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 2020 Annual Report, focusing on macroeconomic developments in the first nine months of 2021, the outlook, the currently prevailing economic risks, and the regulatory environment. The macroeconomic outlook is provided contingent on the understanding that the quantification of the impact of the coronavirus crisis will depend heavily on the further course of the pandemic.

Macroeconomic development

The global economy saw a marked recovery as coronavirus restrictions have been eased. In the October 2021 update to its outlook, the International Monetary Fund (IMF) announced it expected the global economy to expand by 5.9 % in 2021, followed by growth of 4.9 % in 2022.

For the German economy, the IMF expects GDP to grow by 3.1 % in the current year. The business climate in the information and communications technology (ICT) sector remains bright. Although the Bitkom-ifo-Digitalindex, calculated on the basis of the business situation and expectations, declined slightly quarter-on-quarter in the third quarter of 2021, it remains at a high level both overall and compared to the economy as a whole.

The economies of our core markets in North America and Europe, too, will expand this year, with the IMF predicting growth of 6.0 % in the U.S. economy and of 5.0 % in the eurozone. However, with upstream products becoming more expensive, the rates of inflation have risen sharply on both sides of the Atlantic.

Outlook

The U.S. economy had already returned to its pre-pandemic level in the second quarter of 2021. This economic growth is expected to be tempered in the second half of the year by labor shortages and delivery bottlenecks. The eurozone is showing signs of a sustained recovery throughout the second half of 2021, although delivery bottlenecks are dampening industrial activity. Economic output in the eurozone is also on track to be back at its pre-pandemic level by the year-end.

Overall economic risks

Apart from the prevailing uncertainty relating to the further course of the coronavirus pandemic, a further risk is that enduring delivery bottlenecks, labor shortages, and rising energy prices will dampen the economic recovery. Accelerating inflation, too, may prove to be a persistent exacerbating factor rather than a passing phenomenon. Further risks to economic development arise from the smoldering trade conflicts between the United States and China, as well as from other geopolitical risks.

Regulation

Commitment agreements entered into force. The agreements with Telefónica and Vodafone concerning their long-standing cooperation in the fixed network were extended in the fourth quarter of 2020 in the form of new commitment agreements to replace the former quota-based agreements under what has become known as the “contingent model.” Long-term agreements had also been signed with 1&1 and NetCologne in the first quarter of 2021. These cover the existing broadband networks as well as the FTTH fiber-optic networks to be continuously built out by Deutsche Telekom in the years to come. Since there were no regulatory objections to the agreements on the part of the Bundesnetzagentur, they entered into force effective April 1, 2021. This has established a solid foundation on which to take forward cooperation in the fixed network over the next 10 years.

European Commission set termination rates from July 1, 2021. On April 22, 2021, the European Commission published a Delegated Act setting single maximum Union-wide mobile (MTR) and fixed-network (FTR) termination rates. The Act will reduce MTRs to a uniform level of 0.2 eurocents/min. by 2024 using a phased approach. A uniform level of 0.07 eurocents/min. will apply to FTRs from January 1, 2022; new price caps which vary by member state, however, will apply as early as from July 1, 2021.

European Electronic Communications Code (EECC) transposed into national law. The Telecommunications Modernization Act (Telekommunikationsmodernisierungsgesetz – TKMoG) will enter into force in Germany on December 1, 2021. The reform of the German Telecommunications Act (Telekommunikationsgesetz – TKG) became necessary to transpose the provisions of the EECC into national law. The biggest changes affect the rules on consumer protection, the regulation of very high capacity networks (including FTTH), spectrum policy, and the rules on universal service. TKMoG will also remove the right of property owners to pass on cable TV service costs to tenants via the service charges included in rental agreements. The rules on contract terms and contract extensions were modified in favor of the consumer, with customers now being able to cancel contracts on a monthly basis after reaching the minimum contract term. Other changes affect the existing rights of retail customers to a price reduction in the event of defective performance – a modification that has now also been incorporated into the TKG. The deadlines for fault clearance have been further tightened. In terms of wholesale regulation of companies with a dominant market position, the amended TKG will ease regulations regarding the build-out of FTTH networks. The previous universal service is being replaced by an entitlement to fast telecommunications services. The thresholds for this will have to be laid down in an ordinance that has the force of law. One important change is the abolishment, effective June 30, 2024, of the privilege for property owners to pass on cable TV and internet service fees as ancillary rental costs to tenants. The fiber-optic build-out will be financed using new instruments, such as the fiber-optic provisioning charge for tenants capped at EUR 60 per year for 5 or 9 years, a cost apportionment added to the basic rent excluding service charges, or the existing rules on network usage charges. This step will also reduce the costs for network operators of using in-house networks. Greece and Hungary have already transposed the EECC into national law, while the lawmaking process is still ongoing in the Netherlands and the Czech Republic.

Bundesnetzagentur presents draft decision for FTTH network regulation. On October 11, 2021, the Bundesnetzagentur presented its draft decision on the future regulation of access to Deutsche Telekom’s copper and fiber-optic network. The draft contains proposals for easing FTTH network regulation, which would put an end to “ex ante” and access regulation. 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 would have access to the same material and human resources as Deutsche Telekom’s sales teams. The Bundesnetzagentur further proposes to abolish the traditional “ex-ante” regulation of layer 2 (VDSL) products and tie charges to a disclosure obligation. The draft decision also includes the requirement for Deutsche Telekom to grant access to cable ducts and operational support systems. The period for responses to the draft decision ends on November 15, 2021. The Bundesnetzagentur is expected to notify the European Commission of the draft in January 2022.

German court overturns approval under merger control law for the joint venture Glasfaser Nordwest. Deutsche Telekom and EWE founded the joint venture Glasfaser Nordwest in 2020. The aim of the joint venture is to provide up to 1.5 million households and business locations with fast internet. If the Düsseldorf Higher Regional Court’s decision of September 22, 2021 becomes final, the case will be referred back to the Bundeskartellamt for a new decision on approval and any further conditions. The joint venture can continue building out FTTH in the interim. Deutsche Telekom has lodged a complaint against the decision of the Düsseldorf Higher Regional Court to not allow an appeal.

Bundesnetzagentur’s security catalog classes operators of public telecommunications networks for the first time as having an increased risk potential. On August 25, 2021, the Bundesnetzagentur determined new security requirements for operators of public telecommunications networks. Under the IT Security Act 2.0 (IT-Sicherheitsgesetz 2.0) critical components are subject to special legal requirements, such as mandatory certification.

For further information on the Bundesnetzagentur’s TKG security catalog, please refer to the section “Risks and opportunities – Risks relating to strategic transformation and integration.”

Awarding of spectrum

The assignment phase of the C-band auction (3.7 to 4.2 GHz) in the United States ended on February 17, 2021. On February 24, 2021, the FCC announced the number of licenses obtained by participating companies. Verizon paid around USD 45 billion for 3,511 licenses, AT&T over USD 23 billion for 1,621 licenses, and T‑Mobile US USD 9.3 billion for 142 licenses. A total of 280 MHz was sold at the C-band auction. The new license holders must make relocation payments over the next three years to cover the transfer of licenses from the former holders. The payments T‑Mobile US will have to make are expected to amount to USD 1.2 billion. In the United States, the 3.45 GHz auction began on October 5, 2021 to award a total of 100 MHz of spectrum in the 3,450 to 3,550 MHz band. In Hungary, proceedings to re-award 900 and 1,800 MHz spectrum licenses that are due to expire in 2022 were held on January 28, 2021 and concluded the same day. Magyar Telekom acquired 2x 8 MHz and 2x 20 MHz in the respective bands for a total price of EUR 123 million (when translated into euros). On August 12, 2021, Hrvatski Telekom in Croatia acquired spectrum in the 700; 3,400 to 3,800; and 26,000 MHz bands for a total purchase price of EUR 17.4 million.

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. Further four 80 MHz licenses are expected to be awarded. All further details of the auction are pending. Romania plans to hold a large spectrum auction for the 800; 2,600; and 3,400 to 3,800 MHz bands, which is expected to take place in winter 2021/spring 2022. The 5G spectrum in the 700 MHz and 1,500 MHz bands will now be awarded in a separate award procedure which is expected to follow in the second half of 2022. A decision was made to extend the 2,100 MHz spectrum licenses through 2030 with processing due to be completed by the end of 2021. The Slovakian regulatory authority is preparing to allocate the 3,400 to 3,800 MHz band, which will become available for mobile broadband usage in 2024. It has begun a corresponding public consultation. In the meantime, the previously unused 2,600 MHz TDD band (50 MHz) has been added to the spectrum award planning. The auction has now been put back until next year.

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.