Germany Broadband Market Report 2005
Located in central Europe, bordering the Baltic Sea and North
Sea, Germany has lowlands in the north, uplands in the centre and
is mountainous in the south. It has a population of 83 million
people, the largest in Europe, living in 39 million households and
a population density of 236 inhabitants per square kilometre. The
level of urbanisation is relatively high at 87.5%.
GDP per capita at $33,922 was the eighteenth highest in the
world in 2005 according to the International Monetary Fund. This
compares with Luxembourg at $75,130 which has the world's highest
GDP per capita, and the UK placed thirteenth at $36,599[1]. GDP per
capita in Wales stood at around 79% of the UK figure, which equates
to around $28,915[2].
The telecommunications sector became fully liberalised in
January 1998 and is regulated by the Bundesnetzagentur (BNetzA) or
Federal Network Agency, which, prior to August 2005, was known as
the Regulierrungsbehörde für Telekommunikation und Post
(RegTP).
One of the main aims of the regulator with regards to the
broadband
market is to try to address the balance of power of a strong and
dominant incumbent.
The government launched its information society strategy,
Information Society Germany 2006, in December 2003. Some of the
internet and broadband specific objectives of the strategy
included:
- Increasing the number of internet users to 75% of the
population by 2005 (According to Nielsen NetRatings some 60% of the
population were internet users in March 2006[3])
- Increasing broadband connections to around 7 million
by 2004 (According to the OECD there were 6.9 million broadband
connections in Germany at the end of 2004)
- Ensuring that broadband becomes the dominant form of
internet access by 2005 (in line with the EU eEurope 2005
programme)
- Increasing broadband lines to more than 20 million by
2010
- Increasing broadband penetration to more than 50% of
households by 2010
Key findings from the Deutschland Online 3 study suggest that:
"superior broadband infrastructure will be crucial to Germany's
global competitiveness" [4].
Initiative D21 –
Dating from 1999, the aim of this public/private partnership
initiative was to support and promote the development of the
information society. As part of the wider initiative there is a
broadband initiative which promotes co-operation with and between
state governments, gathers and analyses experience from other
countries, and integrates the content and application industry more
strongly in the development and co-ordination process. For example,
the initiative is creating a study on broadband strategies,
preparing policy documents, conducting workshops and top-flight
meetings, taking part in the activities of Germany's federal states
and participating in various international broadband
events
[5].
Breitbandatlas – An interactive
map showing the coverage of different broadband technologies in
Germany, highlighting the areas where there is competition between
access technologies and areas where there is no coverage at
all.
Furthermore, in order to promote broadband use within SMEs the
government has undertaken an information campaign, offered free
consultancy services for broadband use and created awards for
innovative broadband projects.
With regards to privatisation of the telecommunications
market, the incumbent operator, Deutsche Telekom, was privatised by
the government in 1996. The Federal Republic of Germany retains a
15% share of the incumbent and around 22% is owned by the state
owned bank, KfW. The Federal Republic had previously announced that
it would sell its shares by 2006 but as yet there is no evidence to
suggest this has happened[6].
As regards international bandwidth, Germany had the ninth
highest level per inhabitant in the world in 2004 according to the
International Telecommunications Union (ITU), with around 6.9Mbps
per person. Denmark had the most at around 35Mbps per person and
the UK had the fourth highest bandwidth at around 13Mbps per
person[7].
In terms of socio-economic barriers to broadband growth,
Germany has a history of high unemployment and weak domestic
demand. The high unemployment rate barrier is particularly evident
when compared to other major economies. According to the OECD, the
standardised rate of unemployment was 9.5% in December 2005, almost
one and a half times the OECD average of 6.4%, and the highest of
the G7 group of countries[8]. This provides a barrier to basic ICT
and broadband penetration levels.
In terms of social drivers, 92% of experts from government
agencies surveyed in the Deutschland Online 3 study believe that
people who are online have a clear advantage in their social and
professional lives over those who are not online[9].
Germany has the largest internet market in
Europe with around 24.5 million connections and a penetration rate
of around 27% of the population
[10].
Figure 1 - Residential PC and
internet penetration, OECD Science, Technology and Industry:
Scoreboard 2005
In terms of usage, the latest available figures show that, in
2005, 69% of households had a PC. Furthermore, 60% of all
households had access to the internet in 2005. These figures are
ahead of the OECD average for both PC and internet penetration of
households. Iceland has Europe's highest levels of PC penetration,
at 86% of households, and internet penetration, at 81% of
households[11].
The broadband market is different in Germany to other European
markets due to the fact that Deutsche Telekom ran DSL over an ISDN
(Integrated Services Digital Network) standard in order to protect
their large and successful ISDN business. As such, ISDN was a
prerequisite for ADSL connections. This bundling has, however,
since been withdrawn and the number of ISDN lines has started to
fall.
In terms of the size of the market, at the end of December
2005, broadband lines were calculated to be around 10.7 million.
This represents growth of around 3.8 million connections, or 55.1%
during 2005[12].
Figure 2 - Total broadband
subscriptions by country, OECD Broadband Statistics, December
2005
The market growth compares favourably with the 33% growth
reported across the OECD[13] and the 37% growth worldwide[14] for
the same period; indicating that the German broadband market is
still some way from reaching saturation.
Figure 3 - Broadband growth over
2005 and broadband penetration by population, OECD Broadband
Statistics, December 2005
Analysys Research forecast that there will be around 14.4
million broadband connections by the end of 2006. This would equate
to a population penetration rate of around 17.3 connections per 100
inhabitants.
Figure 4 - Broadband penetration by
population, OECD Broadband Statistics, December
2005
Figures from the OECD place Germany in eighteenth position in
the OECD in terms of broadband penetration per head of population;
with a take-up of 13.0% in December 2005. This figure places
Germany slightly behind the OECD as a whole, which had an average
penetration of 13.6% of the population. Iceland, with a broadband
penetration of 26.7% of the population, had the world's highest
penetration, leading Korea (25.4%) and The Netherlands (25.3%). The
UK placed thirteenth with 15.9 connections per 100 inhabitants and
the lowest broadband penetration within the OECD was in Greece at
1.4 broadband connections per 100 inhabitants[15].
Figure 5 - Broadband penetration by
households (top ten countries), World Broadband Statistics Q4 2005,
Point Topic, December 2005
As regards broadband penetration per household, around 27% of
households had a broadband connection in December 2005[16]; this
places Germany outside the top ten countries in the world. This is
far lower than the household penetration in Korea, the highest in
the world, which stood at around 78.5% of households at that time.
The highest household penetration levels in Europe were in Monaco
at 69% of all households, while The Netherlands and Denmark also
score highly with 58% and 54% respectively. Broadband penetration
per household in the UK is also ahead of Germany, with around 38%
of all UK households having a broadband connection[17].
BITKOM, the German Association for Information Technology,
Telecommunications and New Media, predict that broadband
penetration of households will rise to 34% in 2007[18].
In terms of the business market, there are more than 3.2
million businesses in Germany; with small and medium sized
enterprises (SMEs) accounting for over 99% of them. Latest figures
in 2004 show that 94% of all enterprises with 10 or more full time
employees had internet access. The figures also show that 54% of
all enterprises with 10 or more full time employees used a
broadband connection. Both figures are slightly ahead of the OECD
average
[19].
Figure 6 - Internet and broadband
penetration of businesses, OECD Science, Technology and Industry:
Scoreboard 2005
The German government is keen to promote ICT and broadband
usage in businesses and, as part of the Information Society Germany
2006 strategy, it has set an objective of increasing extensive use
of eBusiness to 40% of SMEs by 2008.
As regards broadband infrastructure, figures from Ovum
indicate that 91% of the German population could access a broadband
service in September 2005[20]. This indicates that there has been
little growth in coverage recently as broadband was available to
around 90% of the population as early as 2003. Despite this, the
Federal Government has stated that it considers that broadband
coverage is widespread and, as such, does not envisage using any
public funding for the purposes of increasing coverage.
Figure 7 - Estimated broadband
coverage, Analysys Research, September 2005
An initiative aimed at increasing broadband coverage has been
launched by Eco, the registered association of German internet
enterprises. The initiative aims to wipe out all broadband
not-spots (areas where broadband services are unavailable)
throughout the country with a particular emphasis on promoting
broadband access in areas where it is not commercially viable to
provide DSL products. The main focus is on using alternative
broadband technologies in order to make broadband available to
consumers and businesses.
The initiative started with an information campaign road show
on alternative broadband suppliers in undersupplied regions which
started from summer 2005 and will run through to the second quarter
of 2006. Once awareness has been raised, the second stage will be
to customise solutions to regional needs. Eco's ultimate intention
is to bring together all relevant players - towns, municipalities,
ISPs, business and customers - in the initiative to remove all
broadband not-spots through the promotion of technology
neutral access platforms
[21].
Furthermore, the incumbent, Deutsche Telekom, has been
trialling WiMAX with the intention of furthering its coverage
in order to provide broadband services in rural areas. As such,
broadband coverage seems likely to near 100% within the near
future.
In terms of broadband services, in December 2005, by far the
dominant technology was DSL, accounting for around 98% of total
broadband connections. Cable accounts for the majority of the
remaining share with around a 2% share of total broadband
connections
[22].
Figure 8 - Western European
broadband market by technology type, Analysys Research, December
2005
DSL
After enjoying a quasi-monopoly of its own lines for some
time, competition to Deutsche Telekom emerged in April 2004 when a
wholesale product was enforced upon it, allowing retail ISPs to
resell the incumbent's lines. Despite the recent success of
reselling, there are no plans for the introduction of a bitstream
product into the market and uncertainty over regulation of the
wholesale market means that a bitstream product is unlikely to be
launched in the near future[23].
With regards to DSL coverage, more than 90% of households are
able to access broadband services via DSL. Conditions for DSL are
particularly favourable in Germany due to an average local loop
length of 1.5-2km. In contrast, only 17% of UK households and 19%
of Welsh households have a local loop length of 2km or less.
Furthermore, around 95-98% of all lines are compatible for
DSL[24].
Deutsche Telekom has been trialling ADSL2+ and VDSL2 during
2005. ADSL2+ services are expected to be launched in May 2006.
Furthermore, the incumbent is committing EUR3 billion for a FTTN
(Fibre-to-the-Node) build in fifty of the largest cities in
Germany, which requires Deutsche Telekom to shorten local loops and
deploy DSLAMs closer to the end-user. Deutsche Telekom believes
that it will connect approximately 2.9 million households to the
new network by mid-2006, with fifty cities connected and running
50Mbps VDSL2 services in 2007[25]. The deployment of the new VDSL
network has created some regulatory issues; the incumbent contends
that the new network should be exempt from existing regulation,
since the services it will provide constitute a new market.
The possibility of the incumbent offering VDSL services and
not having to offer a wholesale product to other operators has
prompted some competitors to offer to contribute towards the cost
of the new infrastructure in return for being able to offer their
own VDSL services over the new network. However, the European
Commission has argued that there is no basis for claiming a
separate market for VDSL and that ADSL2+ enables comparable
services making it likely that Deutsche Telekom will have to
provide a wholesale VDSL product to competitors.
The main form of competition to the incumbent comes from local
loop unbundling (LLU), which has been available since 1998. Despite
this, competitors have focused on the business market and have made
little impact on the residential market, resulting in relatively
high prices for such a large market.
The cost of local loop access fell in June 2004 after the
European Commission intervened to increase competition. The price
reduction had taken four years to materialise since Deutsche
Telekom were instructed to reduce prices and formal proceedings
were only narrowly avoided. Further price reductions for full
unbundling were seen in April 2005, boosting the residential LLU
market.
Figure 9 - Unbundled DSL lines as a
percentage of total DSL lines, ECTA, December
2005
Figures from
ECTA
show that 2.5 million local loops were unbundled by the end of
December 2005. This represents 24% of the DSLmarket; one of the
highest LLU shares of the DSL market in Western Europe and is an
increase from 920,000 unbundled lines and a 14% share at the end of
December 2004
[26].
Since LLU action was taken by the regulator in 2002, an
increasing number of operators have seen competition increase and
Deutsche Telekom's share of the market gradually decrease.
Arcor, the second largest fixed-line operator with over a
million unbundled DSL connections, has an unbundled broadband
offering in 300 cities and by the end of 2006 plans to cover 45% of
the population[27]. Meanwhile, QSC has unbundled exchanges in 110
cities and is continuing to expand its coverage, although it is
concentrating mainly on the business market after scaling back its
presence in the residential market.
Furthermore, Tiscali has started unbundling in the Frankfurt
area and plans to invest EUR60-70 million in LLU in order to reach
50% of all households by 2008. Meanwhile, Telefónica Deutschland
has announced its intention to extend its coverage to 40% of all
households and is wholesaling its DSL services to other ISPs and BT
Germany has also launched a DSL wholesale service[28].
With regards to higher bandwidth services, United Internet,
Versatel, Arcor, QSC and Telefónica Deutschland have all launched
or announced plans to launch high-speed ADSL2+ services in their
unbundled areas.
A challenge for Deutsche Telekom is the difficulty for the
incumbent to define competitive national rates, as it is competing
with different players in different regions, such as HanseNet,
which has more than a 50% share of the market in its home town of
Hamburg. In June 2005, Deutsche Telekom's T-Online unit reduced the
monthly rate for its best-selling DSL package by 50% in response to
these competitors' price cuts.
Around 31 million households (80% of all households) are
passed by a cable network and 22 million are connected. However,
most of these networks have not been upgraded for cable broadband
and at the end of 2005 only 6 million households (15% of all
households) could receive broadband services over cable
networks[29].
A priority for the broadband market is to stimulate the
upgrading of cable networks for broadband through the restructuring
of cable operators. Most cable networks were previously owned by DT
who did not offer cable broadband but concentrated on DSL and as
such, the cable networks were not upgraded. The current ownership
structure of cable networks is highly complex and is the result of
misguided state involvement[30].
It is estimated that to upgrade cable networks for the
provision of bi-directional broadband services would require
investments in the region of EUR9 billion. However, the
restructuring and consolidation of cable network ownership would
increase the value of large-scale infrastructure upgrades.
There are signs that further cable networks are beginning to
be upgraded: Kabel Deutschland, the largest cable operator, is
planning to upgrade 90% of its network for broadband services by
the end of 2008.
Fixed Wireless Access (FWA) licences were awarded to 12
operators in 1999, but, as in most other countries, customers have
been difficult to attract due to the widespread availability of DSL
and most of these operators became bankrupt.
Deutsche Telekom launched a WiMAX trial in July 2005 with the
intention of bringing broadband services to rural areas. Arcor has
also launched WiMAX service in Berlin, Dusseldorf and
Kaiserslautern.
As regards public access 'hotspots', there were around 25
providers operating more than 6,000 wireless 'hotspots' by the end
of 2005.
There are a few small fibre networks located around the
country. One such project is taking place in Schwerte,
Nordrhein-Westfalen and is being run by the Stadtwerke Schwerte
Ruhrpower, which is 47% owned by the municipality of Shwerte, 23.5%
by the city of Dortmund and 23.5% by the RWE Energy group.
Furthermore, local operator NetCologne has announced that it
will invest EUR200 million in fibre to bring FTTH services to the
city of Cologne.
Analysys Research estimate that there were around 9,500 fibre
broadband connections at the end of 2005.
Analysys Research estimate that there were around 28,000
satellite broadband connections at the end of 2005. This represents
a fall of around 13,000 connections since the end of 2004.
Power-line
Germany is one of the few European markets where broadband
over power-line services are commercially available. However, the
number of subscribers is limited and the technology is not expected
to have much of an impact on the wider market. Analysys Research
estimate that there were around 9,700 broadband connections
delivered over power-lines at the end of 2005.
In terms of operators, the German telecommunications market
has historically been dominated by the incumbent, Deutsche Telekom,
although LLU operators have started to increase their share of the
market. Deutsche Telekom lines accounted for 75% of all wholesale
DSL lines in December 2005. This equates to 74% of all wholesale
broadband connections. The second largest player in the market is
Arcor, which also resells its services to retail ISPs. In December
2005, Arcor had a share of around 9% of the total wholesale
market.
According to Deutsche Telekom there were over 60 companies
offering DSL lines in 2005, either through resale or over their own
infrastructure. Furthermore, there are almost 40 operators offering
high-speed broadband services over cable networks[31].
Historically Deutsche Telekom has been very dominant in the
retail DSL market. However, due to the introduction of a resale
offering in April 2004 and increasing investments in LLU, its
market share is beginning to decline.
According to Analysys Research, Deutsche Telekom's retail
subscription accounted for 47% of total broadband connections at
the end of 2005. This equates to a 49% retail share of the DSL
market.
The use of more sophisticated broadband services, such as
IPTV, VoD, etc., is on the increase. These sophisticated services
generally require higher bandwidths than required by traditional
broadband applications and, as such, the average bandwidth of
connections is increasing. Broadband experts predict that the
average connection speed will increase from 1Mbps in 2004 to over
30 Mbps in 2015. The main applications expected to drive bandwidth
increase are VoIP, VoD and converged triple-play
services[32].
A recent trend in the market is the introduction of
fixed-mobile bundles. Operators, QSC and BT Global Services, have
both launched fixed-mobile packages for the business sector and
residential services are expected in 2006. To combat this threat,
Deutsche Telekom has launched a device that can be used over a
fixed-line and a mobile network. There are two options with the
service; use of standard PSTN for the fixed-line calls or the use
of VoIP via a WLAN connection.
Deutsche Telekom launched a VoD service at the end of 2003
offering films for EUR3-4 each. Around 100,000 films were
downloaded during December 2005. Deutsche Telekom also offers a
music download service and an online gaming service.
Findings from the Deutschland Online 3 study suggest that the
percentage of households using VoD will reach 23% in 2015.
Deutsche Telekom is planning to launch an IPTV service during
the latter half of 2006. It intends to offer 100 free channels as
well as pay-TV channels, including live football in HDTV.
Germany is far more advanced in
VoIP usage than many Western European countries. There were around
50 companies offering mass-market VoIP services at the end of
2005.
AOL launched a VoIP service in April 2005 offering unlimited
national calls for EUR8.99 per month. Furthermore, Arcor launched a
VoIP service in April 2005 which included video-telephony and calls
via WiFi hotspots, while United Internet and freenet.de have been
offering VoIP services since 2004[33]. A number of cable operators
have also launched VoIP services.
Findings from the Deutschland Online 3 study suggest that the
percentage of households using their broadband connection for
telephony will rise from 1% in 2004 to 35% in 2015.
Deutsche Telekom is looking to triple-play for future growth
and has targeted 1 million triple-play customers by the end of
2007. Competition may come from cable operator Kabel Deutschland,
who plan to upgrade 90% of their network for triple-play services
by the end of 2008.
Findings from the Deutschland Online 3 study suggest that the
percentage of households subscribing to a triple-play package will
rise from 4% in 2005 to 32% in 2015.
In terms of pricing, the cost of basic 'first generation'
broadband packages has decreased significantly since 2001, falling
from a high of around EUR60-70 per month for a 0.7Mbps service in
2001, to around EUR20 per month for a 1 or 2Mbps service. As
a result, prices for 2005 are similar to other Western European
markets; in The Netherlands and France similar services cost around
EUR25-30 per month
[34].
With regards to residential 'second generation' broadband
services
[1], in
December 2005, 6Mbps services were available throughout the country
costing around EUR25-40 per month. These prices are similar to
comparable services in the UK and France which cost around
EUR30-40. Within some unbundled areas 16Mbps services were
available via ADSL2+ technology at a cost of around EUR60 per
month. However, 'second generation' services are available for as
little as EUR15 per month in some unbundled exchange areas of
France, making Germany relatively expensive for higher-speed
services
[35].
The German broadband market is relatively under-developed when
compared to other Western European markets considering the size of
the market. This has largely been due to the dominant position of
the incumbent operator which was very late in allowing competition
through the reselling of its wholesale products.
Broadband penetration levels are average for Europe at 13
broadband connections per 100 inhabitants at the end of 2005. This
is a long way short of internet penetration levels in leading
nations such as Korea and The Netherlands of more than 25
connections per 100 inhabitants, indicating that there is plenty of
scope for further growth in the broadband market. Furthermore,
household penetration figures of 27 broadband connections per 100
households trails tele-density levels by some way; Analysys
Research estimate that there were 89 fixed telephone lines per 100
households. These figures, and the fact that broadband growth is
still strong, suggest that the market is unlikely to near
saturation for some time.
In order for the market to progress, competition from other
technologies is needed to stimulate the market. Investments inthe
cable networks would increase competition and also ensure
sustainability of networks as higher bandwidths will be demanded in
the future.Cable operators are consolidating and agreeing resale
agreements, thus creating the environment necessary for large-scale
investment in the networks that are required for upgrading for
broadband services.
In terms of services, focus in the market has moved towards
the provision of triple-play services and the incumbent, LLU
operators and cable operators are all looking at this area for
future revenue growth.
The major FTTN/VDSL deployment that is being undertaken by the
incumbent will bring very high-speed services to large areas of the
country, allowing greater use of more sophisticated broadband
applications and services including the possibility of converged
triple-play. However, the regulatory uncertainty surrounding this
new network will create uncertainty over future investment and a
swift and satisfactory conclusion is required to maintain the
confidence of leading operators. The outcome of the dispute will be
of interest to the whole of the European telecommunications
industry as it is likely to give indications as to the direction of
future regulation from the EU.
Despite the uncertainty, alternative service providers
are building their own brands in the residential sector and taking
market share while further competition will emerge from mobile
operators moving into the broadband market. As such, the
battle for retail market share is likely to continue. Increased
competition, however, will squeeze the margins of infrastructure
owners and it is likely that the market will undergo some
consolidation.
In 2005, Germany's broadband market is becoming increasingly
mature with higher-speed services and sophisticated content
becoming increasingly available, while growth of new connections is
still strong. However, the low levels of competition from non-DSL
technologies need to be addressed if Germany is to become one of
Europe's leading markets.
[1]
For the purposes of this section 'second generation' services are
considered to be residential services with a downstream speed of
over 2Mbps using ADSL or cable technologies
[1]
International Monetary Fund,
World Economic Outlook
Database, April 2006
[2]
Western Mail,
Building better future? Not quite,
15
th June 2005
[4]
Deutschland Online,
Deutschland Online 3, June 2006
[6]
Analysys Research,
Country Report: Germany, March
2006
[7]
International Telecommunications Union,
World
Telecommunications Indicators, December 2005
[8]
OECD News Release,
OECD Standardised Unemployment Rate falls to
6.4% in December 2005, 10
th February 2006
[9]
Deutschland Online,
Deutschland Online 3, June 2006
[10] Analysys Research,
Country Report:
Germany, March 2006
[11] OECD, ICT database and Eurostat, Community Survey
on ICT usage in households and by individuals, May 2005
[13] OECD, OECD Broadband Statistics, December 2005,
April 2006
[14] Point Topic, World Broadband Statistics:Q4 2005,
March 2006
[15] OECD, OECD Broadband Statistics, December 2005,
April 2006
[16] Federal Network Agency,
Annual Report
2005, February 2006
[17] Point Topic, World Broadband Statistics:Q4 2005,
March 2006
[18] BREAD,
Second report on the
multi-technological analysis of the 'broadband for all' concept,
focus on the listing of multitechnological key issues and practical
roadmaps on how to tackle these issues, August 2005
[19] OECD, ICT database and Eurostat, Community Survey
on ICT usage in enterprises, May 2005
[20] Ovum,
International Broadband Market
Comparisons, January 2006
[21] EuroISPA, Newsletter, May-June 2005
[23] Analysys Research,
Country Report:
Germany, March 2006
[24] Ovum and Beacon,
The BEACON Broadband
Knowledge Base Report, September 2005
[25] Ovum,
Deutsche Telekom opts for VDSL2,
2006
[26] ECTA, Broadband Scorecard Q4 2005, May 2006
[27] Wireless Watch, August 2006
[28] Analysys Research,
Country Report:
Germany, March 2006
[29] Federal Network Agency,
Annual Report
2005, February 2006
[30] Ovum and Beacon,
The BEACON Broadband
Knowledge Base Report, September 2005
[31] Federal Network Agency,
Annual Report
2005, February 2006
[32] Deutschland Online,
Deutschland Online
3, June 2006
[33] Analysys Research,
Country Report:
Germany, March 2006
[34] Analysys Research,
Broadband Pricing
Study, December 2005
[35] Analysys
Research,
Broadband Pricing Study, December 2005