A new law fundamentally changes telephony

Today, anyone who picks up a landline phone and calls any other German city doesn’t think about the cost – and doesn’t look anxiously at the clock. Twenty-five years ago, things were different.

It was a price shock for the top dog: Telekom charged 60 pfennigs per minute for a national long-distance call at the beginning of 1998 – at newcomer Mobilcom, it was only 19 pfennigs. The drastic reduction in per-minute prices heralded a new era in telephony. The reason was the new Telecommunications Act.

Telekom’s monopoly had just fallen, and the successor company to the Bundespost had to face up to competition. More and more call-by-call competitors sprouted up, and more and more Germans dialed the low-cost prefixes. Prices continued to fall, and today monthly flat rates without per-minute charges are commonplace. The start of market liberalization was 25 years ago, on July 25, 1996, when the Telecommunications Act was published in the Federal Gazette. The end of the telecommunications monopoly was sealed.

Liberalization through the Telecommunications Act

After a transition period of one and a half years, the most important regulations came into force in January 1998. In retrospect, the head of the Federal Network Agency, Jochen Homann, views the law, with the abbreviation TKG, positively. “The liberalization of telecommunications in Germany is a success story,” he says. “Consumers are benefiting from intense competition among numerous providers and from prices that have fallen sharply over the years.”

Torsten Gerpott from the University of Duisburg-Essen also gives the thumbs up. “In order to let as many competitors as possible into the market, the entry thresholds for the fixed network were kept low. The legislator did a good job of that,” says the telecommunications professor. In the difficult task of breaking up a monopoly and introducing functioning competition, he says, no major mistakes were made in the fixed-network sector. “The German telecommunications market developed very well after that, and prices fell significantly.”

Another key element of the Telecommunications Act, which has been amended several times to date, is a provision on the fixed network. The law obliged Deutsche Telekom not only to let its competitors use its lines for call-by-call, but also to give them permanent access to its networks. Competitors could conclude contracts with customers and use Deutsche Telekom’s lines in return for rent. This was done to enable competitors to enter the market, even if they did not yet have any or hardly any lines of their own.

Monopoly instead of drive for new technologies

Whether this was the right way to go is disputed. Jürgen Grützner from the VATM industry association, in which Telekom competitors are organized, thinks it was wrong. He says that Deutsche Telekom’s old copper lines, which had been written off, were “practically gold-plated by the rental payments and thus for a long time had no incentive to invest in new technologies.” According to Grützner, the ex-monopolist was strengthened. Competitors, on the other hand, had a hard time and investments shied away from new technologies, especially fiber optics.

In the Internet, Telekom’s telephone copper lines with (V)DSL technology dominate the last mile – that is, from the cable distribution frame to the home. The Group has gradually optimized them over the years – but they did not come close to fiber-optic speed. “In 1996, the course was set so that Telekom could continue to profit from its telephone lines for decades,” Grützner said. “This slowed Germany down as a fiber-optic country.”

Now, at last, fiber optic expansion over the last mile is also picking up speed at Deutsche Telekom, after years in which almost all competitors had been responsible for fiber optic expansion up to the building or into the home, says the representative of the association, who was involved in the legislative process in the 1990s as an advisor to the CDU/CSU parliamentary group in the Bundestag. He admits that the importance of the Internet, including fiber optics, was not yet foreseeable. However, he criticizes the fact that the legislator did not change its course in the subsequent amendments to the TKG.

Telekom sums up the last decades positively

And what does Deutsche Telekom say in retrospect? The company sees the development as positive and emphasizes the billions it invests year after year. “Liberalization has ensured that lively competition has emerged in Germany,” says a company spokesperson. “Customers can choose between many providers and rates in Germany.” Many innovations have emerged, he said, “from modern terminal devices to the Internet for all to the smart home and television via Internet Protocol (IP-TV).” At the same time, he said, prices for telecommunications have fallen.

Jens-Uwe Theumer of the price comparison portal Verivox, meanwhile, says consumers still have to dig relatively deep into their pockets for their Internet connection or cell phone contract. “In countries like Austria, Sweden or Switzerland, the price-performance ratio is often better.” In an international comparison, there is too little competition in this country, he says, pointing to the high market coverage of Vodafone and Telekom in fixed-network Internet, for example.

For Deutsche Telekom’s workforce, the liberalization brought about by the new Telecommunications Act was no cause for celebration – at least that is the conviction of Josef Bednarski, then a member of the Works Council, who points to the job cuts that followed the liberalization. This was handled in a socially responsible manner – without compulsory redundancies – by the works council and the trade union. But it was nevertheless drastic. According to the company, Deutsche Telekom had about 230,000 full-time jobs in 1995; today it has about 90,000 in Germany. “The fact that prices fell was good for consumers – but hard changes came for the workforce, with a high number of reorganizations and a heavier workload,” Bednarski says.