Major regulatory decisions

Our business activities are largely subject to national and European regulation, which is associated with extensive powers to intervene in our product design and pricing. We were again subject to extensive regulation in our mobile and fixed-network businesses in 2019.

Regulation

Federal Network Agency to adapt regulation of the “last mile.” The Federal Network Agency carries out regular reviews to determine whether and which companies are in dominant market positions and what regulatory requirements this entails. To date, Telekom Deutschland has had to comply with extensive regulation of what is known as the “last mile.” The Agency published its draft of a new market analysis on access to the “last mile” for consultation on May 27, 2019. According to the draft, Telekom Deutschland remains in a dominant market position. However, the Agency emphasizes that the regulations governing Telekom’s existing copper network do not necessarily have to apply to FTTH; rather, the Agency advocates – at most – minimal regulation provided the market participants can reach mutual agreement. The details of the regulatory requirements will be determined in separate proceedings, the outcome of which cannot be predicted.

Fixed-network termination rates given final approval for four years. On June 28, 2019, the Federal Network Agency issued final approval of the fixed-network termination rates (FTRs) both for Telekom Deutschland and for alternative telecommunications operators in the form of a four-year glide path. The following FTRs will apply effective January 1, 2019: 2019 = 0.08 ct/min., 2020 = 0.06 ct/min., 2021 = 0.05 ct/min., and 2022 = 0.03 ct/min. The rates approved by the Agency will apply until the European Commission enacts an FTR cap to replace the national regulation.

Federal Network Agency approves further MTR cuts. On November 28, 2019, the Federal Network Agency published its decision to approve the mobile termination rates (MTRs), which reduced the MTRs from 0.95 ct/min. to 0.90 ct/min as of December 1, 2019. In two additional steps to be implemented annually also effective December 1 of the following years, MTRs will be cut further to 0.78 ct/min. and 0.70 ct/min. respectively. It is anticipated that the rates approved by the Agency will apply until the EU-wide MTR cap required under the new EU legal framework enters into force – possibly following a transition period.

Deregulation of mobile termination rates for calls from non-EU countries. The Federal Network Agency has deregulated the termination of calls originating outside of the European Economic Area (EEA) on the mobile network of Telekom Deutschland and other German mobile network operators. As a result, since December 1, 2019 we ourselves have been able to decide on the pricing and terms that apply to the charging of calls to network operators outside the EEA. Specific contractual amendments must be made before we can implement this change; these are already being negotiated. This differentiation between EEA and non-EEA calls is now standard practice in most EU member states, since MTR regulation binds European network operators to extremely low termination rates while the rates charged by network operators outside of the EEA are significantly higher. However, in order to prevent prices from spiraling to the detriment of the consumer, while these rates are freely negotiable, they must not exceed the rates that the network operators in the originating countries charge for comparable services.

Deregulation of access to the public telephone network. In its decision published on December 11, 2019, the Federal Network Agency revoked the ex-post regulation of our line rate plans and bundles, as well as the obligation to offer call by call in retail. We will however continue to offer our customers call by call even without this obligation. To this end, an agreement was reached with the Association of Telecommunications and Value-Added Service Providers (VATM) that our end customers can use call by call until the end of 2022. The Federal Network Agency had ruled that competition now works on this market and, as such, the regulatory requirements are no longer necessary.

Increase of rates for unbundled local loop lines (ULLs). The Federal Network Agency increased the regulated rates received by Telekom Deutschland for leasing the “last mile” of its network with effect from July 1, 2019. Specifically, the rate for leasing the line from the customer to the cable distribution box increased from EUR 6.77/month to EUR 7.05/month and the rate for the longer section from the customer to the main distribution frame increased from EUR 10.02/month to EUR 11.19/month. The rate for leasing cable duct capacities increased from EUR 0.04/month to EUR 0.06/month. Although these rates remain below the level we sought in our application, the Agency has at least recognized that the costs of building out the “last mile” of the network have risen in the three years since the rates were last set. The rate approvals are valid until June 30, 2022.

StreamOn. In its ruling dated July 12, 2019, the Münster Higher Administrative Court confirmed as part of expedited court proceedings that the Federal Network Agency’s orders regarding the optimization of data traffic when offering internet access services as well as the obligation to also make the services available within the EU must be followed for the time being. In consultation with the Federal Network Agency, we have modified the product pursuant to the authority’s requirements. Nevertheless, the Cologne Administrative Court will review in ordinary court proceedings (known as principal proceedings) whether the measures to optimize data traffic as well as the restriction of the offering to Germany are compatible with the EU regulation. The Cologne Administrative Court has referred the crucial questions under EU law to the European Court of Justice and suspended national proceedings.

Awarding of spectrum

Spectrum auction in Germany. The Federal Network Agency’s auction of nationwide frequencies for Germany in the 2.1 GHz and 3.4 to 3.7 GHz bands was held between March 19 and June 12, 2019. Telekom Deutschland was admitted to the auction proceedings along with three other companies: Drillisch Netz, Telefónica Germany, and Vodafone. All participants purchased spectrum. We won four frequency blocks in the 2 GHz band and nine lots in the 3.6 GHz band worth a total of EUR 2.17 billion. In place of a lump-sum payment, government representatives agreed to let us pay the purchase price in annual installments from 2019 through 2030. Installment payments were granted in place of an interest payment on the condition that Deutsche Telekom assumes additional build-out obligations. These additional licenses double our spectrum holdings in the 2.1 GHz band and give us almost a third of the available spectrum (90 MHz) in what is the optimum band for us, the 3.6 GHz band. Achieving this desired outcome to the auction helps us sustain our leading position in the competition to deliver the best quality mobile network in Germany. The three existing network operators and six service providers have brought legal action in connection with the auction terms and conditions; however, this had no effect on the auction timing. The application process for local frequencies in the 3.7 to 3.8 GHz range began in November; however, national mobile network operators are excluded from this process.

Spectrum auction in Austria. The auction in Austria of key 3.6 GHz spectrum (3.4 to 3.8 GHz) required for the rollout of 5G was held between February 12 and March 8, 2019. The nationwide network operators A1, T‑Mobile Austria, and Hutchison, as well as other regional operators, were admitted to the proceedings as participants. Our subsidiary T‑Mobile Austria secured continuous nationwide spectrum of 110 MHz (in the 3,690 to 3,800 MHz band) worth EUR 57 million, while Hutchison obtained only 100 MHz and A1 received varying regional spectrum packages due to the success of four regional providers. T‑Mobile Austria is now preparing for the multi-band auction with 700, 1,500 and 2,100 MHz which will begin in the first quarter of 2020.

Spectrum auctions in the United States. The Federal Communications Commission (FCC) held a 28 GHz auction from November 2018 through January 2019. This was the first time that 5G spectrum in such a high frequency band (known as millimeter wave (mmWave)) had been auctioned in the United States. On March 14, 2019, a second mmWave auction began in which a total of 1.55 GHz of spectrum in the 24 GHz band was available. T‑Mobile US also participated in this auction. Over the course of the two auctions for 28 GHz and 24 GHz spectrum, T‑Mobile US paid around USD 843 million for a total of 367 MHz, thus securing itself a solid mmWave holding in preparation for 5G. A further auction started on December 10, 2019 for licenses in the frequency ranges of 37 GHz, 39 GHz, and 47 GHz. The FCC is also planning an auction of spectrum in the 3.5 GHz band in June 2020, as well as a further auction of a total of 280 MHz of spectrum in the 3.7 to 4.2 GHz range at a later date (auction date not yet set).

The following table provides an overview of the main spectrum awards such as auctions as well as license extensions in Germany and at our international subsidiaries. It also indicates spectrum to be awarded in the near future in various countries.