Deutsche Telekom tariff plan engenders strong opposition

Date: 28/03/1996

By Fiona McHugh

DEUTSCHE Telekom, Germany's state-owned telecoms company, will soon be told whether or not its tariff restructuring plan breaks EU competition law.

According to officials in the European Commission's competition authority, DGIV, the German phone monopoly has furnished them with detailed information on its proposed price changes, as requested, which officials must now sift through before a decision can be reached.

“This is the unit's priority now. We will reach a decision certainly before the end of April,” said one official.

Deutsche Telekom's announcement of discounts of up to 39&percent; on corporate phone bills - as part of a strategy to meet competition head on once the market has been liberalised in 1998 - has been met with furious opposition both at home and abroad, from politicians and rival phone companies alike.

Leading German parliamentarians lambasted the company for planning, inter alia, to raise the cost of certain local calls by up to 156&percent;.

The national telecoms regulatory council said earlier this year that it would not allow the proposals to go ahead if the state-owned company refused to match business discounts with cheap deals for residential customers.

Wolfgang Bötsch, the German Post and Telecoms Minister, gave a provisional go-ahead to the tariff re-balancing scheme after Deutsche Telekom agreed to introduce two new tariffs offering cheaper rates to frequent callers by the end of the year.

That would involve the complete digitalisation of the country's telecoms network, a task which would cost something in the region of 5.3 billion ecu.

But the national regulatory authority held off making a final decision, preferring instead to wait until the Commission delivers its verdict on the case.

A number of private firms, including Viag Intercom, RWE and Mannesmann, who are all locked in an increasingly bitter battle for market share in Europe's biggest telecoms market, have lodged complaints with DGIV, saying Deutsche Telekom's discounts amount to predatory pricing.

They accuse the state-owned company of using unfair practices to squeeze competitors out of the newly-liberalised telecoms market.

Deutsche Telekom chief executive Ron Sommer has defended his firm's position, saying bluntly: “We are a joint-stock company now. Politicians cannot tell us how to set our prices. We do not have billions to give out; we are not a charitable business.”

The Commission expressed fears earlier this year that Deutsche Telekom might be subsidising discounts to business customers by raising the charges for residential consumers, but it is not clear whether those fears have since been eased.

In a hint of the possible outcome of the DGIV decision, Competition Commissioner Karel Van Miert told journalists recently, in response to questions about the German case, that monopoly companies should not be allowed to restrict access to markets for competitors through aggressive price policies.

The Commission has also stated that special bulk discounts for corporate communications services are likely to be unlawful and should not be introduced until after alternative network infrastructures enter the phone market, a liberalisation step due to take place this summer.

If the price re-balancing scheme were to be blocked, it would mark a considerable set-back for the state monopoly as it prepares for privatisation later this year and pushes to secure the best possible position ahead of full liberalisation.