Innovation and EU competition law - a trade-off? The next generation Broadband Network in Germany from a legal and economic perspective

Term Paper (Advanced seminar) , 2007 , 20 Pages , Grade: 1,5

Politics - Topic: European Union

Broadband development is considered to be central to economic growth in a knowledge-based economy. In Germany, the market leader (Deutsche Telekom) on the telecommunication market recently installed a “next generation” high-speed network (so called VDSL), which is able to transfer phone calls, internet and TV through only one pair of wire to the consumer. The company invested more than 3 Billion Euro. Due to these enormous costs, it claimed to be allowed to refuse competitors access to its new network. If those competitors would be allowed to use the new network, Telekom threatened to stop all investments into this technology, as it would not be profitable. The German Government followed the claim by adopting a new law in December 2006, which was often said to be a “lex Telekom” and guarantees “regulatory holidays” for the new network. The European Commission argues that the protection of a new technology against competitors is against EU competition law and opened a procedure against the German government on the same day.

The question is, whether the strict EU competition law in this case prevents innovation. Starting with the liberalization of the telecommunication market in 1988, the policies of the European Union can be called a “success story”. From state-run monopolies and imperfect competitive conditions with high barriers for new firms to enter the market, the situation has changed dramatically until today: A number of new companies entered the market, prices decreased significantly, and the traditional staterun monopolies lost market shares. Where those monopoly-like situations remain, the EU aims to prevent operators from abusing market power to harm consumers or impede competitors. At the same time, the EU wants to facilitate widespread deployment of new and innovative technologies. Under the heading “i2010”, the digital economy component of the renewed Lisbon strategy, the greater use of telecommunication technologies is said to boost productivity throughout Europe, and generate new services and create jobs. To realize the conditions for a flourishing ecommunications environment, the EU has established a detailed regulatory policy. The so-called “Article 7 procedure” allows national Regulatory Authorities to put obligations on companies with significant market power, whenever a persistent market failure occurs.

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Inhaltsverzeichnis (Table of Contents)

• Introduction
• Methodology
• Structure
• 1. A theoretic view on Competition and Innovation
  • 1.1 Competition in classical economics
  • 1.2 Ordoliberalism
  • 1.3 The Harvard approach
  • 1.4 Schumpeter and dynamic innovation
• 2. Implications on Competition law in the European Union
• 3. EU competition law in the telecommunication sector
• 4. Facts of the case: Deutsche Telekom and its VDSL network
• 5. Legal and economic analysis
  • 5.1 New and emerging markets
  • 5.2 Regulation and Innovation
• 6. EU competition law and innovation: Empirical evidence
• 7. Conclusion

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This paper examines the potential trade-off between innovation and EU competition law, specifically in the context of Germany’s next-generation broadband network. The paper focuses on the case of Deutsche Telekom, which has invested heavily in a new VDSL network but has sought protection against competitors’ access to it, arguing that doing so would undermine its profitability and future investments. The paper explores the implications of this situation for EU competition law, which aims to promote both a competitive market and the deployment of new technologies.

• The relationship between competition and innovation
• The role of EU competition law in promoting a competitive market and innovation
• The case of Deutsche Telekom and its VDSL network
• The potential trade-off between competition and innovation in the telecommunications sector
• The implications of the case for EU competition law

Zusammenfassung der Kapitel (Chapter Summaries)

• Introduction: Introduces the research question and the context of the study, focusing on the case of Deutsche Telekom and its VDSL network. The paper examines the potential trade-off between innovation and EU competition law in this context.
• Methodology: Explains the methodology used in the research, which involves desk research, content analysis, and the use of primary and secondary data.
• Structure: Provides an overview of the paper’s structure and the topics covered in each chapter.
• 1. A theoretic view on Competition and Innovation: Examines different economic approaches to competition law, including classical economics, Ordoliberalism, the Harvard approach, and Schumpeter’s theory of dynamic innovation. It analyzes how these approaches relate to the role of monopolists and the relationship between competition and innovation.
• 2. Implications on Competition law in the European Union: Explores how the theoretical perspectives discussed in Chapter 1 have influenced competition law in the EU.
• 3. EU competition law in the telecommunication sector: Provides an overview of the structure of EU telecommunication law, key concepts, and relevant legal texts.
• 4. Facts of the case: Deutsche Telekom and its VDSL network: Summarizes the case of Deutsche Telekom and its VDSL network, outlining the company’s arguments for protection against competitors.
• 5. Legal and economic analysis: Analyzes the case of Deutsche Telekom from both a legal and economic perspective, examining the potential impact on new and emerging markets and the role of regulation in promoting innovation.
• 6. EU competition law and innovation: Empirical evidence: Presents empirical evidence for the relationship between regulatory activity and innovation.

Schlüsselwörter (Keywords)

This paper focuses on the interplay between EU competition law, innovation, and the telecommunications sector. Key terms and concepts include: competition, innovation, telecommunications, EU competition law, broadband networks, Deutsche Telekom, VDSL, regulatory holidays, market power, abuse of dominance, and the internal market. The paper explores the economic and legal implications of the case of Deutsche Telekom’s VDSL network and its potential implications for the EU’s policy goals.

• College: University of Twente (School of Management and Governance)
• Course: European Economic Policies
• Grade: 1,5
• Author: Daniel Neugebauer (Author)
• Publication Year: 2007
• Pages: 20
• Catalog Number: V71358
• ISBN (eBook): 9783638620543
• Language: English
• Tags: Innovation, Broadband, Network, Germany, European, Economic, Policies