Trends in Fixed Public Network Services: Germany, (Executive Summary) Executive Summary

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1 Trends in Fixed Public Network Services: Germany, (Executive Summary) Executive Summary Publication Date: October 18, 2002

2 Authors Michal Halama Katja Ruud Maureen Coulter Susan Richardson Lisa Unden James Woodcock This document has been published to the following Marketplace codes: TELC-WW-EX-0462 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2002 Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice

3 Trends in Fixed Public Network Services: Germany, (Executive Summary) This qualitative analysis of the fixed public network services market in Germany looks at the market trends, drivers and inhibitors for a wide range of voice, data, Internet and wholesale services for the period 2000 to In addition to providing an overview of the trends in the market, the report also provides market share data for year-end 2001 for a variety of different segments. This report should be used in conjunction with the quantitative statistics report for Germany to advise how the market is changing and how specific segments are affecting this change (see "Fixed Public Network Services: Germany, " [TCPM-EU-MS-0181 and TCPS-WW-MS-0218]). Market Highlights During 2001, Germany's fixed retail telecommunications services market grew by 8.0 percent to reach 28.9 billion euros, despite a toughened economic climate in the telecommunications and Internet sector. Voice remained the most dominant revenue stream, representing 74.8 percent of total retail revenue. Over the period 2001 to 2006, voice telephony revenue will begin to dwindle, as a result of competition and price cutting evolving at a compound annual growth rate (CAGR) of minus 0.9 percent to 20.6 billion in 2006, 58.3 percent of the total fixed telecommunications retail service revenue. Data services grew strongly in 2001 to 3.9 billion euros, with 13.7 percent of total revenue for fixed retail telecommunications services. Between 2001 and 2006, managed data services (in particular IP virtual private network [VPN]) and broadband-related services will drive up data communications revenue, despite lowering unit prices. Total data service revenue will grow at a CAGR of 14.6 percent to 8.1 billion euros in 2006, which will be 23.0 percent of total fixed telecommunications services revenue. Total wholesale voice and data revenue grew by 20.1 percent in Germany during 2001 to reach 4.5 billion euros. By the end of the forecast period, total wholesale voice and data services will grow at a CAGR of 7.2 percent to reach 6.4 billion euros. Wholesale voice revenue reached 2.9 billion euros at the end of 2001, and is forecasttoincreaseto3.3billioneurosin2006atacagrof2.2percent. Wholesale data revenue reached 1.6 billion euros at the end of This represented 35.4 percent of the total wholesale voice and data revenue. By the end of 2006, wholesale data services will represent 49.0 percent of the total wholesale voice and data revenue, with a total of 3.2 billion euros. Real gross domestic product (GDP) in Germany at the end of 2001 was 2,261.9 billion euros, rising to 2,559.9 billion euros by the end of This is a CAGR of 2.5 percent over the forecast period. Germany's growth rate is put into perspective by comparing it with the large economic countries in Europe. France had a real GDP of 1,656.1 billion euros at the end of By 2006, this will have risen to 1,891.1 billion euros. This is a CAGR of 2.7 percent over the period. The United Kingdom had a real GDP of 1,403.7 billion euros at the end of 2001, rising to 1,595.3 billion euros at year-end This is a CAGR of 2.6 percent from 2001 to Gartner, Inc. 1

4 2 Trends in Fixed Public Network Services: Germany, (Executive Summary) The total fixed services telephony spend by head of population was euros in This had risen to euros at year-end For a comparison, France spent euros per head of population in 2001, which is expected to rise euros in The United Kingdom spent euros per head at year end 2001 and this is forecast to rise to euros at year end Average spend per head for Western Europe in 2001 was euros in 2001 and is forecast to rise to euros by year-end Lower-than-average household income environment curbs demand for premium services, continuting the demand for dial-up. ISPs should develop content and applications that exploit narrowband. Figure 1 Total Fixed Telecommunications Retail Service Revenue, by Segment Germany, 2001 Total Voice Other Revenue (16%) Total Local Call Services Revenue (18%) Total ATM Revenue (2%) Total ISP Access Revenue (9%) Total Other Data Services Revenue (7%) Total Leased Line Revenue (2%) Total DSL and Cable Modem Revenue (2%) Total Frame Relay Revenue (1%) Total Retail Web-Hosting Revenue (1%) Total Value-Added IP Services Revenue (2%) Managed IP VPN (0%) Total National Call Services Revenue (18%) Total Exchange Line Rental and Connection Revenue (23%) ATM = Asynchronous transfer mode DSL = Digital subscriber line VPN = Virtual private network Source: Gartner Dataquest (August 2002) 2002 Gartner, Inc. October 18, 2002

5 Trends in Fixed Public Network Services: Germany, (Executive Summary) 3 Figure 2 Total Fixed Telecommunications Retail Service Revenue, by Segment Germany, 2006 Total National Call Services Revenue (12%) Total Voice Other Revenue (13%) Total Other Data Services Revenue (9%) Total DSL and Cable Modem Revenue (6%) Total Value-Added IP Services Revenue (4%) Total ATM Revenue (3%) Total Frame Relay Revenue (2%) Managed IP VPN (2%) Total Retail Web-Hosting Revenue (2%) Total Leased Line Revenue (2%) Total ISP Access Revenue (13%) Total Exchange Line Rental and Connection Revenue (20%) Total Local Call Services Revenue (14%) ATM = Asynchronous transfer mode DSL = Digital subscriber line VPN = Virtual private network Source: Gartner Dataquest (August 2002) Regulatory Issues Unbundling of the local loop has been established in Germany since February At the end of September 2001, there were 549,000 unbundled lines out of a total of 39.6 million, equating to 1.4 percent. Deutsche Telekom has offered asymmetric digital subscriber line (ADSL) to business users since April 1999 and to retail users since July However, alternative operators allege they cannot offer their own DSL products as the incumbent does not offer wholesale on its shared or bitstream access. This is also hindered by the incumbent's aggressive pricing strategy for retail highspeed services which prices alternative operators out of the market. Alternative operators are concerned about the bundling of Deutsche Telekom's retail long-distance and local offers, as local preselection ejects them from the prospect of offering local voice telephony to 70 percent of the population. Competition Rating Deutsche Telekom continues to hold its dominance in the local voice telephony sector with 95 percent market share. However, it is facing increasing competition for the more lucrative revenue of international calls, and held slightly more than 52 percent market share in This increased competition has come from operators such as Arcor and BT Ignite Gartner, Inc. October 18, 2002

6 4 Trends in Fixed Public Network Services: Germany, (Executive Summary) More than 240 providers offered voice telephony services at the end of 2001 in Germany, more than a third (90) provided call by call, preselection and direct access over their own networks and the others were resellers. There are now approximately 104 interconnection agreements in place for interconnection between Deutsche Telekom and alternative operators. Other operators are also interconnecting their own networks to reduce their dependence on Deutsche Telekom. Despite a tougher economic climate, more than 2,000 sent notification of operation to the regulator, Die Regulierungsbehörde für Telekommunikation und Post (REG TP) at the end of Operators active in the German telecommunications market during 2001 included, city, regional, national, international and Pan-European players: Mannesmann Arcor, MobilCom, BT Ignite (formerly Viag Interkom), Colt, New Line, Talkline, Debitel and a number of other national and international providers. Consolidation will continue, reducing the number of strong competitors to Deutsche Telekom. Glossary "The forecast period," "the forecast" and "the period" all refer to the full years from 31 December 2001 to 31 December 2006, unless otherwise stated in the text. Links For the full report, see the Market Trends report "Trends in Fixed Public Network Services: Germany, ," which is published to the Public Network Services Worldwide and the Telecom Public and Mobile Services Europe Clusters: TCPM-EU-MT-0133 TCPS-WW-MT Gartner, Inc. October 18, 2002