Revenue from German Telecoms Market to Drop by 3.6% in 2009—Study

VATM, a German industry association consisting of incumbent Deutsche Telekom's competitors, has released its study on the local telecoms market in 2009. In the study, the VATM estimates the market's combined revenue base to total 62 billion euro in 2009, which would mean a year-on-year (y/y) decline of 3.6%. In the estimate, the fixed operators account for 34.2 billion (down 3.2% y/y), the mobile operators for 23.6 billion (down 7.1% y/y), and cable operators for 4.2 billion (up 16.7% y/y) of the revenue.

Outlook and Implications

• Cut-Throat Competition in Mobile Sector Drives Down the Total: In terms of revenue, the value of Germany's telecoms market reached its peak in 2006, when the combined revenue according to the VATM amounted to 68.8 billion euro. In every year since then, the revenue base has shrunken, on average rate of 2.2% and with the current year showing the hitherto largest annual drop. Only the cable sector has shown an increase, owing to the upgrades which have enabled the broadband and VoIP provision. On one hand, this tells of an overall market saturation and correspondingly intensified price competition, and on the other hand the tight economic environment which has exacerbated the pace of the revenue decline, especially in the mobile sector, where the regulatory interventions such as reductions in roaming charges and mobile termination rate (MTR)s have also played a role. The trend can be best seen if compared the volume of telephone calls between the fixed and mobile networks. In 2009, the fixed calls—including VoIP—are estimated by the VATM to account for 649 million daily minutes, down 2.6% y/y, whereas the volume of mobile calls are to total 253 million minutes, up 9.5% y/y despite the drastic decline in the generated revenue. The growth in mobile data has offset the contraction to a certain extent—with the VATM forecasting that in 2009 the data services will represent 13.7% of the overall mobile revenue, against 11.9% in 2008—but the sector's cut-throat competition is set to undermine the future gains also on this front. Against this background, IHS Global Insight sees the utilisation of the lower frequency bands—most notably 800 and 900 MHz—as crucial for the mobile operators to keep up with the competition, since the network deployments in this part of the spectrum will allow them to expand the addressable market without significant increases in capex and opex. Much will now depend on the next year's frequency auction, as well as the manner in which regulator BNA will refarm the GSM (i.e. 900 and 1,800 MHz) bands; if one of the players will be left without a sufficient share of the lower frequencies, also the mobile market may well be set for more consolidation (see Germany: 6 November 2009: Telefónica Buys Hansenet from Telecom Italia for 900 mil. Euro and Germany: 27 October: German Regulator Releases Details for 2010's Spectrum Licensing).