Discussion Papers

Peter Stamm, Franz Büllingen

Kabelfernsehen im Wettbewerb der Plattformen für Rundfunkübertragung – Eine Abschätzung der Substitutionspotenziale
Nr. 239 / November 2002


Germany’s cable industry is currently undergoing a time of poor business development. In large parts of the country the bidirectional network upgrading and a more efficient network utilisation will not take place until Deutsche Telekom has succeeded with its network sale. In regions where the network has already been sold, the new regional operators have run into financial troubles with their initial upgrading strategies and need to adjust their business plans. The biggest obstacle for network development and marketing of new cable services is the separation of network level 3 and 4. Whereas sound business models for interactive cable services are expected to be realised only with vertically integrated network levels and a much higher degree of concentration among the cable network operators.

At present, the decisions of German Federal Cartel Office are constituting a major hurdle for necessary concentration processes. The veto against Liberty Media's planned acquisition of Deutsche Telekom's cable networks as well as previous decisions were made on the basis of quite narrow market definitions. Consequently the competition authority allows mergers only if positive effects on neighbouring telecommunications markets are expected within a three years period. Retaining this narrow market definition involves the risk of continuing stagnation and of cable networks staying permanently behind competing technologies like DSL. In this case, network upgrades will be made at best selectively in bigger NL-4 networks.

The objective of this paper is to consider the conditions for a wider market definition. In the centre of attention are questions concerning the qualitative substitutability, the costs of switching over to and using alternative TV platforms and in particular the legal obtions to do so. Regarding the variety of TV programmes as well as costs, there is substitutability between cable and DTH satellite systems. Therefore the question of market definition must be focussed on the question of legal obstacles for cable subscribers to switch over to DTH.

On the basis of today’s legal restrictions, in this paper the share of cable subscribers being able to switch over at short notice is estimated to be 46%. Considering cable network operators’ costs structure, this share is sufficient to prevent operators from monopolistic behaviour against consumers and NL-4 operators. Monopolistic behaviour of cable operators against programme suppliers is prevented by market processes in combination with media regulation.

As result of this study, the cable network operators should be assigned to the markets which comprise also satellite platforms and, with some restrictions, DVB-T networks in future. This substitutability has direct effects on merger control, telecommunications regulation and media regulation of the cable industry. [full version only available in German]

Diskussion Paper is available for download.

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