Germany Telecommunications Report Q3 2012

The first quarter of 2012 saw a reversal of the strong growth in mobile subscriptions reported by operators in 2011, with the market losing a total more than 900,000 subscribers. This saw total subscriptions decline to 113.2mn at the end of March 2012. However, despite a difficult start to 2012 and the spectre of economic crisis looming over the economy, BMI believes significant opportunities remain in the Germany telecoms market. This report analyses recent trends and developments at the market and operator level to provide insight into the development of the market in the coming years, both through qualitative views and our quantitative forecasts of the mobile, fixed-line and broadband markets, as well as mobile ARPUs, which all run through to 2016.

Despite the reversal of growth in the mobile market in Q112, Germany remains in fourth place in BMI's Risk/Reward Ratings Germany's improving position is largely due to the continued growth in the market, underpinned by its strong Country Risks and Country Rewards scores. However, with the eurozone crisis, and specifically questions around Greece's membership, intensifying in May 2012, there is potential for Germany's score to be negatively impacted in the coming quarters.

Looking beyond the most recent quarter and the macroeconomic environment, the German market is home to strong competitive dynamics, driving service uptake and innovation. Operators are currently extending the reach of LTE networks, with Vodafone and T-Mobile beginning to market commercial services in urban areas after meeting rural coverage requirement as part of their sub-1GHz licences. O2 is set to follow with urban roll-out of LTE services in Q312. BMI considers the increasing coverage of LTE services, among the most extensive in Europe, likely to boost the mobile data market, as well as introducing a new dynamic of competition for fixed-broadband providers now competing against mobile broadband able to offer comparable bandwidth. In fact, Vodafone is speculating that it may abandon wholesale DSL arrangements with Deutsche Telekom (DT) in favour of LTE broadband provision.

The German wireline sector is highly competitive with the incumbent, DT, and alternative DSL providers such as Telefónica-owned Alice, competing against cable providers including Liberty Globalowned Unitymedia (and now Kabel Baden-Wuerttemberg) and Kabel Deutschland. Cable providers are set to intensify competition following a period of consolidation that has seen Unitymedia acquire Kabel BW and, more recently in May 2012, Kabel Deutschland reached a preliminary agreement to acquire Tele Columbus. This threat is more intense as a result of cable providers' utilisation of the DOCSIS3.0 standard to offer cost-efficient, high-speed broadband services - tapping into consumer demand for next generation services.

However, BMI increasingly views innovation in pay-TV services as a threat to cable firms' recent successful streak in Germany. The first threat comes from DT's IPTV service, which has proved very popular with consumers. Meanwhile, a second threat comes from Sky Deutschland, which has made strides towards becoming a serious challenger via service innovation including Sky+ and Sky Go (multiscreen) in the past 12 months. BMI does not expect Sky to mirror its sister company BSkyB's successes in the UK as it does not offer converged services; however, the combination of multiscreen and acquisition of Budnesliga rights makes it a stronger competitive threat.