Nr. 95: Bypass and Tariff Arbitrage in German Telecommunications: A Case for Regulatory Intervention?

Marcus Weinkopf

Bypass and Tariff Arbitrage in German Telecommunications: A Case for Regulatory Intervention?
Nr. 95 / September 1992


The German Telecommunications Act (Fernmeldeanlagengesetz) of 1989 defines two monopolies reserved for the national carrier DBP Telekom, i.e. the installation and operation of physical transmission capacity (network monopoly) on the one hand, and the provision of telephone services to third parties (voice monopoly) on the other.

This particular structure of the German regulatory framework poses serious implementation problems that mainly arise due to the intransparence of potentials for tariff arbitrage between and within the two monopoly areas. The German regulatory body, the Federal Ministry for Posts and Telecommunications, has so far reacted to these structural problems by imposing strict limitations to the technical capabilities of approved terminal equipment and by defining particular usage restrictions for the monopoly services, which seek to prevent customers from certain types of service bypass. This paper analyzes the restrictions currently in place and examines their appropriateness to ensure the desired results.

It is concluded that the voice monopoly is not essential for the ensurance of a sufficient profitability level for the funding of social obligations DBP Telekom has to fulfill. A framework that would build on only one monopoly area, namely the transmission network, would, on the one hand, yield comparable results with respect to this objective, while, on the other hand, most if not all restrictions for the telephone service and for leased lines could be removed. Such downsizing of the administratively reserved area in German telecommunications would, on the one hand, improve customers´ convenience as well as increase the potentials for new service configurations. On the other hand, it would substantially facilitate the regulatory process by removing the need for continuous supervision of users´ and private service providers´ compliance to the monopoly regulations.

This paper was presented to the Second European Regional Conference of the International Telecommunications Society 1992 in Stuttgart.

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