Germany: The Telecommunications Act - Practical Problems of Interconnection

Last Updated: 21 May 1998
As could be expected, one of the most discussed issues of the liberalisation of the German telecommunications market is that of the interconnection of various networks.

According to the Telecommunications Act the term interconnection is a legal term. It means the network access establishing the physical and logical connection of telecommunications networks to allow users connected to different telecommunications networks to communicate directly or indirectly (§ 3 Nr. 24 TKG). Each operator of a telecommunications network which serves to provide telecommunications services for the general public is under an obligation to enter into negotiations about interconnecting its network with that of an other operator at the request of such operator (§ 36 TKG). If both operators fail to reach an interconnection agreement, each of them may appeal to the Regulatory Authority for Telecommunications and Post (RegTP). The RegTP can order interconnection after hearing the parties and after a period of no longer than ten weeks (§ 37 TKG). The order will cover all issues of interconnection on which the parties could not agree. This may even apply to the fees to be charged for the interconnection. If a market dominant operator is a party to such an agreement, the interconnection fees such a dominant operator may charge other network operators, who request interconnection, are subject in any case to specific fee regulation by the RegTP. Basically, the RegTP has to permit these fees in advance (§ 39 TKG).

In the summer of 1997, the Federal Ministry of Post and Telecommunications (which acted as Regulatory Authority until 1 January 1998) was called upon by the main infrastructure competitors of the former state monopolist, Deutsche Telekom AG, to set the interconnection fees for interconnecting their networks with those of Deutsche Telekom AG, since they were not able to reach an agreement on these fees with Deutsche Telekom AG. After comparing the prices and costs for interconnection in comparable competitive markets, the Ministry ordered in autumn 1997 the following interconnection fees:

Fees in Pfennig/Min.     Peak-fees           Off Peak-fees
1 Pfg. = 1/100 DM        9 a.m. to 9 p.m.    9 p.m. to 9 a.m.
"City"                   1.97                1.24
"Regio 50"               3.36                2.02
"Regio 200"              4.25                2.35
"Fern"                   5.14                3.16

This order is to remain in force until 31. December 1999. Deutsche Telekom AG has brought court proceedings against the RegTP with respect to this order. However, it will take some time before a court decision is reached.

The aforementioned fees relate to the services for call origination, which means the user connection from the national network of Deutsche Telekom AG to the carrier network, and for call termination, which means the user connection from the carrier network to the national network of Deutsche Telekom AG. Deutsche Telekom AG can, in addition, request interconnection fees for the interbuilding and intrabuilding areas. The interbuilding area is the area between the point of interconnection and a network node. For these services Deutsche Telekom AG can charge the currently licensed fees for carrier fixed connections. These fees have to be paid from the contractual partner of Deutsche Telekom AG. However, if two user networks are interconnected and if in this case both parties use the interbuilding area, the fees are divided between these two parties on a pro-rata-basis of their use. The pro-rata-basis depends on the proportion of minutes of traffic, which are generated in each network. If the interbuilding area exeeds 20 kilometres, Deutsche Telekom AG only has to participate up to the 20 kilometres. Deutsche Telekom AG can also charge for services in the intrabuilding area, e. g. for use of its switching center etc.

The RegTP is entitled to publish in its Official Journal basic conditions to be stipulated in interconnection agreements entered into by a market dominant carrier, if it can be expected that these conditions will be part of many other interconnection agreements as well. A market dominant carrier is obliged to include these published conditions in its standard business terms and conditions. The RegTP published the fees mentioned above as such basic conditions in the Official Journal in February 1998. Deutsche Telekom AG therefore is currently not entitled to deviate from the amount of fees which can be charged.

Interconnection fees are most important for creating a competitive environment for telecommunications services. It can easily be imagined that the whole price calculation and, therefore, competition as well as the business plannings of new entrants depend on the interconnection fees remaining rather low. A subsequent amendment of the fees by a court decision could lead to additional payments having to be made to Deutsche Telekom AG, thus reducing the revenue of the competitors significantly. This would hurt especially some of the smaller new entrants and is thus not to be welcomed.

Recently, there also has been a dispute over the meaning of the term telecommunications network and the consequences of a regional network with regard to interconnection fees. When the provision of voice telephony services to the general public was liberalized on 1 January 1998, some smaller competitors entered into interconnection agreements with Deutsche Telekom based on the aforementioned regulated interconnection fees. Some of these competitors, however, did not dispose over a nationwide network, but started operations with just one single switch. In March 1998, Deutsche Telekom AG approached the RegTP on a more or less informal basis and wanted to know, whether it had to enter into interconnection agreements with these competitors and what fees Deutsche Telekom AG could charge to these "switched resellers". In a recent letter to Deutsche Telekom AG, the content of which was leaked to the public, the RegTP stated that "any public network operator" is entitled to interconnection and when interconnecting with the market dominant carrier, to be charged only the regulated interconnection fees. The basic question therefore is what conditions a new entrant has to fulfil in order to qualify as a network operator. The RegTP did not commit itself to stating what the mandatory prerequisites of a network was. However, the Authority indicated that a network consists of switches and (leased or owned) transmission lines. This could mean that a new entrant, who has switches in Berlin and Frankfurt and has leased lines in between, has a Berlin-Frankfurt network, but no network in other areas in the Federal Republic of Germany. It, therefore, might be entitled to pay only the lesser interconnection fees for traffic originated in user networks, which interconnect directly to its carrier network. For telecommunications from user networks without such a direct interconnection, it could be argued that this new entrant would, however, only be a (switchless or one-switch) reseller. The RegTP indicated that for these parts of the Federal Republic the service provider would not be entitled to demand the relatively low interconnection fees (but had to accept the higher fees for resellers), if it negotiated an agreement (or the extension of an existing agreement) with Deutsche Telekom AG. The Authority also hinted that there may be combinations of network operators and resellers.

The decisive question as to what constitutes a telecommunications network has therefore not yet been solved. Therefore, it remains uncertain, whether the Deutsche Telekom AG has to charge an operator of a carrier network who acquires clients on a call by call basis or permanently from user networks, which are not connected directly to his carrier network on the basis of interconnection fees or whether it can demand the higher fees for resellers. The outcome of this issue will have a considerable impact on competition in the German telecommunications market.

For further information please contact Dr. Markus Deutsch, Gleiss Lutz Hootz Hirsch, Gartnerweg 2, 60322 Frankfurt/Main, Germany, e-mail: Click Contact Link , Fax: +49/69/95514-198

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

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