Germany Telecommunications Report Q3 2007

In the first six months of 2007, the number of German mobile subscribers grew by 6.3% to reach 91mn. The sector saw a 2.9% increase in subscribers in Q107 and a 3.3% increase in Q207. These figures mean that, in the first half of 2007, Germany's mobile market has already exceeded our previous growth expectations for 2007 as a whole. We now predict that the sector will grow by 9.6% for the year as whole, which means that 2007 is expected to be a year of faster growth than 2006. Possible reasons for the increased subscriber growth in 2007 include the impact which an increasing number of mobile virtual network operator (MVNOs) is having on the sector, as well as the emphasis which major operators such as T-Mobile have placed on prepaid growth; both of these developments, we believe, have contributed to the trend towards multiple SIM ownership and to an increasing number of inactive mobile users. In addition to Vodafone of the UK, Germany's mobile sector plays host to major investors such as O2, which is owned by Spain's Telefnica, and KPN of the Netherlands, which operates through its E-Plus business. The country's broadband and fixed-line market has also been successful at drawing in major investors, including Telefnica (through its Telefnica Deutschland business) and Telecom Italia, which operates in the market through its subsidiary HanseNet. The sector also boosts the presence of several private investment groups, including Permira Funds, which owns Germany's largest MVNO Debitel, Providence Equity, with its control over cable operator Kabel Deutschland, and Apax Partners, which owns alternative fixed/broadband operator (and recent MVNO entrant) Versatel AG. In January 2007, Apax Partners announced its plans to sell Versatel AG as part of an initial public offering. Other major developments in the past few months include the announcement in July 2007 that mobile operators T-Mobile, Vodafone and O2 were planning a joint bid for a national mobile TV licence, which uses the DVB-H (Digital Video Broadcasting - Handheld) standard, and which is expected to be awarded by the end of August 2007. Q207 also saw the sale of Deutsche Telekom's French and Spanish internet businesses Ya.com and Club Internet; the decision to sell the two foreign internet units forms part of Deutsche Telekom's efforts to boost profitability through an increased emphasis on core business activities. Meanwhile, Germany's mobile virtual network operator (MVNO) sector has also seen changes in the past few months, including the decision by Danish incumbent TDC to sell its German MVNO business Talkline to rival MVNO Debitel. Even without the Talkline acquisition, Debitel had an estimated 9mn subscribers at the end of Q107, making it Germany's fifth largest mobile operator in terms of customer numbers, as well as the country's largest MVNO. Meanwhile, in June 2007, the EC filed a lawsuit against Germany with Europe's High Court, in order to challenge a new telecoms law aimed at protecting the Deutsche Telekom's very high-speed digital subscriber line (VDSL) services from competition. It is partly because of our more critical assessment of Germany's current regulatory and competitive environment, and partly because the market's shrinking growth potential, that Germany remains in fourth place in Business Environment Rankings table for Western Europe.