Table Of ContentGunter pfeiffer· Bernhard Wieland
Tele
communications
Germany
in
An Economic Perspective
With 23 Figures
Springer-Verlag Berlin Heidelberg New York
London Paris Tokyo Hong Kong
Dr. Gunter Pfeiffer
DETECON
Langer Grabenweg 35
D-5300 Bonn 2, FRG
Dr. Bernhard Wieland
Universitat zu K6ln
Staatswissenschaftliches Seminar
Albertus-Magnus-Platz
D-5000 K6ln 41, FRG
ISBN-13: 978-3-540-52360-4 e-ISBN-13: 978-3-642-75556-9
DOl: 10.1007/ 978-3-642-75556-9
This work is subject to copyright. All rights are reserved, whether the whole or part ofthe matertial is
concerned, specifically the rights oftranslation, reprinting, reuse of illustrations, recitation, broad
casting, reproduction on microfilms or in other ways, and storage in data banks. Duplication ofthis
publication or parts thereof is only permitted under the provisions ofthe German Copyright Law of
September 9, 1965, in its version ofJune 24, 1985, and a copyright fee must always be paid. Violations
fall under the prosecution act of the German Copyright Law.
© Springer-Verlag Berlin Heidelberg 1990
The use ofr egistered names, trademarks, etc. in this publication does not imply, even in the absence
of a specific statement, that such names are exempt from the relevant protective laws and regulati
ons and therefore free for general use.
Bookbinding: T. Gansert GmbH, Weinheim-Sulzbach
214217130-543210
Preface
There is currently a proliferation of private telecommunications networks in al
most every country of the world. More and more companies are setting up own
privately managed and controlled telecommunications networks. Some observers
fear that this development may lead to a fragmented telecommunications infra
structure in which communication becomes increasingly difficult. Thus, the "net
working" of private firms raises questions which resemble certain arguments in the
classical "monopoly versus competition" debate in telecommunications. The central
problem is whether the creation of a modern and competitive infrastructure can be
left to the decentralised decision-making of private economic agents or not. In or
der to assess this problem it is indispensible to look more deeply into the actual
telecommunications activities of firms. In which ways do firms use telematics? In
how far are their strategic options increased by telematics? Are there significant
differences in the application of telematics across industries? Are there significant
differences in the application of telematics across countries with differing regula
tory regimes? Do large firms try to influence telecommunications policy in order to
make it more responsive to their needs? These are only some of the questions
focussing on the interrelation between firm's competitive strategy, their use of te
lematics and the national telecommunications regulatory framework that we want
to address in the following for the case of West-Germany.
In order to study these issues the Berkeley Roundtable on the International Eco
nomy (BRIE) at the University of Berkeley and the OECD inaugurated an inter
national research project in 1987. This book is an outgrowth of the work done for
the German part of the project. It consists of six parts: An introduction describing
the background and the methodology of the book, a chapter on policy and re
gulation (Chapter 2), an overview of the political and academic discussions in the
last two decades (Chapter 3), a survey of the German telecommunications industry
(Chapter 4), the four case studies of Commerzbank AG, Daimler-Benz AG, Nino
AG and Nixdorf Computer AG (Chapter 5), and finally the authors' conclusions
from the German case (Chapter 6). It is our view that in this way a fairly compre
hensive picture of telecommunications in Germany has emerged which might be of
interest also to readers outside of Germany. In a situation where all over the world
telecommunications markets become more open there is an increasing desire to
VI
learn more about the various national environments. With this book we hope to
contribute to this learning process.
This study would not have been possible without the active help of several persons.
Above all our thanks go to Professor C.C. von Weizsacker who helped us to secure
the participation of the firms in the project. It was in his seminar on telecommuni
cations economics at the University of Cologne that the firms' representatives
made their first presentations. Moreover, he has allocated some of his increasingly
scarce time to discuss several aspects of the project with us and the firms' represen
tatives.
Mentioning the firms' representatives brings us to the second part of our debt. We
wish to thank Dr. Rudolf Bauer (Commerzbank), Mr. Jiirgen Groppe (Nixdorf),
Dr. Hans. D. Heller (Nino), Dr. Hans-Dieter Huy (Daimler Benz), Mr. Rolf Lau
tenschlager (Commerzbank), Mr. Fridolin Neumann (Commerzbank), Mr. Volker
Rehmenklau (Nino), Mr. Heinz Wilkes (Nino) for their good humour and their
sportsmanship during the participation in this project. They have not only shown
patience with our .questions during our visits to their companies but also taken the
pains to travel to Cologne and Bonn in order to make their presentations and to
discuss our conclusions.
Third, our thanks go to our collegues at the University of Berkeley, Michael Borrus
and Francois Bar. They have designed and set up the whole project and provided
healthy criticism at various stages.
Hans Peter Gassmann, Head of the ICCP-Section at the OECD has held the whole
project together, acting frequently as psychoanalyst and diplomat at the same time.
Last not least we would like to thank Kevin Morgan (SPRU - University of Sus
sex), who conducted the English part of the OECD project, for his willingness to
read the English draft of the book and to transform it into readable English.
Gunter Pfeiffer, DETECON Bonn
Bernhard Wieland, University of Cologne
Contents
Preface V
1 Introduction 1
1.1 Background of the Book 1
1.2 A Few Remarks on Methodology 5
2 The Institutional Framework 7
2.1 The German PIT 7
2.1.1 The PIT up to the 1989 Reform 7
2.1.2 The PIT After Its Restructuring 12
2.2 The Amount of Regulation in the Various Submarkets of
Telecommunications 19
2.2.1 The Submarkets up to the 1989 Reform 19
2.2.2 The Various Submarkets After Deregulation 25
Appendix: Tariff Harmonization 27
3 The Debate on Telecommunications Policy Since the Middle
of the Seventies 31
3.1 The Policy Debate Leadin~ up to the Report of the
Government Commission or Telecommunications 31
3.2 The Academic Discussion Before the Establishment of the
Government Commission 35
3.3 The Report of the Government Commission for
Telecommunications ("WITTE-Commission") 47
3.4 The Concept of the Federal Government for Restructuring
the Telecommunications Market and the DBP and the Final Bill 53
3.5 Some European Aspects 57
4 The Telecommunications Industry in Germany 59
4.1 Macroeconomic Aspects 59
4.2 Networks 60
4.2.1 Public Networks 60
4.2.2 Private Networks 65
4.3 Services 67
4.3.1 Public Services 67
4.3.2 Private Services 68
4.4 Hardware 70
4.4.1 Network Equipment 72
4.4.2 Terminal Equipment 75
4.4.3 Information Processing System Production 86
4.5 Software 87
VIII
4.6 Example: Cellular Radio 88
4.6.1 Mobile Radio Networks and Services 88
4.6.2 Mobile Radio Telephony 90
4.6.3 Cellular Radio Features and Applications 91
4.6.4 Analogue Cellular Radio in Germany 93
4.6.5 Digital Cellular Radio in Germany: Regulatory
Framework and the Current Actors in the Market 94
4.7 Conclusions 96
5 Case Studies 99
5.1 Commerzbank AG 100
5.1.1 Introduction 100
5.1.2 Information and Communications Networks 101
5.1.3 Using Information and Communications Technology
to Create Competitive Advantage 104
5.1.4 Further Developments 108
5.2 Daimler-Benz AG 116
5.2.1 Introduction: The Daimler-Benz Group 116
5.2.2 The Corporate Data Communications Network (DDVS) 118
5.2.3 The Use of Telematics: A Source of Competitive Advantage 124
5.3 Nino AG 135
5.3.1 Introduction: NINO's Activities 135
5.3.2 NINO's Competitive Strategy 136
5.3.3 NINO's Information and Communications Networks 139
5.3.4 . Using Telematics to Create Competitive Advantage 140
5.4 Nixdorf Computer AG 146
5.4.1 Nixdorf's Competitive Strategy: Determined by
Products, Markets, and Organisation 146
5.4.2 Nixdorf's Network Strategy: Using Information
and Communications Technologies to Create
Competitive Advantage 152
6 Conclusions and Perspectives 171
6.1 The Corporate Use of Private Networks in Germany 171
6.2 How Do Firms Use Telematics? Organisation of the Next Two
Sections 175
6.3 How Do Firms Use Telematics? The Value Chain 176
6.4 How Do Firms Use Telematics? Transforming the Product 184
6.5 The Widening of Markets 186
6.6 Conclusions 188
Bibliography 192
1 Introduction
1.1 Background of the Book
In almost every country of the world, more and more companies set up own priva
tely managed and controlled telecommunications networks. These networks are
based either on their own transmission facilities or on leased lines. In those coun
tries where the monopoly over the physical network infrastructure is still upheld
(as in most European countries) firms lease lines from the monopoly to build up
such networks. In countries where the network monopoly has been abolished many
firms install their own transmission facilities in order to build their own telecom
munications networks or in sharing them with other companies. In addition, in
both types of countries an ever increasing number of value added network provi
ders offer services over privately controlled leased-lines-networks.
Particularly in those countries where private construction and ownership of
telecommunications networks is allowed, these private networks may in the end
add up to a new telecommunications infrastructure. In strong contrast to the situa
tion just a few years ago this infrastructure will not have been created in a centrali
sed fashion, for instance by one public telecommunications monopoly, but rather
in a decentralised way by many private agents. It is obvious that this kind of tele
communications infrastructure will not have been created with the traditional
public utility goals of universal service and connectivity in mind. Private firms build
their networks exclusively according to their individual needs.
This process is something which can not only be observed on a national level but
also on the international level as more and more firms become transnational in
character. In what follows, however, we shall mainly focus on the developments at
the national level.
The "networking" of private firms raises questions which resemble certain argu
ments in the classical "monopoly versus competition" debate in telecommunica
tions. Many observers have asked whether the fragmented growth of the telecom
munications infrastructure, which occurs if private telecommunications firms are
allowed to set up own networks, may not have negative effects on the national
economy as a whole. In the same spirit it has been asked whether the proliferation
2
of private networks might not in the end backfire on an economy which has relaxed
regulatory restraints too much. Advocates of this view usually argue that due to dif
fering standards interconnectivity of the various networks may not be achievable or
only at high cost to the economy. But even if interconnectivity were no problem it
could still be possible, so the argument goes, that the national telecommunications
infrastructure breaks up into two parts: a modern and efficient part used mainly by
large business customers and an old fashioned and technologically inferior part
used by the average consumers and small businesses. During the times of the tele
communications monopoly the large firms were the driving force behind the mo
dernisation of the national network. Stand-alone solutions being barred to them
they had no choice but to put pressure on the telecommunications monopoly to
improve the network when they had the feeling that the technical potential was not
exhausted. As a consequence also the average consumer and the small businesses
profited from the modernisation of the telecommunications infrastructure. Thus,
the monopoly prevented the breaking up of the telecommunications infrastructure
into two parts of differing technical standard.
Implicit in this argument is the belief that the telecommunications-infrastructure is
a kind of basic input for a national economy as a whole. It serves as a kind of lubri
cant, so to speak, for the economy facilitating all economic transactions. It must be
therefore available and accessible for everybody. This point has been made for
instance by the German Gemeinwirtschaftslehre School1) of economics but also by
several other observers. It is inconsistent with this view that access to a modern
network should be restricted to those businesses and consumers having the finan
cial means to pay for the newest technology. If these arguments have merit it fol
lows that the state should subsidize or even totally finance the creation of the
national telecommunications infrastructure, not only because of the internal eco
nomic benefits but also because of the effects on the international competitive
position of a nation. This is indeed the philosophy in most European countries
where the PITs are currently engaged in building the ISDN-Network2). A similar
approach seems to prevail in Japan, whereas the United States follows a radical
different approach. Basically what is involved here is Adam SMITH's old theorem
of the invisible hand applied to a piece of the national infrastructure. Can the
1) The doctrines of this school will be described in chapter 2
2) Integrated Services Digital Network
3
creation of a modern and competitive infrastructure be left to the decentralised
decision-making of private economic agents or not?
In order to assess this problem and to leave the stage of speculation it is indispen
sible to look more deeply into the actual telecommunications activities of firms. In
which ways do firms use telematics? To what extent are their strategic options in
creased by telematics? What are the central motivations behind their activities?
Are these motivations the same in all countries, independently of, perhaps, diffe
ring regulatory regimes? Are there significant differences in the application of te
lematics across industries? Are there certain common patterns in applying telema
tics either within industries or even across industries or perhaps even across coun
tries, again independently from national regulatory regimes? Which kinds of tele
communications networks do the firms build? Do they try to influence telecommu
nications policy in order to make it more responsive to their needs? These are the
kinds of questions that we want to address in the following for the case of West
Germany. Hopefully, answers to these questions may also explain the future needs
of firms in the field of telecommunications and therefore give an answer to the
question of how the future infrastructure for telecommunications may (or should)
look. This would enable observers to base their answers to the above questions on
a more solid foundation.
There is, however, a second interesting complex of questions in the context of the
application of telematics by firms. These questions relate to the future organisation
and structure of the firms themselves. How will telematics affect the size of firms?
Will firms delegate more and more activities to outside contractors ("contracting
out")? To what extent will firms replace vertical integration by "electronic quasi-in
tegration"? Will this create problems for competition policy because, for instance,
the suppliers or customers of a firm can be "locked in" via high switching costs
which they have to incur when they want to leave the firm's network? These are
questions which relate to the micro-level of economic analysis, in particular to the
theory of the firm as developed by COASE, WILLIAMSON and others.
In order to assess these questions the Berkeley Roundtable on the International
Economy (BRIE) at the University of Berkeley and the OECD inaugurated an in
ternational research project in 1987. The project included seven countries: The
United Kingdom, France, Germany, Italy, Japan, Spain and the United States of
