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 2019 Annual Report, focusing on macroeconomic developments in the first nine months of 2020, the outlook, the currently prevailing economic risks, and the regulatory environment. Given the almost total lack of historical experiences from which to draw comparisons with the current situation, the macroeconomic outlook is provided contingent on the understanding that the effects of the coronavirus crisis can only be quantified with a high degree of uncertainty.

Macroeconomic development

The global economy has been dominated by the coronavirus pandemic since spring 2020. While the measures introduced to contain the pandemic have catapulted the global economy into the deepest recession since the end of the Second World War, according to leading economic research institutes the worst is now behind us. In the October 2020 update to its outlook, the International Monetary Fund (IMF) announced it expected the global economy to contract by 4.4 percent in 2020, followed by growth of 5.2 percent in 2021. The global economy was likely to partially recover in 2021 but remain significantly below the level that had been projected before the emergence of the coronavirus crisis.

For the German economy, the IMF expects GDP to decline by 6.0 percent in the current year. The coronavirus crisis is affecting individual industry sectors to varying extents. The business climate in the information and communications technology (ICT) sector has brightened again: The Bitkom-ifo-Digitalindex, calculated on the basis of the business situation and expectations, increased again slightly in October 2020 compared with the previous months. Despite this, the index remains significantly below its pre-pandemic level.

The economies of our core markets in North America and Europe, too, will shrink this year, with the IMF predicting a contraction of 4.3 percent in the U.S. economy and of 8.3 percent in the eurozone. Nevertheless, the third quarter of 2020 saw another significant increase in economic activity: GDP rose by 7.4 percent year-on-year in the United States, by 8.2 percent in Germany, and by 12.7 percent in the eurozone.

Outlook

Given the current course of the coronavirus pandemic across Europe and North America, economic recovery is likely to be a long, drawn out process. The return to tougher coronavirus restrictions has cast a shadow over the outlook for the fourth quarter of 2020 with a heightened risk of a double-dip recession. Economic activity is not expected to return to pre-pandemic levels (i.e., as at the end of 2019) until the start of 2022.

Overall economic risks

Apart from the prevailing uncertainty relating to the further course of the coronavirus pandemic, there is a concomitant risk of companies encountering liquidity problems despite the relief measures implemented in many countries. Moreover, the risks emerging from the global economic situation, including those affecting the stability of the global financial markets, have continued to grow in the course of the coronavirus crisis. Further risks to economic development arise from the terms of the United Kingdom’s exit from the EU, as well as from the smoldering trade war between China and the United States.

Regulation

Amendment of the German Telecommunications Act. In Germany, the market is still waiting for the official publication of the draft amendment to the German Telecommunications Act (Telekommunikationsgesetz, TKG). The revision is necessary in order to transpose European requirements from the European Electronic Communications Code into national law. The biggest changes affect consumer protection regulations, the regulation of “high-capacity networks” (including FTTH), spectrum regulation, and the regulations on universal service. In view of the Code’s implementation deadlines, the amended Act would have to be published by the end of 2020 at the latest. However, the German government anticipates a delay that is likely to run into the first half of 2021. The Code is also being transposed into national law in the countries of our European subsidiaries. Some countries are expected to complete this by December 21, 2020. In others, implementation is likely to take until 2021.

Roaming regulation. The European Commission launched a consultation procedure on the future regulation of international roaming in summer 2020. The current regulation applies price caps through 2022 on the roaming charges that European mobile network operators can bill peer operators for the use of roaming services. In addition to the future regulation of these charges, the Commission also consulted on whether and which rules will apply in the future to roaming for the Internet of Things (IoT) and to roaming access to value-added services and emergency call numbers.

European Commission sets termination rates from 2021. On August 25, 2020, the European Commission published a draft Delegated Act setting single maximum Union-wide mobile (MTR) and fixed-network (FTR) termination rates. The Commission proposes a phased reduction of MTRs to a uniform level of 0.2 eurocents/min. by 2024. FTRs are to be reduced sooner, to 0.07 eurocents/min. EU-wide by 2022. The finalized Act is expected to be published in late 2020 and enter into force in the first quarter of 2021.

Awarding of spectrum

T‑Mobile US successfully bid on total spectrum of 691 MHz at the U.S. auction in March 2020 and received the 5G licenses it bought for USD 873 million in April 2020. A further CBRS auction in the United States for spectrum in the 3,550 to 3,650 MHz band ended on August 25, 2020. T‑Mobile US secured eight licenses for which it paid a net sum of USD 6 million.

Further spectrum was awarded in the first three quarters of 2020 as follows: In Hungary, a total of 160 MHz purchased by Magyar Telekom at auction in March 2020 for around EUR 152 million (translated into euros) was assigned to the subsidiary in April 2020. In the Netherlands, an auction started on June 29, 2020 for spectrum in the 700 MHz, 1,500 MHz, and 2,100 MHz bands. The auction ended with the completion of the allotment phase on July 21, 2020. T‑Mobile Netherlands successfully bid on a total spectrum of 70 MHz in all three bands for an aggregate amount of EUR 400 million. In Austria the auction for spectrum in the 700, 1,500, and 2,100 MHz bands ended on September 11, 2020. T‑Mobile Austria acquired total spectrum of 100 MHz in all three bands for EUR 89 million.

In Greece, the regulatory authority EETT launched award proceedings for spectrum in the 700, 2,100, 3,400 to 3,800 MHz, and 26,000 MHz bands. At present, we have no information regarding a new start date for the auction of spectrum in the 3,400 to 3,800 MHz bands in Poland that was postponed to the fourth quarter. Hungary is planning an auction for 900 and 1,800 MHz that is scheduled for spring 2021. Croatia intends to hold its spectrum auction in the first half of 2021 and is considering the inclusion of additional spectrum bands, while Slovakia has called a halt to its award planning with no new date set at present. The Czech Republic is expected to start award proceedings for spectrum in the 700 and 3,400 to 3,600 MHz bands in November 2020.

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.