The economic environment

This section provides additional information on, and explains recent changes to, the economic situation as described in the combined management report of the 2021 Annual Report, focusing on macroeconomic developments in the first six months of 2022, the currently prevailing economic risks, and the regulatory environment. A macroeconomic outlook is currently only possible to a limited extent since the war in Ukraine and its repercussions have substantially increased economic uncertainty and downside risks.

Macroeconomic development

The war in Ukraine has had a significant negative impact on the global economic outlook. In response to the offensive, extensive sanctions have been imposed on Russia that largely exclude the country from the international financial markets and significantly curtail trade in goods. The economic outlook is further strained by growing concerns over Europe’s energy supply, high inflation, the rising benchmark interest rate in the United States (federal funds rate), and supply shortages, the latter mainly due to the coronavirus-induced lockdowns in China.

In light of current developments, the International Monetary Fund (IMF) once again revised its forecasts downwards in July 2022 and now expects global economic output to grow by 3.2 % in 2022 and by a mere 2.9 % in 2023.

For the German economy, the consensus forecast predicts GDP growth of 1.6 % and an increase of 7.2 % in consumer prices this year. Given the war in Ukraine and its economic consequences, the business climate has worsened in the economy as a whole as well as in the digital sector. In May 2022, the Bitkom-ifo-Digitalindex for the current business situation declined; business expectations for the coming months also deteriorated substantially.

The economies of our core markets in North America and Europe will grow this year, albeit less than forecast prior to the start of the war in Ukraine. According to the consensus forecast, economic output is expected to grow this year by 2.1 % in the United States and by 2.7 % in the eurozone. The European Central Bank raised its key interest rates by 0.5 percentage points in July 2022 and plans further increases. In the United States, the Federal Reserve raised its federal funds rate once again by 0.75 percentage points in July 2022 (the fourth rate hike this year) in an effort to curtail inflation, and indicated that further increases are coming.

Overall economic risks

The run of interest rate hikes in the United States and the reduced gas deliveries from Russia pose a significant threat to the economy. Further risks arise from the repercussions of China’s lockdown measures on global supply chains and from a re-escalation of the global pandemic. Against this backdrop, the risk of a recession in the United States and Europe increased significantly.

Regulation

European roaming regulation. July 1, 2022 marked the entry into force of the new Roaming Regulation for the European Union, which expands and extends the existing Roaming Regulation until 2032. The Roam like at Home principle introduced in 2017, initially for a period of five years, which allows consumers to make calls at domestic terms and conditions and use data volumes within the European Union, will now apply for a further ten years. New rules were also added on transparency, and the new regulation will ensure that the quality of roaming services is not lower than mobile services at home. New, lower price caps through 2031 were set for inter-operator tariffs for corresponding wholesale services, to be re-examined in 2024/2025. Steps to tighten regulation on voice calling and text messaging (SMS) between EU member states that had been discussed earlier were not included in the final regulation.

Approval of rates for copper-based wholesale services in Germany for 10 years. The Bundesnetzagentur published its final ruling on June 28, 2022, setting out the rates for unbundled local loop lines (ULLs) for the period from July 2022 to June 2032, for the first time for a period of 10 years. Starting July 1, 2022, a rate of EUR 10.65/month applies for the (longer) copper line section between the end customer and the main distribution frame in the Telekom building and of EUR 6.92/month for the (shorter) copper line section between the end customer and the cable distribution box on the street. These rates are to increase by 4 % as of July 1, 2027 to EUR 11.08/month and EUR 7.20/month, respectively.

Bundesnetzagentur’s decision on access regulation including FTTH network access. On July 21, 2022, the Bundesnetzagentur published its decision on the future regulation of access to Deutsche Telekom’s copper and fiber-optic network. The decision was preceded by consultations held at national and international level. Existing regulation of FTTH networks will be eased, by putting an end to “ex ante” and access regulation in the future. Non-discriminatory access will instead be secured under the Equivalence of Input (EoI) principle enshrined in the new Telecommunications Act (Telekommunikationsgesetz – TKG). Under the new system, wholesalers will have access to the same material and human resources as Deutsche Telekom’s sales teams. The Bundesnetzagentur will further abolish the traditional “ex ante” regulation of layer 2 (VDSL) products and tie charges to a notification obligation. The commitment agreements agreed through the end of 2031 have been examined in more detail and have passed the replicability test. The decision also includes the requirement for Deutsche Telekom to grant access to ducts and poles. The specific access conditions will be determined in subsequent proceedings.

Awarding of spectrum

In the United States, the assignment phase of Auction 110 ended on January 4, 2022, at which the Federal Communications Commission (FCC) assigned 100 MHz in the 3,450 to 3,550 MHz band. T‑Mobile US paid USD 2.9 billion (EUR 2.6 billion) to secure itself a total of 199 licenses. In the first quarter of 2022, OTE successfully participated in the auction for frequencies in the 430 MHz band in Greece, securing spectrum for around EUR 1.2 million. In Slovakia, the 3.x GHz auction was brought to a successful conclusion in May 2022, with Slovak Telekom securing 100 MHz for EUR 16 million. The four established mobile network operators agreed to a reshuffling of the 1,800 MHz band, which means they can each now use 2 x 20 MHz blocks of contiguous spectrum. In connection with the reshuffle, the spectrum licenses were extended for 15 years for a fee of EUR 8.9 million per network operator.

In Croatia, the regulatory authority is gearing up for a multi-band auction, expected to take place in the fourth quarter of 2022. Based on an initial consultation, this is likely to take the form of an SMRA auction. The rules are expected to be finalized and the award procedure to get under way by November/December 2022. As previously, Poland has made no further announcements regarding a new start date for the postponed auction for 3,400 to 3,800 MHz. The process is being held up by incomplete legislative procedures. It is still expected that four 80 MHz licenses, capped at 80 MHz, will be awarded by way of an SMRA. All further details of the auction are pending. In the Czech Republic, the procedure to extend T‑Mobile Czech Republic’s 2,100 MHz license, which will expire in 2024, was formally opened. A separate procedure to extend the 900/1,800 MHz GSM license, also expiring in 2024, is expected for 2023. Romania is planning the award of 5G spectrum in the 700 MHz; 1,500 MHz; 2,600 MHz; and 3,400 to 3,800 MHz bands, which is expected to take place in the second half of 2022. In the United States, the next Auction 108 for frequencies in the 2.5 GHz band began on July 29, 2022. In Germany, the usage rights for 800; 1,800; and 2,600 MHz are due to expire at the end of 2025. The Bundesnetzagentur still sees a considerable need for clarification on a range of issues. An award decision is therefore not expected before 2023.

The following table provides an overview of the main ongoing and planned spectrum awards and auctions as well as license extensions. It also indicates spectrum to be awarded in the near future in various countries.