Deutsche Telekom: Jochen Homann Saves German Consumers 500M by Reducing MTR

Termination charges drive up prices and generally a bad idea.
Deutsche Telekom is hopping mad because BnetzA dropped their take on mobile calls in half to 0.0185 euros a minute. But their arguments against the slash seem unlikely to persuade any regulator who cares about consumers. DT tells Reuters that telco profits will go down 500 million with the benefit passing to consumers. Sounds great to me, but DT and rival Vodafone tell Reuters reducing prices is bad policy. As Reuters reports

“A Deutsche Telekom spokesman said the decision would cost the German telecom operators about 500 million euros ($635.28 million) annually, adding that the cuts didn’t bode well for future investments in fast internet. “With this decision the Bundesnetzagentur follows the complete erroneous European policy of the past 10 years, which has cost the European telecom sector its global leading role,” a Deutsche Telekom spokesman said. Vodafone said the decision was a “dramatic cut”, which will drag money away from much needed investment in faster networks.”

Jochen Homann is a public servant. I don’t understand why DT thinks a complaint their profits aren’t high enough would persuade BNetzA to change the decision. The German carriers have had years’ notice these cuts were coming; Homann’s predecessor, Mathias Kurth, disclosed the plan several years ago. All the carriers should have been pricing for the new MTRs.

Terminating monopolies considered harmful. Deutsche Telekom has a “terminating monopoly” on 12M German homes, enormous market power. If Canal+ or Amazon wants to sell TV over the net in Germany, they are virtually forced to pay whatever DT asks. Broadband customers tend to stay with one provider for 5-10 years, so DT has an effective monopoly. Only a small portion of what DT collects will go to consumers in lower prices or increased investment and most will go to DT shareholders.

The reduction in European mobile termination rates has provided strong evidence of the “terminating monopoly” effect. Deutsche Telekom and others argued that basic rates would go up as much as the roaming rates go down, so the reductions wouldn’t help consumers. There’s substantial economic literature on access monopolies. With perfect competition, the two-sided market theory suggests consumers wouldn’t be aided. But with market power the opposite is true.

In reality, telco after telco has explained that MTR reductions have reduced their profits significantly. Shareholders rather than consumer cover most of the fall. Deutsche Telekom has just complained that Germany’s recent MTR cut shifted 500M from telco profits to consumers. That means Homann is doing his job. 

DT has to explain why it needs “monopoly-like” prices and can’t price competitively and still make a fair profit. 

 

Termination charges drive up prices and generally a bad idea.
Deutsche Telekom is hopping mad because BnetzA dropped their take on mobile calls in half to 0.0185 euros a minute. But their arguments against the slash seem unlikely to persuade any regulator who cares about consumers. DT tells Reuters that telco profits will go down 500 million with the benefit passing to consumers. Sounds great to me, but DT and rival Vodafone tell Reuters reducing prices is bad policy. As Reuters reports

“A Deutsche Telekom spokesman said the decision would cost the German telecom operators about 500 million euros ($635.28 million) annually, adding that the cuts didn’t bode well for future investments in fast internet. “With this decision the Bundesnetzagentur follows the complete erroneous European policy of the past 10 years, which has cost the European telecom sector its global leading role,” a Deutsche Telekom spokesman said. Vodafone said the decision was a “dramatic cut”, which will drag money away from much needed investment in faster networks.”

Jochen Homann is a public servant. I don’t understand why DT thinks a complaint their profits aren’t high enough would persuade BNetzA to change the decision. The German carriers have had years’ notice these cuts were coming; Homann’s predecessor, Mathias Kurth, disclosed the plan several years ago. All the carriers should have been pricing for the new MTRs.

Terminating monopolies considered harmful. Deutsche Telekom has a “terminating monopoly” on 12M German homes, enormous market power. If Canal+ or Amazon wants to sell TV over the net in Germany, they are virtually forced to pay whatever DT asks. Broadband customers tend to stay with one provider for 5-10 years, so DT has an effective monopoly. Only a small portion of what DT collects will go to consumers in lower prices or increased investment and most will go to DT shareholders.

The reduction in European mobile termination rates has provided strong evidence of the “terminating monopoly” effect. Deutsche Telekom and others argued that basic rates would go up as much as the roaming rates go down, so the reductions wouldn’t help consumers. There’s substantial economic literature on access monopolies. With perfect competition, the two-sided market theory suggests consumers wouldn’t be aided. But with market power the opposite is true.

In reality, telco after telco has explained that MTR reductions have reduced their profits significantly. Shareholders rather than consumer cover most of the fall. Deutsche Telekom has just complained that Germany’s recent MTR cut shifted 500M from telco profits to consumers. That means Homann is doing his job. 

DT has to explain why it needs “monopoly-like” prices and can’t price competitively and still make a fair profit. 

 

Here’s the official release.

Homann : “Increasing data traffic lead to lower prices per minute for call termination”
Issue
2012
Release Date
16.11.2012
The Federal Network Agency has published its proposal for a new fee mobile termination rates. Thereafter, it is envisaged that the four German mobile network operator Telecom Germany GmbH , Vodafone D2 GmbH , E-Plus GmbH & Co KG and Telefónica Germany GmbH & Co. OHG for terminating calls in their mobile networks, the so-called mobile termination, 1 from the . 2012 December a uniform fee of 1.85 cents / min . may be levied. In a second step, the fee from 1December 2013, again slightly to 1.79 min ct / . . sink So far, the four mobile network operators each with slightly different mobile termination rates between 3.36 ct / min . and 3.39 cents / min . calculate.
“Today’s published fee proposal is the result of very intensive tests in recent weeks. It has became apparent that the in the mobile networks for years observed trend of a significant increase in data volumes will continue in the future. Primarily, the increase in a very successful marketing of so-called smart phones due by the mobile operators ” , explains Jochen Homann, president of the Federal Network Agency .
“The relationship between data and voice traffic moves on through this development. Fewer costs are caused by voice traffic, so bear this has a correspondingly lower proportion of the total cost of a network. This is essentially the reason why the price per minute for termination services continues to decline. During the final approval rounds, this trend led to significantly lower rates. The present decision takes account of the lower termination costs. Secondly, it gives the company leeway to continue its investment in the development of broadband, particularly LTE advance, because the mobile subscribers are increasingly demanding mobile data services. Whoever operates a high capacity network, also has the greatest attraction for the customers, ” said Homann .
The newly released mobile termination rates is based on the costs of efficient service provision of an efficient reference operator which 25 percent of the total demand for voice, SMS – have been determined and covers data link services in Germany. This results in a uniform fee for all mobile operators. Costing itself was primarily on the basis of an analytical cost model WIK -Consult GmbH .
“The Federal Network Agency for the payment determination on their proven method to determine the charges on the basis of the cost of efficient service provision held, and thus a recommendation from the European Commission can not at this point been implemented. Following extensive investigations and in-depth consideration of all relevant factors we reached the conclusion that the cost approach of the Commission Recommendation in Germany not better suited to achieving the regulatory objectives of the Telecommunications Act. We are the Commission to explain our decision and hope that we can convince them of our good arguments ” , stressed Homann .
The fee may not be effective immediately binding in force since the middle of next week initially a four-week national consultation procedure is performed on the draft decisions. Subsequently, the Agency will pay the proposal together with the establishment of the European Commission and the national regulatory authorities of other EU Member States to forward so that they can submit their comments.
Press release (pdf/839 KB )

Leave a Reply

Your email address will not be published.

Scroll to top