please contact Dr. Markus Deutsch, Gleiss Lutz Hootz Hirsch & Partner , Gartnerweg 2, 60322 Frankfurt, Germany, Fax: +49 69 955 14 198. - or enter text search 'Gleiss Lutz Hootz Hirsch & Partners' and 'Business Monitor'.

The article is correct to the best of our knowledge at the time of publication. However, it is written as a general guide. Therefore specialist advice should be sought as regards your specific circumstances.

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