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Service Provider Obligation: Network Operators vs. Smaller Mobile Operators

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Service Provider Obligation: Network Operators vs. Smaller Mobile Operators

The competition on the German mobile phone market could soon intensify: With a so-called service provider obligation, the large German mobile phone network operators are to be forced to let smaller competitors onto their network. For companies like Freenet and EWE Tel, which are dependent on the networks of Telekom, Vodafone and O2 for the sale of mobile phone contracts, this would be a boost – their position would improve considerably. The network operators, however, reject the obligation to rent. Now politicians are speaking up and signaling that they would be in favor of a corresponding regulation.

“Fair access by service providers strengthens competition,” says Maik Außendorf, a member of the Greens in the Bundestag. This benefits the interests of consumers, since competition ensures lower prices and better service quality. Linke Anke Domscheit-Berg is also in favor of it. This stimulates competition and enables consumers to access modern mobile phone tariffs at reasonable prices, says the member of the Bundestag. The Federation of Consumer Organizations is also clearly in favor of this.

Politicians of a different persuasion are more reserved, but let their fundamentally positive attitude shine through. The CSU member of the Bundestag, Hansjörg Durz, says that functioning competition with service providers is a clear goal. The FDP deputy Reinhard Houben considers the competition on the mobile phone market to be restricted. “Against this background, it should be checked very carefully whether it would not make sense to integrate a service provider obligation into the next frequency requirements.”

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SPD MP Johannes Schätzl is rather cautious. “Of course, a service provider obligation is a very strong intervention in the market that would have to be well justified,” he says, pointing out that the network operators would now have to refinance their investments.

The German mobile phone market is dominated by the three network operators Telekom, Vodafone and Telefónica Germany. They each have a market share of more than a quarter, according to a study by the industry association VATM in 2022. Only 17 percent of mobile service revenue goes to the competition. Among the small ones, Freenet is still the largest with eight percentage points. Freenet doesn’t do bad business, the Hamburg company is profitable and wants to increase its profits in the coming years.

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Representatives of network operators stand on end when it comes to service provider obligations. They argue that competition in the mobile market does work, and they fear that the rental obligation will partially devalue their investment in new networks. “The demand for compulsory 5G sales at fixed junk prices would slow down network expansion in Germany,” says a Vodafone spokesman. There would be a “redistribution of funds away from those who urgently need it to build new cell towers and close dead spots, towards those who want to further maximize their own profits without great effort”.

A Telekom spokesman argued similarly. “One builds and the other has fun? That’s not a fair model,” he says. Germany has “a strong mobile communications market for third-party providers, including on the Telekom network.” Even stricter regulation than before would “further complicate the necessary investments in network expansion”. That would also be unfortunate for customers, after all, the network expansion is very important for them.

There used to be said service provider obligation, but it has now expired. In the frequency auction 2019 a softer “negotiation rule” was laid down. This means that the big three have to negotiate with the small mobile companies without their own network – but there is no obligation to conclude a contract. Now, to a certain extent, the crucial question is whether contracts for 5G capacities were concluded as part of the negotiation requirement at the time – or whether it was a blunt sword that did not help the smaller companies at all and they were left out with 5G.

So far, the mobile phone companies that do not have their own network have relied on the slower 4G wireless standard. However, since 5G is now becoming more and more commonplace, access to this radio standard is extremely important. If the virtual network operators do not get 5G, they will soon come under pressure on the market.

But do the smaller mobile phone tariff providers really not have 5G? The Social Democrat Schätzl calls for more clarity and transparency in this regard. The Federal Network Agency should clarify all open questions and present the current state of affairs objectively, he says.

In fact, after 2019 there were contracts for 5G, but not many. A Freenet spokesman reports that there are three 5G tariffs. However, these are “almost not in demand”, also because they are relatively slow – the maximum speed has been lowered, so it is not as high as with a 5G contract from Vodafone. In addition, these Freenet 5G tariffs are “premium”, according to the company spokesman – meaning that they are quite expensive.

A statement by Freenet board member Rickmann von Platen makes it clear how heated the debate is. He accuses the network operators of “discriminatory behavior” that the network agency should finally end. The big three reject the accusation of discrimination. For example, Telefónica emphasizes that the negotiation requirement should be exercised “in a spirit of partnership and constructively”.

A decision on the service provider obligation is not yet in sight, the network agency will make it as part of the frequency allocation in 2024. It is quite possible that the disputed issue will end up in court afterwards. The advisory board of the authority, in which federal politicians and state representatives sit, meets this Monday in Berlin. The controversial topic should come up for discussion.


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