Germany has retained its position in eighth place in our Business Environment Rankings despite its Telecoms Market score being revised down on the back of falling ARPU rates, which are being driven down by the ensuing economic contraction and intense competition. However, this was more than offset by positive developments on the political front as we are expecting that a centre-right CDU-FDP government will emerge from the parliamentary elections due on September 29, which would give the most market-friendly outcome and bodes well for policy continuity.

The mobile market is characterised by a relatively high degree of prepaid subscriptions, which accounted for 56.3% of the mobile market at the end of March 2009. This has left the mobile operators with an opportunity to migrate their prepaid subscribers onto postpaid contracts, which will help them boost their ARPU rates. However, as it stands they are failing to do this and the proportion of postpaid customers in the country’s mobile subscriber base has been falling over the past few years. This is the result of a highly competitive prepaid segment bustling with MVNOs and competitive tariffs. Another upshot of a high proportion of prepaid subscriptions is that the market is likely to hold a significant number of inactive SIMs, leaving further subscriber growth opportunities for the operators.

Operator market shares have remained relatively stable over the past few years. T-Mobile continues to be the market leader with a 36.4% market share at the end of Q109. Vodafone is not too far behind controlling 33.2% of the mobile market at the end of March 2009 and at the same time E-Plus and O2 Deutschland held 16.9% and 13.6% of the market, respectively.

The fixed-line market is in a state of decline having fallen by an estimated 4.5% in 2008 to a penetration rate of around 44.0%. The main culprit for the sector’s decline is fixed-to-mobile substitution as customers drop their fixed lines in favour of the more expedient mobile services. Incumbent fixed-line operator Deutsche Telekom (DT) is the dominant operator in the fixed-line sector although its market share is waning as competition increases from alternative operators such as Vodafone and Kabel Deutschland.

To combat declining fixed-line revenues, the operators are increasingly looking to the broadband sector and other growth markets such as IPTV. The second quarter of 2009 saw DT’s IP and internet revenues outstrip network communications revenues for the first time. Although broadband growth was somewhat disappointing in 2008 at 13.3%, penetration remains mediocre at 27.3% at YE08. As the operators continue to expand their networks, particularly into rural areas, broadband growth will be maintained.

Meanwhile, the operators are also courting higher value customers such as those that take faster broadband connections and IPTV, which should help relieve ARPU pressures.