Germany Telecommunications Report Q2 2008

During 2007, the number of German mobile subscribers grew by 13.4% to reach 97.151mn. In the final quarter of the year, mobile subscriber growth amounted to 4.1%, making Q407 one of the most significant growth quarters to date; it is notable that the 4.1% increase witnessed in Q407 was stronger than the 3.1% rise in Q406. With a mobile penetration rate which is now approximately 117.5%, Germany continues to have one of the highest mobile penetration rates in Western Europe. Furthermore, as mentioned in previous updates on Germany's mobile market, there is no real evidence from German subscriber figures of any significant slowdown in growth. We believe that one of the most likely reasons for the increased subscriber growth in 2007 includes the impact on Germany's mobile sector of an increasing number of mobile virtual network operators (MVNOs). However, it is also notable that major operators such as TMobile continue to place a strong emphasis on prepaid growth. Both of these developments have contributed towards increased multiple SIM ownership and an increasing number of inactive prepaid mobile users.

Despite the strong customer growth reported in 2007, we continue to anticipate a slowdown in subscriber growth in the near future, and we believe that this slowdown will be accompanied by market saturation and consolidation in the MVNO market. Nevertheless, we have upwardly revised our subscriber growth figures in light of the newly published data. We now predict that 2008 will see an 8.9% increase in subscriber numbers and that, from 2009 onwards, the slowdown in customer growth will be more gradual.

We predict that the number of German mobile subscribers will rise to almost 132mn by the end of 2012, an increase which would raise penetration to 159%. Although this is quite a bit higher than we previously suggested, it is still in line with the actual and projected mobile subscriber growth rates of many other European countries.

Meanwhile, Germany's broadband subscriber base increased by an impressive 33.7% during 2007, taking total subscriber numbers to 19.7mn (equivalent to 23.8% of the population). By the end of 2007, the incumbent Deutsche Telekom accounted for nearly 64% of all German broadband connections, significantly down from its end-2006 market share of nearly 70% and its end-2005 market share of almost 76%. At the end of 2007, 96% of all broadband internet connections were based on DSL technology, while cable was thought to account for 3.5% of total connections.

Germany remains in third place in our new set of Business Environment Rankings table for Western Europe. Despite receiving relatively strong scores for country risk, and for the state of its telecoms market, its overall score remains compromised by its inadequate regulatory independence.