Deutsche Telekom AG - The 2009 financial year

Besides sector-specific regulation, Deutsche Telekom is generally also subject to supervision by the Federal Cartel Office under competition law. In 2009, for example, the Federal Cartel Office launched investigations into the gap between the prices of regulated and unregulated wholesale products. In spite of intense competition, mobile termination in the German mobile communications market will continue to be regulated ex-ante and therefore be subject to price control by the Federal Network Agency. In May 2009, the Agency conducted a survey among all mobile network operators about mobile VoIP and determined in September 2009 that no regulatory action was needed. It will nevertheless continue to monitor developments in this field and intervene where required. With the disclosure of its broadband strategy in February 2009, the Federal Government set specific broadband goals and established “regulation geared to growth and innovation” as one of the key pillars. The new govern- ment’s coalition agreement relies on modern regulation that does not just ensure low usage charges but also creates incentives for rapid, longer-term investments. The effect this will have on Deutsche Telekom will depend on the precise nature and implementation of this new approach. The Agency has already examined the matter in a relevant policy paper. Regulation by the European Union. The European Union (EU) defines the fundamental principles of European telecommunications market regulation. The European Commission reviewed the directives and recommendations adopted in 2002 as part of the EU Review. This reform package includes amendments to the existing legal framework that must be transposed into national law by mid-2011. The revised directives will result in the creation of a new European regulatory body (BEREC), which will replace the existing European Regulators Group (ERG) and act as an advisor to the European Commission and the national regulatory authorities, especially in matters of regulatory harmonization. Furthermore, the revised directives generally permit a functional separation of network operation and services as an additional regulatory measure. To promote investment in fiber-optic access networks, the revised legal frame- work provides for individual risk-sharing mechanisms between investors and the holders of access rights. To what extent these modified approaches will be able to promote investment in new access networks will depend to a large extent on the practical implementation and transposition into national law. In other areas, the European Commission intervened directly in the pricing policy. The new “Second” Roaming Regulation dated June 18, 2009 will further reduce voice rates (for outgoing and incoming calls) for consumers step by step over the coming years. Wholesale data roaming prices will also gradually be cut, as will wholesale and consumer text messaging prices. With its Recommendation on the Regulatory Treatment of Fixed and Mobile Termination Rates of May 2009, the European Commission is attempting to bring about further harmonization in the reduction of termination rates. In October 2008, the European Commission launched a preliminary investigation into possible anti-competitive behavior of European mobile communications operators with regard to mobile VoIP services in order to verify whether operators are setting negative incentives for the use of VoIP services, thus creating competition barriers for VoIP providers. So far, the European Commission has not taken any further action. International regulation. Deutsche Telekom is not only subject to regulation in Germany and the EU. Its subsidiaries abroad are also regulated by national authorities. For the fixed network, this applies in particular to subsidiaries in Hungary, Greece, Romania, Slovakia, and Croatia. In mobile communi- cations, all subsidiaries are subject to regulation, in particular regarding termination charges and use of frequency spectrum. In the United States, a requirement for operating mobile communications networks, and hence for offering mobile communication services, are frequency spectrum licenses issued by the Federal Communications Com- mission (FCC). Whereas these are normally awarded on a national basis in Europe, the United States has a large number of license areas. The number of licenses awarded limits the number of network operators in each market. 70