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, the overall economic outlook, the currently prevailing economic risks, and the regulatory environment in the first nine months of 2022. The macroeconomic outlook is provided contingent on the understanding that forecasts are subject to significant uncertainties in view of the currently prevailing macroeconomic risks.

Macroeconomic development

The war in Ukraine has had a significant negative impact on the global economic outlook. Extensive sanctions have been imposed on Russia in response to its aggression. Dwindling gas deliveries from Russia are creating a supply gap that Europe will only be able to fill to a limited extent, driving up energy prices and precipitating an energy crisis. High inflation has prompted the U.S. Federal Reserve, the European Central Bank, and other central banks to take determined action to tighten monetary policy. Repeated lockdowns in China as a consequence of the nation’s zero-Covid strategy continue to impact on economic activity.

In light of current developments, the International Monetary Fund (IMF) revised its forecasts downwards in October 2022 and now expects global economic output to grow by 3.2 % in 2022 and by a mere 2.7 % in 2023.

For the German economy, the IMF expects GDP to grow by 1.5 % and consumer prices to increase by 8.5 % in the current year. Given the war in Ukraine and its economic consequences, the business climate has worsened significantly. In the third quarter of 2022, the Bitkom-ifo-Digitalindex for the current business situation declined; business expectations for the coming months also deteriorated substantially. However, the business climate in the digital sector is significantly brighter than in the economy as a whole.

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 IMF forecast, economic output is expected to grow this year by 1.6 % in the United States and by 3.1 % in the eurozone. The European Central Bank raised its key interest rates in July, September, and October 2022 and plans further increases. In November 2022, in the fourth successive increase of its kind, the U.S. Federal Reserve raised the federal funds rate in the United States by 0.75 percentage points and indicated that yet further increases are coming.

Overall economic outlook

The risk of a recession in the United States increased significantly following the run of interest rate hikes. In the eurozone, the economy is under pressure from a dramatic drop in Russian gas deliveries coupled with high inflation – private consumption is being hit hard by reduced purchasing power and many businesses are resorting to downscaling production. The substantial decline across leading indicators is a further sign of a likely recession in the latter part of 2022/early part of 2023. For 2023, the IMF expects GDP to grow by 1.0 % in the United States and by 0.5 % in the eurozone; for the German economy, the IMF expects economic output to decline by 0.3 %. The IMF expects inflation to slow down in the coming year, but to remain at a high level.

Overall economic risks

The availability of gas is currently the biggest threat to economic development in Germany and Europe. A failure to sufficiently reduce gas consumption this winter might lead to state rationing – with production downtime for industry just one of the consequences. Further economic risks arise as a result of sharply rising interest rates and prices for raw materials worldwide, the coronavirus pandemic and the possibility of renewed anti-infection precautions, potential debt crises in emerging nations, and a possible escalation of the war in Ukraine, as well as other geopolitical tensions.

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.

Adoption of the Federal Government’s Digital Strategy. On August 31, 2022, the Federal Cabinet of Germany adopted the Federal Government’s Digital Strategy 2025. The strategy brings together the key policy areas for the cross-cutting topic of digitalization and prioritizes the implementation of projects that are expected to unlock the greatest potential when it comes to advancing digitalization. One of its goals is to digitalize all public and healthcare services by 2025. A modern legal framework is also planned, which will support the development of the data economy and improve the use of data through connected virtual data rooms. The Gigabit Strategy adopted on July 13, 2022 plays a central role, promising greater speeds and improved framework conditions for building out the networks. The aim is to achieve nationwide coverage with fiber to the home (FTTH) and the latest-generation mobile communications standard by 2030. Specific action includes the introduction of expedited approval processes, the more widespread use of alternative cable-laying technologies, and the creation of a central information database (Gigabit-Grundbuch) that will improve transparency on the availability of infrastructure that can be shared. The federal states and municipalities play a key role in the implementation of these measures.

Awarding of spectrum

In the United States, the assignment phase of Auction 110 ended on January 4, 2022. In this auction, the Federal Communications Commission (FCC) allocated a total of 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. The bidding phase of FCC Auction 108 in the United States ended on August 29, 2022, whereupon T‑Mobile US was awarded a further 7,000 2.5 GHz licenses for which it paid a total of around USD 0.3 billion (EUR 0.3 billion). The Federal Communications Commission has not yet begun assigning the licenses acquired at the auction. 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 Poland, the extension of the 2,100 MHz licenses has been completed and the new licenses were sent out on October 11, 2022.

In Croatia, the regulatory authority has geared up for a multi-band auction, expected to take place in the fourth quarter of 2022. The authority published the final rules in mid-October 2022, thus opening the application phase. Once the qualified participants have been informed on November 17, 2022, the bidding phase is due to start on January 16, 2023. As previously, Poland has made no further official announcements regarding a new start date for the postponed auction for 3,400 to 3,800 MHz. The proceedings are 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. However, there are some early signs that the proceedings, as well as preparations for awarding the 700 MHz band and the still unused 2x 5 MHz blocks in the 800 MHz band, could get under way in November 2022. Romania will award 5G spectrum in the 700 MHz; 1,500 MHz; 2,600 MHz; and 3,400 to 3,800 MHz bands before the end of 2022. Telekom Romania Mobile Communications will not take part in the auction. In the Czech Republic, the proceedings 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.

In Germany, the usage rights for 800; 1,800 (partial); 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 and in September 2022 launched a consultation on a position paper containing a proposed award concept. An award decision is not expected before 2023. In the United States, on August 8, 2022, T‑Mobile US reached agreements with Channel 51 License and LB License on the acquisition of licenses in the 600 MHz spectrum for an aggregate purchase price of USD 3.5 billion (EUR 3.4 billion). The agreements are subject to approvals by the regulatory authorities and certain other customary closing conditions. The transactions are expected to be completed between mid and late 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.