Major regulatory decisions

Our business activities are largely subject to national and European regulation, which is associated with extensive powers to intervene in our product design and pricing. We were again subject to extensive regulation in our mobile and fixed-network businesses in 2016. The focus was mainly on the regulation of services for wholesale customers and the corresponding charges as well as the award of mobile frequencies.

REGULATION

Further vectoring roll-out agreed. On February 23, 2015, we applied to the Federal Network Agency to provide another 6.1 million households with superfast Internet connections (vectoring technology) in the areas near local exchanges (nearshore areas). The Federal Network Agency published the regulatory order on September 1, 2016, thus giving the green light for the vectoring roll-out. As part of an agreement under public law, we have undertaken to roll out vectoring technology in the nearshore area in more than 7,000 service areas throughout Germany. This is tied to a fine of up to EUR 224 million that will be charged if we fail to meet this contractually agreed roll-out target on time. The Federal Network Agency is currently reviewing the specific conditions required for nearshore vectoring by way of a reference offer procedure; this review is expected to be concluded by mid-2017.

Regulation on the bitstream market. The Federal Network Agency also regulates the offer terms and conditions for Layer 2 Bitstream access (BSA) products in a reference offer procedure. It reached a final decision on the reference offer on December 9, 2016. The rates were reviewed in a separate procedure and, on December 21, 2016, following the completion of an EU-wide consolidation process, were approved until November 30, 2017. On November 18, 2016, the Federal Network Agency launched a new, separate procedure to review whether payments for Layer 3 BSA can be offset against the purchase of Layer 2 BSA.

Applications for ULL monthly charges. On June 29, 2016, the Federal Network Agency published the final decision on monthly charges for unbundled local loops (ULLs) and for the necessary access to passive infrastructure: The charges for the main option – access to the unbundled local loop up to the main distribution frame – are 1.7 percent lower than the charges that were previously approved, taking them from EUR 10.19/month to EUR 10.02/month. The rental fees for cable ducts and dark fiber were also reduced substantially. The new rates took effect as of July 1, 2016.

Regulation of termination rates. For the first time ever, the Federal Network Agency has now set termination rates for mobile and fixed networks in accordance with European Commission recommendations on the basis of “pure LRIC cost modeling”. According to the draft decision on mobile termination rates (MTR), rates are to be reduced by more than 30 percent, staggered over three years. Fixed-network termination rates (FTR) are even to decrease by around 58 percent in the next two years from the current approved level. Provided the Commission does not express any serious doubts, the final decision on termination rates is expected in the first quarter of 2017.

Additional special taxes affecting our international subsidiaries. In addition to the existing special taxes, e.g., in Greece, Hungary, Romania, and Croatia, Greece introduced taxes of 5 percent on broadband Internet access and of 10 percent on pay TV as part of an additional package of measures.

AWARDING OF FREQUENCIES

The table on the following page provides an overview of the main spectrum awards and auctions as well as license extensions at our international subsidiaries. It also indicates spectrum to be awarded in the near future in various countries. For further information on the spectrum awards, please refer to the section “Risk and opportunity management”.

Main spectrum awards
  Start of award procedure End of award procedure Frequency ranges (MHz) Award process Acquired spectrum (MHz) Spectrum investment
Albania Q3 2017 Q4 2017 800 Sealed bid a
or auction
tbd tbd
Greece Q1 2017 Q2 2017 1,500/1,800/2,100/ 2,600 Details tbd tbd tbd
Macedonia Q2 2017 Q3 2017 900/1,800 Sealed bid a
or auction
tbd tbd
Montenegro Q3 2016 Q3 2016 800/900/1,800/2,100/2,600 Auction (CCA b) 2 x 20 in 800 MHz and further spectrum € 27 million
Austria Q3 2017 Q4 2017 3,500/3,700 Auction (CCA b)
(expected)
tbd tbd
Netherlands Q2 2014 Q1 2016 2,100 License extended
until 2020
2 x 20 € 24 million
Poland Q1 2015 Q2 2016 800/2,600 Auction (SMRA c)/
Sealed bid
a
2 x 10/2 x 15 Approx. PLN 4 billion
(around € 1.0 billion)
Slovakia Q1 2017 Q2 2017 1,800/3,700 Auction (SMRA c) tbd tbd
Czech Republic Q2 2016 Q2 2016 1,800/2,600 Auction (SMRA c) 2 x 10/1 x 25 € 27 million
Czech Republic Q1 2017 Q2 2017 3,700 Auction (SMRA c) tbd tbd
Czech Republic Q1 2017 Q2 2017 900/1,800 Extension of licenses (expected) tbd tbd
United States Q3 2016 Q1 2017 (expected) 600 Incentive auction d tbd tbd
 
a Submission of an individual bid in a sealed envelope, in some cases sequential, in several awards.
b Combinatorial Clock Auction, three-stage, multi-round auction for spectrum from all frequency ranges.
c Simultaneous electronic multi-round auction with ascending, parallel bids for all ranges.
d Quantity and prices of spectrum to be traded depends on spectrum surrendered by radio broadcasters.