CEO Markus Haas interview with Handelsblatt:
“Germany has been doing things the wrong way.”
Speaking with the Handelsblatt business newspaper, CEO Markus Haas stated that legislators need to focus on boosting spending to expand infrastructure in the future. He expressed his opposition to forcing network operators to sign fair pricing agreements with service providers and explained that a fourth network would not help improve coverage in Germany. This post contains excerpts of that interview. You can find the complete interview online and in the print issue of Handelsblatt from 13 August 2018.
5G licensing, fibre-optic expansion, and Vodafone’s merger with Unitymedia... How profound are the changes being made to the German telecommunications market? Haas: In my view, we are making the rules for the next decade because we have new technologies, because we have players changing the market and because we have to think about the infrastructure that Germany needs. All three decisions will determine how well the networks will develop in Germany. There is also the question: how much investment potential do we want to elicit in Germany from the market and from the players? If we want to change the current situation of Germany being in the bottom 25% of the OECD comparison for both fixed networks and mobile communications, politicians have to use these three decisions to reinforce investments in the market. If possible, you don’t want to pay anything for 5G technology licences, but you still want to prevent obligations that would allow providers like 1&1 or Freenet to access your network? Haas: Germany’s telecommunications infrastructure is underinvested. Among others, we have one of the weakest networks and the most MVNOs (editor’s note: mobile virtual network operators, which do not have their own network, such as 1&1 or Freenet) in Europe. There has to be a connection. The backbone of Industry 4.0 will be 5G. I am absolutely sure of it. We have to invest in it and have the right framework conditions to be able to take advantage of the investment potential in an optimal way. Aren't you making it too easy on yourself? Telefónica Deutschland is at the bottom of CapEx ratios. Telekom and Vodafone invest significantly more in infrastructure. Haas: Our CapEx ratio is about 13%. Unlike the competition, we use this money solely to focus on mobile communications and not on fixed networks. Every year, we put about EUR 1 billion into mobile communications and that puts us in a good position. Why? Because after merging with E-Plus, we operate the most locations of antenna masts in Germany today. So we don’t have to pay a lot of money to build new locations. Right now, we are concerned with establishing new technologies and cooperating with all market players for fibre optics, so that we can supply all stations with fibre optic technology. The United Internet founder Ralf Dommermuth blames you – along with Telekom and Vodafone – for doing too little in the way of network expansion. So, he is offering to build a network himself. Would that not be a good idea? Haas: The conditions have been there since 2014 – United Internet has not invested a single euro. When we merged with E-Plus, we worked with the European Commission to define special framework conditions for possible newcomers. It must be done by September of next year. The European Commission used it to define a “starter kit” for prospective beginners. It includes frequencies and national roaming (editor’s note: the opportunity to be allowed to also use the competition’s mobile networks for a fee), but also an obligation to expand. Everything that is also being regulated now could worsen the framework conditions for new investments in the network.
What do you mean exactly? Haas: The way I see it, if someone thinks they can solve Germany’s infrastructure problems by building a fourth network, they have another think coming. Like I said, among others, Germany has one of the worst infrastructures in Europe and the most MVNOs. In contrast, the countries with the best infrastructure are focused on three networks. Politicians have an important decision coming up. Do they want to create the best infrastructure or go on doing as they have before? If we miss out on 5G, not only does the telecommunications industry have a problem, but then so does Germany. The economy is counting on us building the infrastructure so it can reap the efficiency gains from 5G. The idea of a fourth network will not put us at the top when it comes to networks. Dommermuth blames you along with Telekom and Vodafone of building an oligopoly. Is it not true that you want to exclude him? Haas: No, based on the rules the European Commission imposes on us, Mr Dommermuth has access to the entire Telefónica infrastructure in Germany. In addition, there is the starter kit for him to build his own network – including national roaming. That’s why we don’t understand the outrage. He could’ve started operating a network four years ago. The European Commission defined it in coordination with the market. United Internet was asked back then, like all market participants. My guess is that it is one of Mr Dommermuth’s individual interests. He is not interested in us having the best networks in Germany nationwide. It is all about his own company. And that’s also fair. He could call me up today and say: I want to use the starter kit. Then he could immediately get started. There is no need for any additional requirements. From your perspective, what exactly is the problem? Haas: German does not have a controlling company in its mobile market. No other major country in Europe has non-controlling companies forced to provide their network at regulated conditions like Germany. That isn’t the case in Spain or Italy or England. That is only the case in Germany. Considering that Germany has such a bad infrastructure, the Bundesnetzagentur has to ask themselves whether they want to further intensify the rules later and further weaken network operators. Because that impedes future investments and devalues the current investments of all providers. Telefónica alone invested EUR 30 billion in Germany in the last 12 years. What exactly does that mean for 5G? Where do you draw the line? Haas: We need acceptable payment conditions. We don’t need service provider obligations, national roaming or regional frequencies. Then we would be ready to invest more nationwide, and quickly. Would you ever have the money for 5G expansion? In the last quarter, you had a loss of EUR 12 million. Your Spanish parent company has to reduce debt. Little is to be expected from there, right? Haas: We absolutely have the money and we are continuing to invest. Telefónica Deutschland has a low debt ratio. In addition, the 4G costs have fallen dramatically. I can buy 4G technology way cheaper today than three years ago. Investing at the right time also creates value. Where will Telefónica Deutschland be in one year? Haas: In one year, we will have completed the largest and most modern mobile network in Germany. We will have received favourable 5G licencing that we can invest in. We will have flipped the switch on the first 5G test station, which we can also use commercially. And we will have fulfilled the mobile communications pact by reaching 99% network coverage for 4G under investment-friendly framework conditions.