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A Tough Game For The Competitors

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Last Updated : Nov 07 1996 | 12:00 AM IST

Most important is the issue of interconnection charges. Earlier this month Deutsche Telekom and its would-be competitors - companies such as RWE, Veba, Viag and Mannesmann - crossed swords on this subject.

For weeks the two sides had been talking to each other about these so-called interconnection prices, the fees that Telekom will charge private operators which want to transport their own telecoms services across its network.

Agreement was never likely to come easily, given that interconnection prices are the single most significant cost for private operators. In the event, Telekom offered a price which the competitors rejected.

Mr Wolfgang Botsch, the minister for post and telecoms, suggested a compromise which the private operators also rejected, arguing that it was too expensive.

Days later they appealed to the European Commissions competition directorate in Brussels in a manoeuvre carefully designed to create as much adverse publicity as possible just weeks before Telekoms initial public offering.

How they settle the issue remains to be seen, and the European Commission has so far declined to pronounce on the question.

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What is clear, however, is that the new operators in Germany are likely to face an uphill struggle to secure a foothold in the telecoms business and wrest clients away from Telekom, which still controls about 87 per cent of the market.

Certainly, the new law which will regulate Germanys fully liberalised telecoms market has competitive hallmarks: an unlimited number of licences is permitted and users have the right to keep their telephone number when switching to a Telekom competitor.

Initially, however, the newcomers efforts will be hampered by the fact that Mr Botsch, the present regulator, needs approval from a 32-member committee of parliamentary deputies and representatives of Germanys 16 Lander, or states a long-winded process which favours political rather than commercial solutions.

A new regulatory authority is unlikely to be created until July, and this will give it little time to prepare for full-scale competition just six-months later.

Before the German telecoms market is fully liberalised, Veba and Mannesmann, and much smaller operators such as NetCologne and Colt Telecom - which received the first two private licences for telecoms services in Germany - will have to negotiate much broader interconnection agreements than the ones discussed this month.

Each of the new operators must negotiate a separate interconnection agreement. They will not, be able to benefit from an agreement negotiated collectively between the new operators and Telekom. That leaves Telekom with the upper hand.

It will mean that the process is much slower than if there was a published rate, and is likely to mean that new entrants have to give Deutsche Telekom some sense of their strategy (what level of interconnect, where and what level of volume), says one

analyst.

Moreover, the interconnection rates that Telekom offers will not just reflect operating costs - as is usual in other liberalised telecoms markets - but will be allowed to include the cost of past investments such as the telecoms network built in the last five years in eastern Germany at an estimated cost of DM44bn ($28.6bn).

Analysts also regard the price cap - the amount by which telecoms prices must fall - that Telekom will be subjected to as relatively generous. Telecoms charges must fall 6 per cent minus inflation in the two years between 1998 and 2000, and by the same amount in the two years after that.

While Telekoms competitors will be able to apply only for regional licences - to offer telecoms services around the city of Leipzig, for instance - hopes that they could use these to mount a focused, aggressive attack have been dashed.

If the new operators move into a particularly lucrative market niche with what amounts to dumping prices, Telekom will be allowed to take advantage of so-called geographic de-averaging to cut its own prices in the same market without sacrificing revenues in areas where there is little or no competition.

The ability to geographically de-average was the single freedom BT most wanted, but it was one which was refused, one analyst said.

While the legal framework therefore remains liberal, the detailed regulations which will determine the extent of real competition suggest it will be harder than expected to dislodge Europes biggest telecoms operator from its home turf.

Under the new law an unlimited number of licences is permitted and users have the right to keep their telephone number when switching to a Telekom competitor.

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First Published: Nov 07 1996 | 12:00 AM IST

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