On 7 May 2021 the Bundesrat approved the Telecommunications Modernization Act (Telekommunikationsmodernisierungsgesetz – TKMoG), which the Bundestag had passed two weeks earlier. The TKMoG fundamentally reforms and amends the Telecommunications Act (Telekommunikationsgesetz – TKG). This is the first fundamental reform of the telecommunications regulatory regime in Germany since 2004.

The TKMoG transposes the European Electronic Communications Code or EECC (Directive 2018/1972/EU) into national law. The EECC, on the other hand, harmonizes the existing legal framework for electronic communications across the EU.

In addition, the German legislator has also fundamentally revised the telecommunications regulatory framework in other regards. The revised TKG seeks to provide incentives for the expansion of very high capacity networks (VHCNs) while ensuring sustainable and effective competition, reducing bureaucracy, and improving the interoperability of telecommunications services.

The reform leads to a comprehensive set of new regulations, which not only have potential implications for established telecommunications network or service providers, but also for (inter alia)

• network infrastructure investors, 
• over-the-top (OTT) service providers,
• gas and electricity utilities that already operate or want to expand into fiber-optic networks, 
• Internet of Things (IoT)/Machine to Machine (M2M) communication service providers, and
• landlords (reapportionment of costs for broadband connections).

Most provisions of the new regulatory regime will come into force on 1 December 2021 following publication of the TKMoG in the Federal Law Gazette. While the TKMoG does include select implementation phases for certain requirements (e.g., concerning attack detection in telecommunications systems/networks or lawful interception with respect to mobile terminals), the new regime may not provide enough time to implement potentially burdensome requirements. The remedies and sanctions available under the TKMoG to the national regulator – the Federal Network Agency (Bundesnetzagentur – BNetzA) – will significantly increase. Therefore, network operators and telecommunications service providers are advised to consider possible implications of the regulation for their business as a matter of priority.

Objectives of the reform 

• The objectives of the reform include the expansion of very high capacity networks (VHCNs), ensuring sustainable and effective competition, and the interoperability of telecommunications services.
• The TKMoG aims at ensuring accessibility and security of networks and services while promoting the interests of end users. Other objectives include diversity of service offerings and the enhancement of consumer rights. End users ought to be provided with affordable and high-quality telecommunications services. The TKMoG introduces far-reaching legal safeguards where the market fails to meet the needs of the end users. 
• The new telecommunications regime introduces various investment-friendly regulatory incentives. Co-investment and open-access models play an important role here. At the same time, the proven basic principles of market regulation will be maintained.
• The removal of regulatory and other legal obstacles which are opposing the expansion of mobile and cable-based telecommunications networks is a key concern. At the same time, the TKMoG intends to strengthen investment and legal certainty. 

Key features of the reform 

The telecommunications rules have been comprehensively revised by the TKMoG. The reform focuses on the following (inter alia): 

A. Extension of the scope of applicability to additional service providers 

The TKMoG broadly expands the scope of application to so-called interpersonal telecommunications services. As a result, many over-the-top (OTT) service providers that did not previously fall within the definition of telecommunications service providers may now become regulated. For the first time, OTT service providers may need to notify BNetzA of their activities. Among these newly regulated services are email services, connected wearable devices, and an array of other OTT applications, such as audio, video, and other streaming media content to the extent delivered over the Internet. 

The TKMoG now clarifies that all companies or persons that provide telecommunications services or operate telecommunications networks in Germany are brought within the sweep of the TKMoG, irrespective of where the company/person is located (so-called marketplace principle). This principle is not new. In its practice, BNetzA has already applied the marketplace principle (to varying degrees). Now that the principle is codified, it will be of interest to learn how the national regulator intends to apply it so as not to impair established global telecommunications services, e.g., IoT or M2M services. 

B. Incentives for the roll-out of very high capacity networks (VHCN) 

The central point of reference for a number of important provisions in the TKMoG is the new concept of VHCN. The TKMoG provides for the acceleration of approval procedures for the expansion of these VHCNs as well as privileged market regulation for the benefit of such networks. The new regulatory principle aims at driving investments into VHCNs, i.e. ensuring the rapid and wide deployment of networks with high down- and uplink bandwidth in Germany. 

What constitutes a VHCN? The TKMoG only provides for a general definition without specifying parameters. However, the explanatory memorandum of the TKMoG indicates that the criteria set forth in the BEREC Guidelines on Very High Capacity Networks (BoR (20) 165) shall apply to determine when a network is considered to be a VHCN. In any case, this means that the new regulatory concept of VHCNs will apply, for example, to Fibre to the Building (FTTB) or Fibre to the Home (FTTH) networks.

C. Reorganization of market regulation (including regulatory exemption for co-investment and cooperation models) and introduction of symmetrical regulation 

The TKMoG essentially continues to apply the principle of asymmetrical regulation of companies with significant market power (SMP). But the TKMoG is also introducing a paradigm shift, as the TKMoG now includes potential waivers and ”light” regulation for companies with SMP under certain conditions. Companies with SMP may now avert regulatory measures by issuing certain commitments to BNetzA – comparable to commitments known from antitrust law.

In addition, the TKMoG is extending the principle of asymmetrical regulation to companies without SMP. BNetzA may now (under certain narrow conditions) order those companies to grant other players access to their networks so as to gain access to the end users or in order to eliminate obstacles to the functioning of the telecommunications market. This new approach should foster cooperation between telecom providers in general and co-investment projects in particular – two key building blocks for increasing network capacity in Germany.

D. Modernization of frequency management

The radio spectrum regulations have been heavily revised by the TKMoG. The spectrum regulation framework was discussed intensively in the context of the auction of frequency usage rights for 5G in 2019. It remains to be seen whether the new regulations will actually lead to the modernization of the outdated framework.

The reform includes a new catalogue of objectives for radio spectrum regulation and revised rules on the time limit and extension of frequency allocations. The intention is to achieve better predictability of the regulatory framework and thus greater investment security. In the event of an undersupply of telecommunications services provided through mobile networks, BNetzA may now require companies to engage in infrastructure sharing or local roaming in certain areas. The TKMoG also introduces measures to promote effective competition and avoidance of competition distortion with respect to allocations, amendments or extensions of frequencies. This includes, e.g., limiting the allocations of frequencies to certain companies or putting in pace reservations for (groups of) frequencies so that new market participants can profit from sought after frequency spectrums.

E. Numbers for Internet of Things (IoT) / Machine to Machine (M2M) communication services

IoT/M2M communication raises complex regulatory questions related to numbering issues. As a pioneer in the EU, BNetzA had already permitted the extraterritorial use of IMSI numbers in 2016 and also the permanent use of foreign IMSI numbers in Germany for IoT/M2M applications. BNetzA also allows extraterritorial use of German mobile numbers, but only for IoT applications. Inversely, BNetzA permits the permanent use of foreign mobile numbers for IoT applications in Germany.

The TKMoG goes even further. As prescribed by the EECC, the TKMoG establishes German numbering ranges for use by pan-European non-interpersonal mobile applications, such as IoT or M2M applications. Significantly, the German legislator, in addition, goes far beyond the EECC with the TKMoG. Said German numbering ranges may not only be used throughout European countries, but also in any other country globally. Consequently, German numbers from this range may be used extraterritorially in broad ways. This recognizes the importance of global M2M connectivity in the M2M/IoT ecosystem. The restriction to non-interpersonal communications services, however, is problematic. How will mixed service offerings be treated, i.e. services provided via a SIM card with non- and interpersonal components?

F. Telecommunications infrastructure expansion through acceleration of approval procedures, strengthening of shared-use rights and introduction of open-access obligations

Broadband expansion is lagging behind in Germany. Against this background, the telecoms-specific right of way and infrastructure shared-use regulations have been moved to a separate section of the TKG. This reflects the increased importance of these regulations for the roll-out of VHCNs.

Especially network infrastructure sharing, and in some instances radio spectrum sharing, may allow for a more efficient use of (existing and future) network infrastructure and ensure the rapid deployment of networks, especially in less densely populated areas. As such, the regulations governing the right of way have been amended to accelerate approval procedures. This includes formal and substantive simplifications of the approval procedure, which should lead to a reduction in construction costs of network infrastructure, especially FTTB/H.

In addition, the shared-use regime for public telecommunications infrastructure has been tailored to VHCNs. Its scope of application has been expanded to include carrier structures for the roll-out of 5G mobile communications and the regime has been revised in terms of permitted costs for shared-use of public telecommunications infrastructure (especially in-building infrastructure).

Finally, regulatory measures have been implemented to increase the effectiveness of state aid and support measures. These include, e.g., regulations on open network access to state funded telecommunications networks and a provision to strengthen the binding nature of market investigation procedures as part of state aid projects.

G. Increased utility costs for landlords due to elimination of right to pass on operating costs for broadband connections to tenants

The TKMoG eliminates the right of landlords to pass on operating costs for broadband connections (e.g., regarding TV, telephony and internet) to tenants (Nebenkostenprivileg). The elimination serves the implementation of Article 115(1) EECC. Tenants may not be automatically obligated – especially upon moving in – to use a specific telecommunications service (usually cable TV) as part of a rental agreement. In consequence, rental agreements may need to be adjusted.

However, landlords may be entitled to pass on operating costs for another two years. In order to avoid undue hardship for landlords who are exposed to payment obligations on the basis of current agreements with telecommunications providers, a transitional period of two years is being granted with respect to all existing in-building infrastructure. This is subject to specific conditions (e.g., the respective costs must actually be apportionable). It is also important to note that the German legislator assumes that the regulatory change may deprive landlords of the foundation of business with the telecommunications provider. I.e., the change in law may constitute a termination right for landlords (as an ultima ratio).

These changes have serious implications for existing contracts and their financing, as well as for the fulfillment of contracts and fiber-optic roll-out as a whole.

H. Reinforcement of consumers’ rights 

The TKMoG significantly revises and expands the current customer protection provisions of the TKG. The new customer protection rules pose substantial challenges for telecom providers. Importantly, the applicability of the consumer protection framework is principally being extended to OTT services. In some areas, the German legislator transposes the EECC more stringent than specified by the directive. In our opinion, this gives rise to the question whether the TKMoG’s consumer protection regulations have been implemented in conformity with the EECC.

The TKMoG provides for increased transparency obligations and new rules regarding contract amendments. Contracts with an initial term of up to 24 months are generally still possible. Certain M2M contracts with consumers may principally stipulate longer contractual terms.

I. Right to “fast telecommunications services”

Certain areas in Germany are considered to be underserved with fast data/quality-assured voice services. With this in mind, the TKMoG grants end users a legally secured entitlement to “fast telecommunications services”, which includes data and voice services. If there is an undersupply in this regard, BNetzA may require (other) telecom providers to provide service with faster speeds/better quality. The new rules also stipulate a complicated compensation mechanism for being obligated to provide respective services. This “universal service obligation” came under heavy criticism by the telecoms industry in the public consultation phase of the legislation procedure. It remains to be seen, however, if and to what extent it will actually play a role in practice.

J. Increased information and communications technology (ICT) security requirements for high-risk scenarios – especially for new telecommunications technology (e.g., 5G) 

The safety requirements applicable to the telecoms industry have been extensively revised and expanded. This will pose significant challenges for some providers. The security requirements now principally also apply to providers of OTT services. Some of the most noteworthy changes include:

• The new regulatory regime introduces the concept of “critical telecommunications components” (some refer to it as Lex Huawei). These components may only be used, if they have been tested and certified by an officially recognized certification body and if the component producer has submitted a ‘declaration of trustworthiness’ to the network operator.
• The ‘Catalog of Safety Requirements’ by BNetzA, which was published in December 2020 (available here) will become binding under the new regulatory regime from December 2021 onwards. It was deemed soft law before. The safety requirements in the catalog are quite strict and may require considerable implementation efforts.
• The TKMoG introduces the concept of so-called operators of networks and network services with an increased risk potential. The aforementioned ‘Catalog of Safety Requirements’ by BNetzA includes criteria to establish the risk potential of a telecom (service) provider. Under the new regulatory regime, operators with an increased risk potential shall, e.g., employ appropriate intrusion detection (IDS) and/or attack detection (ADS) systems. In addition, respective operators must undergo an external security audit every two years.

K. Enforcement

The TKMoG broadens BNetzA’s enforcement capabilities by providing the agency with new rights, such as the right to request wide-ranging information from telecom providers.

While the remedies and sanctions available to BNetzA under the old TKG were comparatively moderate (e.g., BNetzA was authorized to impose administrative fines up to a maximum of €1 million per infringement, with average fines being in the low five digit range), the remedies and sanctions available to BNetzA under the TKMoG are significantly more rigorous. In particular, the TKMoG allows BNetzA to impose administrative fines for serious infringements up to a maximum of €1 million or 1 percent of worldwide turnover, if the average annual worldwide turnover amounts to more than €100 million.

Special data protection law for the telecoms industry

The previous Part 7 of the old TKG ("Telecommunications Secrecy, Data Protection, Public Security") has been fundamentally revised as well. Due to various EU legal requirements, the former data protection provisions have been removed from the TKG and transferred to the new Telecommunications Telemedia Data Protection Act (Telekommunikation-Telemedien-Datenschutzgesetz – TTDSG). In addition to the Federal Data Protection Act (Bundesdatenschutzgesetz – BDSG) and the GDPR, data protection requirements for data processing obligations regulated in the TKMoG will therefore also result from the TTDSG in the future. The TTDSG is currently in the process of being passed by the German Bundestag. 

Impact on the telecoms industry in Germany

The rapid roll-out of FTTH fiber-optic networks and 5G mobile communications is one of the key infrastructure policy challenges of our time. It is obvious that the new telecommunications framework will have an impact on the expansion of very high capacity networks in Germany, i.e., potentially drive investments in network infrastructure, but it is not yet foreseeable how big this impact will be. 

The new regulatory framework is not introducing substantial market liberalization measures. The reform must generally be understood as an attempt to optimize the functioning and effectiveness of the telecoms sector in Germany. On the face of it, the TKMoG is adding to the regulatory burden by introducing 50 new legal provisions as a direct consequence of implementing the EECC. It should be noted, however, that much has changed since the last fundamental reform of the German telecoms regime in 2004. Despite of the many new rules, the German legislator is clearly endeavoring to reduce bureaucracy while increasing investment security with the TKMoG. It remains to be seen, whether the changes go far enough to give the telecommunications industry in Germany a boost by passing on opportunities to companies looking to entering the telecoms market or expanding their market position.

Nonetheless, some of the new regulatory requirements are very complex. This and the broadened regulatory framework could lead to high implementation costs– without any obvious benefits in certain cases. Many of the newly introduced regulations were heavily criticized by the telecoms industry in the public consultation phase of the legislative process. Numerous justified concerns and objections were not taken into account by the legislator. It remains to be seen which administrative practices and policies by BNetzA will emerge and whether the courts will ultimately have to determine the legality of the new framework. 

Many stakeholders had called for an implementation period of at least one year, especially with regard to the more complex provisions of the TKMoG which go beyond the requirements of the EECC. The implementation date of 1 December 2021 may not provide sufficient time for the implementation of some potentially burdensome requirements. Telecommunications network and service providers (especially OTT service providers) are therefore advised to consider possible implications of the regulation for their business without any delay.

If you have any questions regarding the new regulatory framework or want to discuss the potential effects the proposed regime might have on your business, please do not hesitate to contact us.