European Economy. Economic Papers. Germany's growth performance in the 1990's

3.3.1 Network industries
Germany made substantial progress during the 1990s in liberalising its network industries.
Compared to most European countries, Germany is no laggard in this field (cf. Pryor 2002).
Nevertheless, in a number of areas further reform could bring long-term or even immediate
economic benefits.
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Telecommunications: The telecommunications sector proved to be the most successful
example of liberalisation, which resulted in noticeable price reductions, product variety as
well as a qualitatively better range of services. Competitors of the former monopolist
Deutsche Telekom could increase their share in the fixed-line phone calls to 22% in the year
2000 and the prices for long-distance calls fell by half since liberalisation in 1998. By
contrast, competition is underdeveloped concerning local calls so that further measures for
the easing of the access to the "last mile" are necessary. In this context, it appears to have
been a regulatory mistake to leave the cable TV-infrastructure with Deutsche Telekom,
which had no incentive to develop the cable network as alternative to its own local network.
Despite Telekom’s recent partial sale of the cable networks these are unlikely to be
equipped for telecommunication in the near future, as has occurred in other countries. The
present structure of the cable network also appears to be a impediment to a greater
expansion of electronic media.
•
Postal service: In the postal sector, progress is much less advanced even though it has to be
conceded that Deutsche Post made substantial progress in transforming itself from a
sluggish state monopoly to a modern logistics company. However, little of the improvement
in its operations is passed on to customers in lower prices, because Deutsche Post remains a
monopolist in a large share of the market. Germany has completely liberalised only the
market for parcels, courier and express services. However, this segment represents a limited
share of the total market. By contrast, the mail market for letters below 200g remains
completely closed, with a total share of competitors reaching 2% of the whole mail market.
Germany supports verbally a far reaching opening of the European market for mail but
prolonged its exclusive licensing of German Mail by end of 2007.
•
Energy markets: Formally, energy markets are completely privatised and liberalised. Since
1999 electricity networks are opened up by a bargained third party access, which is
supervised by competition authorities. Prices for electricity for industrial as well as private
consumers showed a strong fall during the last years and now range in an average price
bracket in Europe. However, in practice only very few customers actually change suppliers,
which indicates that impediments to free market access might still exist. In the gas market,
so far competition remained limited, as technical details for access and pricing still have to
be solved. A stronger regulator authority and a sharper separation of the fields production,
distribution and transmission on the electricity and gas markets should help promote
competition further.
•
Transport markets: In the transport sector, the regulatory developments are mixed. In road
freight transport, market entry contingents were abolished in Germany in 1994. By contrast,
the success of railways liberalisation was modest, even though it theoretically allows third
parties access to railway networks. The main problem remains the incomplete separation of

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network and operator. On the other hand, regional public rail transport improved. These
services have to be bought now by regional governments and are allocated through a call for
tenders, which should lower costs and increase efficiency. In cases where selections are
taken based on an open competition, the non-federal railways were able to win 42% of the
orders. Nevertheless, in order to guarantee a non-discriminatory access, a separation of
network from operator and a stronger regulatory authority appear to be necessary.
•
Clearly, in all four networks a better regulatory set-up could lead to increased economic
efficiencies implying cost reductions to enterprises and consumers worth billions of euros,
which would directly boost Germany’s competitiveness. In addition, and possibly more
important, the lack of further deregulation obstructs innovation and the creation of new
markets with high growth potential, notably in telecommunications and logistics sectors.