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The liberalization of the European telecommunications markets, on the one hand has lead to the creation of numerous national legal provisions aiming at the implementation of European telecommunications law. On the other hand, deregulation resulted in a rapid evolution of new telecommunication technology by private providers. Both developments has caused numerous legal issues and uncertainties which are illustrated in this essay using the examples of German telecommunications law.

Goals of the German Licensing Regime

Only a few months before the German Telecommunications market becomes fully liberalized on January 1, 1998, many legal issues of implementing and interpreting the new telecommunications rules remain unresolved. Providers of telecommunications services are frequently facing legal uncertainty concerning crucial terms used in the Telecommunications Act 1996 (TKG). As often, telecommunication technology and the market development seem to be ahead of legal regulation, and already a considerable number of innovative prospective competitors of the recently privatized Deutsche Telekom AG apply for licenses to authorize their technology. The licensing authority is under pressure because some of the ordinances relevant to licensing are not even agreed upon. One of the reasons for the hesitant development of the ordinances in Germany, and even the European telecommunications directives, may be the substantial economic and political implications of the regulations. After all, they will shape a market that is estimated to have a current volume of DM 70 billion, and which is expected to reach a volume of DM 150 billion in Germany by the middle of the next decade.[1]

Although the main objective of the new legislation is clear, i.e., the liberalization of the telecommunications market, disputes arise on the question of how much regulation is necessary in an otherwise free market.[2] The legislator has given a broad answer to this question in section 2 (2) TKG: The goal of all telecommunications regulations should be:

1. to safeguard the interests of users in the fields of telecommunications and radio communications as well as to maintain telecommunications secrecy;
2. to ensure equal-opportunity and workable competition, in rural as well as urban areas, in telecommunication markets;
3. to ensure provisions throughout the Federal Republic of Germany of basic telecommunications services (universal services) at affordable prices;
4. to promote telecommunications services in public institutions;
5. to ensure effective, interference-free use of frequencies, due regard also being paid to broadcasting requirements; and
6. to protect public safety interests.

Implementing these goals into workable telecommunications regulations, however, has caused numerous legal problems.

Uncertainty usually looms when providers of telecommunications services have to decide whether they require a license for their intended activity or whether a simple notification is sufficient. Notifications and license applications are dealt with by the Federal Ministry of Posts and Telecommunications, but in 1998 a special agency will be established to take over theses functions. While the notification requirement is simple to comply with, license applications are more complex. The TKG provides in section 6 (1) that a license is required for any person who (a) operates transmission lines going beyond the limits of a property and used to provide telecommunications for the public, or (b) offers voice telephony on the basis of self-operated telecommunications networks.

Operating Transmission Lines

All licensing provisions of the TKG imply that only such providers of telecommunications service require a license who qualify as "operators" of transmission lines or networks. The term "operation" is defined in section 3, No. 1 and No. 2 TKG as the exercise of the de jure and de facto control (functions control) of all the functions that must necessarily be provided for the implementation of information transmission on transmission lines or networks. The definition of "transmission lines" in section 3, No. 22 TKG includes telecommunications systems in the form of cable or radio links with the associated transmission equipment and their network terminations. The term "telecommunications network" is defined in section 3, No. 21 TKG as the technical facilities in their entirety including transmission lines, switching equipment, and other equipment that is indispensable to ensure proper operation of the telecommunications network.

The discussion around the definition of the term "operator of transmission lines" mainly focuses on the term "functions control," which is vague and requires further interpretation. When the drafters of the TKG used the term "functions control," they had a concept in mind that was developed to define "operation" in the context of the old version of the Transmission Installations Act, abbreviated as FAG. It must be noted that the FAG regulates the construction and operation of cable-based transmission lines, and its definitions are therefore not directly transferable to other transmission lines such as radio-based transmission lines. Nevertheless, the case-groups developed under the FAG to define "operation" are helpful to understand which concepts the drafters of the TKG intended to refer to, when they used the term "functions control."

The old definition of "operator" under the FAG, given by the Federal Ministry for Posts and Telecommunications, includes persons who maintain, provide or use transmission installations on their own behalf.[3] The further developments in the interpretation of the term "operator" were described in a study for the Ministry. According to this study, the modern meaning of the term "operator" under the FAG includes anyone who has control over the technical process which is conducted by the transmission installation.[4] The person who has functions control would, in the context of cable-based transmission lines, usually be the carrier or the person in charge of maintaining the installation. It is not sufficient for an operator simply to use a transmission installation if someone else in fact runs the installation. This concept of "operator" also matches the common natural use of the term and later was written into law in the TKG.

From this concept it also follows that different sections of a transmission line can have different operators. The easiest example would be the use of a phone line. Even the user of a telephone can qualify as an operator, because he operates the terminal equipment "telephone," whereas the phone company operates the transmission line. The transmission line is used by the consumer, but it is operated by the phone company that is in charge of the transmission functions.

However, the definition of functional control over the transmission line as maintaining or technically controlling the line, is often insufficient to determine whether in practice a particular provider of a telecommunications service requires a license as an operator or not. The term "functions control" can be further specified by analogy to the description of the traditional network monopoly. In this context, operators of cable-based transmission lines were defined as providers of the cable technology and at least those functional entities which are technically and physically necessary for the transmission of information.[5] In contrast, a person who uses the transmission technology provided by the operator, and additional equipment of his own for the service specific transmission of information is not an operator but simply a user. Even the clarity of this definition blurs in cases, which frequently occur in practice, in which the owner of a transmission line and the user of the line are not the same person. This is especially true when the technical and physical functions are exercised both by the owner and the user of the installations. In some cases the installation of the users may in fact exercise enough control to also make them "operators."

In such cases, the licensing agency under the TKG might often refer to distinction criteria which are implied in the old text of the FAG. These criteria are (1) responsible for control over type and extent of activities, and (2) for interest in the operation. It follows that a user becomes an operator if he is granted control over the transmission line to such an extent that the previous operator of the line does not have any influence on whether or not transfer of information takes place. Crucial for this determination is the legal and factual control over the transmission line in relation to the consumer. The person who decides whether information transfer via the transmission line takes place is the operator. Evidence for such control over the transmission lines can also be access to the technical transmission installations at any time. It is sufficient if these installations are under the legal and technical control of the operator.

The operator's control over the installations cannot be diminished by contractual obligations to provide transmission services for the users, which means that liability or other economic aspects are not considered for the determination of who has control over the transmission line. It is enough that the operator has the possibility to decide whether the transmission line goes into operation, stays in operation or ceases operation in his own responsibility. If the cease of operation results in civil liability for the person who stopped the transmission in relation to the users, this is further evidence for the status of such person as operator. As far as the subjective criterion of the interest of the operator in the operation is concerned it is sufficient that the operator is responsible for his performance. In most cases, his interest also includes a compensation from the user and liability for bad performance.

The possession or factual power over the transmission line by itself is not sufficient to establish the functional control of the operator of a transmission line. On the other hand, it is not necessary for the operator of a transmission line to own, to rent or to have any other right of use in the assets on which the transmission installations are located. The operator can also be a person that has no legal relation to such assets at all. The question who is the operator of a transmission line has to be determined according to all the legal, economic and other factual circumstances in each particular case. Crucial is the factual and legal control which empowers the operator to make all the necessary decisions about the installation. Further, the economic position must be considered. The operator usually benefits, not insignificantly, from the use of the transmission installation, and at the same time also is burdened with at least part of the costs. He usually is the person in whose name and on whose account the installation is managed. Who owns the installation is usually not decisive, but rather who gives instructions and who is responsible for the management the installation.[6]

The licensing authorities might object, if the functions control of the licensee appears to be artificial and he rather seems to be a mere "front man." Such a circumvention of the TKG may be suspected if a transmission line is used by several persons or corporations, who qualify as operators, whereas the licensee only makes small contributions to the operation of the transmission lines and therefore may not be regarded as an operator. A typical "front man" constellation occurs if several economic or corporate entities cooperate on an equal basis in order to operate a transmission line, or if the real operators contract a licensee who himself does not have any functional control over the operation of the transmission line.

The distinction becomes more difficult if several entities form a corporation whose sole purpose is to operate a transmission line and the shareholders are users themselves or benefit in other ways. For example, similar cooperations, like the "German Net AG," aiming at the common use and marketing of the commodity "net-infrastructure" have been discussed among major German providers such as Viag and RWE.[7] While it remains crucial who has functional control it cannot generally be said that such forms of economic activity are always a circumvention of the licensing provisions of the TKG. This would only be the case if the functional control lay with the shareholders. When determining whether the shareholders have functional control in such cases, the criterion of the interest in the operation of the transmission line is not very helpful, because the shareholders of such an "operation-corporation" of course always have an interest in the operation of the transmission lines. However, in such cases the shareholders will not be deemed to have functional control if the operation corporation also has an interest in the operation of the transmission lines.

As elaborated above, the compensation the operation corporation receives for its services and the operation corporation's legal and factual responsibility for such services can be evidence for its interest in the operation. This is also true if the compensation derives from the operation company's shareholders. Another factor that might weigh against illegal circumvention is the position the operation corporation takes with regard to third party contracts. The operation corporation is unlikely to be just a front man if it appears as contracting party in work contracts with subcontractors or in contracts with users. If, however, the bills of subcontractors who might provide technical work in order to maintain the transmission line, are paid not by the operation corporation, but by one of the users, the operation corporation might be considered a mere front man and not the real operator. However, there is no clear distinction between a legitimate operation corporation and an illegal front man corporation that would be considered as a circumvention of the TKG. Considering the circumstances of each individual case will be crucial until clearer categories are developed by future litigation.

The Concept of a Closed User Group

Another term that has shown to be very problematic when defining the scope of the licensing provisions of the new TKG is the concept of a Closed User Group (CUG). Section 6 subsection 1 number 1 TKG determines that only those operators of transmission lines require a license that provides services for the public (section 3 number 19 TKG). Services that are only provided for a CUG are not services for the public and therefore do not require a license. Although the notion of a CUG has been discussed for a long time,[8] the issue is not settled under German law and is likely to raise further legal disputes.

It is generally acknowledged that vague statutory terms, such as the term CUG, have to be interpreted in a European legal context. The relevant document on the European level is the Commission's "Communication to the European Parliament and the Council on the status and Implementation of directive 90/388/EEC", delivered on April 4, 1995.[9] CUGs are defined as "those entities, not necessarily bound by economic links, but which can be identified as being part of a group on a basis of a lasting professional relationship, among themselves or with another entity of the group, and whose internal communication needs result from the common interest underlying this relationship. In general, the link between the members of the group is a common business activity."[10] As examples for activities of CUGs the Commission names fund transfers for the banking industry, reservation systems for airlines, information transfers between universities involved in a common research project, re-insurance for the insurance industry, inter-library activities, common design projects, and different institutions or services for inter-governmental or international organizations. It shows that the European notion of CUG is broader than just Corporate Networks.

On a domestic level, the only definition of the CUG is included in the outdated Telecommunications Granting Ordinance 1995 (TVerleihV). The definition of a CUG under the TVerleihV is probably more narrow than it will be under the new TKG, but so far it is the only basis for a definition of a CUG under German law. According to this definition in section 4 number 1 TVerleihV, CUGs include groups of corporations, partnerships, sole proprietors and legal persons under public law, if among those enterprises there is a control agreement according to section 291 of the Stock Corporation Act (AktG). An enterprise that is under control of another enterprise by means of a control agreement is considered to be linked to other controlled enterprises as well as to the controlling enterprise. The same is true for controlling and controlled enterprises which are integrated companies according to section 319 AktG or which are subsidiary-parent companies according to section 16 AktG.

More importantly, section 6 subsection 2 TVerleihV determines that CUGs also include participants who are in long-lasting corporate or contractual relationships with each other or who maintain permanent relations with each other in order to pursue common professional, economic or governmental goals. The permanent relationship must be existing among each of the enterprises or between each enterprise with the same identical participant of the group. Controlled and controlling enterprises, as described above, are only considered as one participant of the group.

However, if the sole or at least predominant purpose of the user group is to provide transmission services for others, the group would not be regarded as a CUG. At least with this part of the definition of a CUG the TVerleihV goes further than the definition of the European Commission. From the text of the European definition it appears sufficient that the communication needs of the group derive from their common business activity. German law, however, seems to develop an even more restrictive approach to the CUG. For example, it is currently being discussed that even one single user, who is offered a telecommunications service by a commercial provider, might not necessarily qualify as a CUG. This approach tends to emphasize the commercial nature of a provider-user relation instead of the quantitative limitation of users. If the German definition of CUGs further develops this way, it would not only narrow down the significance of the exception of CUGs from licensing requirements, but it could ultimately also undermine the deregulation which was intended by the German TKG.

License Classes

Once it has been established that the telecommunications service provider intends to operate transmission lines or offer voice telephony, it must be decided which class of license the applicant requires. The TKG distinguishes four classes of licenses. These are licenses for (1) mobile radio, (2) licenses for satellite services, (3) licenses for telecommunications services, not covered by classes 1 or 2, and (4) licenses for voice telephony on the basis of self-operated telecommunications networks. Experience with the first license applications has shown that it is not always easy to determine which type of telecommunications service falls under which category of a license class.

Especially with respect to license class 1 the text of the TKG does not take into proper account the various radio devices that were recently developed and can be used as mobile sources as well as stationary sources. Innovative technology of this kind may fall under license class 1 or license class 3. The German licensing authorities currently seem to assign license classes to particular services according to the predominant use of the relevant device. However, in case of doubt it is also possible to bundle different license classes into one composite license.

With respect to licenses of class 4, it must be noted that the monopoly of the Deutsche Telekom AG for voice telephony services lasts until December 31, 1997. However, private providers can already apply for voice telephony licenses (class 4) which only become effective on January 1, 1998. Voice telephony is defined as the commercial provision to the public of the direct transmission and switching of voice in real-time to and from the network termination points of the public switched network such that any user can use the terminal equipment connected to one network termination point to communicate with another network termination point. While services for CUGs are also exempted according to this definition, emphasis lies on the criterion "switching of voice in real-time." That means that the transmission of recorded voice signals and other transmission of voice signals with delay are not subject to licenses of class 4, but possibly to other classes.

This criterion gains practical relevance for services like voice-transmissions via the Internet, sometimes connected to the public network. For transmission, the voice becomes digitalized, compressed, sent to a server and then sent on to the reception server, which in turn sends it to the receiver equipment. At the termination point, the data are assembled for delivery as voice via the loudspeaker. Usually, such Internet communications do not enable users at both termination points of the transmission line to establish a connection by directly dialing the communication partner's number. Rather, it is necessary that the communication partner must simply happen to be "online" at the time of the communication. Some internet-voice service providers also envision using local switchboards to arrange the connection of internet voice communications, sometimes also using leased phone lines to establish the last-mile connection to the communication partner. Another use of internet voice communications lies in the "store and forward" function. All of these strategies, which have the effect that the voice is not transferred directly without further "switching," are likely to establish that the voice is not switched in "real-time" according to current German law. In this case, voice telephony through the Internet would not be regulated under the class 4 license provisions. However, with the evolution of new Internet solutions, including available software and bandwidth, a new legal assessment of the technology may become necessary.

It must be noted, though, that the exact definition of "real-time" under German law is still unclear, especially with respect to Internet voice telephony. The reason why Internet voice telephony arguably falls into a regulatory loophole of the TKG can be found in the historic development of the statute. Unlike in jurisdictions of other countries where all types of telecommunication services are subject to licensing, the German TKG was developed mainly to regulate only those areas of telecommunication that were formerly covered by the state monopoly. The state owned postal service only provided traditional voice-telephone services, so there appeared to be no need for a detailed interpretation of telephony in "real-time." Additional confusion about the regulation of voice telephony through the Internet derives from the difficulties in identifying an "operator" of the Internet who could be subject to licensing. The Internet is more likely to qualify as a service for data transfer, which would not be subject to a class 4 license.

The European and German legal approaches to Internet services seem to reach similar results. According to a Commission notice concerning the status of voice on the Internet, pursuant to Directive 90/338/EEC,[11] Internet communications can only be considered voice telephony if certain criteria are met. First of all, these criteria clarify that the Internet service must connect two network termination points on the switched network at the same time. This would not be the case, if access to the Internet is obtained via leased circuits. However, communications may fall within this definition if access is gained via the PSTN. Still the crucial criterion is the "switching of voice in real-time." Internet services in the early stage of their technological development do not fall under this definition, since the time required for processing and transmission precludes the transmissions from being regarded as a real-time service.[12]

Despite numerous doubts with regard to licenses classes as described above, in most cases it is clear which class of licenses is required. By the end of February 1997, more than a total of 146 telecommunications licenses had been issued.[13] More than 54 of the licenses belonged to license category 1 for mobile radio services, including the quite competitive licenses that cover the entire territory of the Federal Republic of Germany, but also licenses restricted to certain areas, metropolitan networks or even exposition grounds or airports. The national mobile radio service licenses are held by Deutsche Telekom's "DeTeMobil" (D 1 net), by "Mannesmann Mobilfunk" (D 2 net), Thyssen's and Veba's "E-Plus Mobilfunk" (E 1 net), and by Viag's and British Telecom's "E2 Mobilfunk" (E 2 net).

In the area of satellite services a total of 66 licenses had been issued by January 1997, including 12 licenses with authorization for telephone services in or with the new German Federal States. In license class 3, a total of 21 providers had obtained a license by the end of February 1997. At the same time 6 licenses for voice telephony had been granted including prominent providers such as VEBACOM, DB Kom, TELEGLOBE and VIAG INTERKOM GmbH & Co. (a cooperation of Viag and British Telecom) with licenses covering the entire territory of the Federal Republic of Germany, and companies such as NetCologne and COLT with licenses covering limited regions within Germany. Although some of the smaller providers initially intended to provide services for businesses or governmental agencies only, some plan to extend their service to private clients.

Licensing Requirements

Once it has been established that a service provider intends to engage in an activity that falls under the scope of the TKG, and therefore requires a license, section 8 subsection 1 clause 1 TKG makes clear that any applicant has the legal right to be granted a license if he meets certain licensing requirements. The first requirement is that the granting of a license does not interfere with the above mentioned aims of the TKG, which are listed in section 2 subsection 2 TKG. Secondly, it is required that none of the mandatory grounds for denial of a license are given. According to section 8 subsection 3 TKG, such a ground is the lack of any usable frequencies which could be assigned to the applicant seeking to operate radio links. A license will also be denied, if the applicant does not possess sufficient reliability, efficiency and a specialized knowledge and hence it must be expected that such license rights will not be exercised on a lasting basis. The authorizing agency will further refuse to grant a license if this would result in a threat for public safety or order.

Especially the second ground for denial, the personal qualities required of a licensee, are still open to interpretation. The meaning of "reliability, efficiency and a specialized knowledge" can be construed in terms of the definitions that were developed in the context of trade law and catering law. Some further assistance for the interpretation of licensing requirements if the new TKG is also provided by an order of the Federal Ministry for Posts and Telecommunications concerning the formal requirements for the submission of applications.[14] According to this order, the reliability of an applicant may be insufficient if there is evidence that the licensee previously broke the law, specially with respect to telecommunications provisions. If there is doubt about the efficiency of an applicant, the order suggests that he submits a medium term investment plan along with financing agreements in written form. As far as the specialized knowledge of the personnel which will operate the transmission lines is concerned, descriptions or documents about his knowledge or experience may be requested. In contrast to the definition of the "reliability, efficiency and specialized knowledge," it is still unclear whether the annex that the license rights must be expected to be exercised on a lasting basis has only declaratory character or constitutes an additional requirement.[15] In this context, it will be up to the courts to materialize in which cases it must be expected that license rights will not be exercised on a lasting basis just because of lack of reliability, efficiency or specialized knowledge.

Allocation of Frequencies

Another reason to deny a license for providers of radio-based telecommunications services is the unavailability of frequencies. The licensing authority can, according to section 8(3) No. 1 TKG, deny a license if it does not possess any usable frequencies which could be assigned to the applicant seeking to operate radio links. While the case is very rare that the agency does not posses any usable frequencies at all, the allocation of scarce frequencies cause more practical concern. In the case of limited availability of frequencies, the agency may limit the number of licenses to be granted for the relevant type of telecommunications service according to section 10 TKG, or initiate proceedings for the assignment of frequencies according to section 47 TKG.

In the case of the nationwide mobile radio licenses (class 1), frequencies are scarce. After a hearing of expert opinions the Federal Ministry of Posts and Telecommunications determined that the capacities for mobile radio services in Germany are currently limited to four providers. For the fourth and last nationwide class 1 license the Ministry intends to grant it initiated an award procedure with a bidding deadline in October 1996, and granted the license to the only applicant, the "E 2 Mobilfunk."[16] The E 2 net, as well as the E 1 net, operate according to the European DCS 1800 standard.

In order to ensure an effective and interference-free use of frequencies the TKG provides in section 45 TKG that a table of frequency band allocations shall be stipulated by ordinance, and in section 46 TKG that the regulatory authority shall draw up a frequency usage plan specifying the band allocations. On a European level, the Conference of the European Posts and Telecommunications agencies (CEPT) makes efforts to harmonize frequency uses, for example by using the standards of the European Technical Standardization Institute (ETSI) in Nice, the German ordinances and frequency usage plans are still under discussion. Until the domestic frequency usage plans are finalized the German licensing authorities make preliminary frequency assignments based on the principles of efficient and interference-free use. Only if the preliminary assignments match the frequency band allocations of the future ordinance, which is expected for the first half of 1997, they can be transferred into permanent frequency allocations. It is not surprising therefore that the agencies hesitate to assign frequencies in controversial cases.

An example for problems with the availability of frequencies are applications within the 2400 to 2483,5 MHz spectrum, which is reserved for industrial, scientific and medical (ISM-band) purposes. Although availability of a frequency in this range had never been a problem, and it is used for automatic doors and other technical applications, the licensing authorities have to consider scarcity if an application uses this frequency extensively and not only in a limited location, but nationwide. The availability of a frequency can differ according to the region for which the frequency shall be assigned.

The economic impacts of the allocations of frequencies can be considerable, as was the case with the applications for testing licenses for the Japanese point-to-multipoint Personal Handy Phone System (PHS). The Japanese PHS system is an advanced radio technology that uses small and energy-saving cellular phones which are designed for stationary use. The Ministry of Posts and Telecommunications refused to assign the required frequencies for the system. As a consequence, new telecommunication service providers did not receive a license to connect clients to their net via the Japanese system. PHS operates in the frequency range of 1880 to 1900 MHz, which are the frequencies the Ministry of Posts and Telecommunications wants to reserve for the Digital European Cordless Telecommunication (DECT) technology. However, on a European level, additionally assigning the 1900 to 1920 MHZ frequency band to DECT exclusively has been considered.

It must be noted that the decision about the availability of a frequency for the radio devices is also a decision about easy market access for the radio devices. In the context of the Japanese PHS system, the economic implications of allocations of frequencies have gained importance in the light of the WTO agreement on telecommunications of February 1997. The new WTO agreement, formerly known as GATT, includes, among other anti-protectionist provisions, the prohibition of abusing technical standards as trade barriers.

Another requirement for the allocation of a frequency is that the intended use of the frequency does not interfere with other radio applications. In practice, the licensing authority often requires an expert opinion from the Federal Office for Posts and Telecommunications to cover that aspect. This Office is a higher federal agency principally in charge of technology aspects of telecommunications services. Its tasks include to lend support to the policy makers in the elaboration and implementation of regulatory guidelines as well as in the verification of compliance with licensing terms, mandatory service requirements and infra structural obligations. It suggests measures to protect telecommunications secrecy, plays an important role in the field of standardization, management of limited resources, most notably frequencies and numbers, and in the elimination of radio interference.[17] Theoretically, it is possible that an applicant has obtained a license to operate a radio device that uses frequencies within the scope assigned by the usage plan, but can not operate the system, because the Federal Office for Posts and Telecommunications denies the interference-free use of the frequency.

License Fees

Another area of the TKG in which the delay in promulgating the relevant ordinances has led to significant uncertainty is that of license fees. Section 48 TKG provides for the regulation of license fees and frequency usage fees by an ordinance. Whereas the annual contributions for reimbursement of expenditure on frequency management is less controversial, the ordinance on license fees is the focus of concern. The first draft ordinance of 1996 provided for a fee of up to DM 40 million for the issuing of a nationwide license for voice telephony (class 4) or other telecommunication services (class 3). A draft administrative provision further determined that the fees should be determined within this range according to a formula that takes into account the number of inhabitants in the licensed area and the number of employed persons in that area.

One of the major points of concern about such a method of calculating the fee is that it tries to reflect the potential economic value of the license. However, section 3 of the German Administrative Costs Act, which lays down general principles for charges in the area of administrative actions, provides that all fees have to be in reasonable proportion to the economic value of the administrative act and to the actual expenses. It can be argued that a fee of DM 40 million for a single license is very much out of proportion to the actual expenses incurred by the administration for the licensing procedure. What is more, a license fee of such a dimension would have prohibitive character for medium sized or small enterprises which intend to enter the German telecommunications market. Only the largest companies would be able to afford a license.

Such an effect on market access, however, would on the one hand heavily interfere with the goals of the TKG, which include the promotion of competition on the telecommunication market.[18] On the other hand, the legislators also intended to promote the development of innovative technologies.[19] Since innovative technologies often are developed by smaller enterprises, extensive fees and their limiting effect on market access for small enterprises would also inhibit innovation. Also, smaller enterprises usually do not reach a dominating market share in their license area, because they use alternative telecommunications systems. Therefore they have a major disadvantage if the license fee is calculated on potential users within this area, whereas larger providers of established systems might actually be able to turn the potential economic value of a license into actual sales.

The Directive on authorizations and licenses for the provisions of telecommunications services in the European Union,[20] which was formally approved by the Telecommunications Council in March 1997, also contradicted the method of calculating license fees suggested by the German draft ordinance 1996. The provision of the EU-Directive that deals with license fees states that the fees must be based on the administrative costs of the license. Not surprisingly, the German delegation raised a last minute objection claiming that license fees should be based on the value of the license and not only on the administrative costs. Other delegations did not share this approach and the directive was passed with only Greece and Germany voting against.

However, the Commission made an additional declaration providing that fees could include both the costs incurred at the time that the license is issued and an amount anticipating future administrative costs incurred in the management, control and enforcement of the individual license concerned. Current and future costs for management, control and enforcement could easily add up to six or even seven digit German Mark amounts. It remains to be seen, whether the courts will sustain an amount up to 10.6 million German Marks, which was the administration's estimate for administrative costs for a class 3 license after the European approach to license fees was published in March 1997. Until the disputes about the German license fee are settled, the licenses issued leave the determination of a fee for a later point in time, or the licensee reaches an agreement with the agency. For example, the three licensees that hold nationwide mobile radio licenses (class 1), currently pay DM 2.8 million per year as a license fee for the next 20 years.

Conclusion

The legal situation with regard to many aspects of the German telecommunication licensing regime is for several reasons unclear. From a historic point of view, the regime of the TKG replaces the state monopoly in the telecommunication sector. Accordingly, it focuses on the regulation of the market that previously was covered by the monopoly of the state postal services. However, the liberalization of the telecommunication market leads to rapid innovations in the telecommunication technology. The TKG either has loopholes with regard to regulating such technologies, or the definitions of statutory terms such as "operator of transmissions lines," "closed user group" or "voice telephony in real-time" create problems when applied in new circumstances. Another challenge for the licensing authorities is the responsible and efficient distribution of scarce resources such as radio frequencies, especially in the light of the considerable economic implications licensing decisions have for the market access of telecommunications service providers. Some regulations the German rule makers suggested, for example concerning license fees or frequency band allocations, have raised legal concerns considering the goals of the TKG and even in the light of EU policies. Since workable solutions will have to be found before the full liberalization of the telecommunications market in 1998, many of the legal issues will remain to be finally solved by future litigation.

Karl Pilny is a partner and Siegmar Pohl is a stagiaire in Coudert Brothers' Berlin office.

[1] Holzwart, Telekommunikations-Markt im Umbruch, Wenn der Markt nicht auf ein Gesetz wartet, in: Computerwoche, 28 June 1996, p. 49, at 50.

[2] Pilny, German telecommunications law - opportunities and challenges on the way towards full liberalization, in: Communications Law, Vol. 1, No. 2, 1996, at p. 55.

[3] See Order 121/1990, ABl. BMPT Nr. 68 of 23.August 1990.

[4] Bothe/Heun/Lohmann, Inhalt und Reichweite des "Errichtens" und "Betreibens" von leitergebundenen Übertragungswegen nach dem Fernmeldeanlagengesetz unter besonderer Berücksichtigung der eingetretenen Änderungen fernmelderechtlicher Rahmenbedingungen, study, September 1994, at p.19.

[5] Ordinance on the Network Monopoly, paragraph I subsections 1-12.

[6] See also the decision of VGH Mannheim, in: DVBl.1988, at p. 542 (543) in the context of operators in the sense of the German Water Act.

[7] Maier-Mannhart, Wir bleiben bei unserer Konzeption. Viag-Chef Georg Obermeier favorisiert den Mobilfunk, Süddeutsche Zeitung, 11 October 1996.

[8] See for example: Hey/Dupuis-Toudol/van Oostven/Bernhard/Axelsson/Woodcock, "What is left of the Telephone Service in Europe ?" in: [1996] 1 CTLR, at p. 5.

[9] Brussels, COM (95) 113 final.

[10] Id, at p. 8.

[11] Communication No C 140/8, Brussels, 7 May 1997.

[12] Id., p. 9.

[13] Information of the Federal Ministry for Posts and Telecommunications, January 1997; for future developments see also the Internet homepage of the Federal Ministry for Posts and Telecommunications: http://www.government.de/inland/ministerien/post.html.

[14] Order 116/1996, Application for Licenses for the Operation of Transmission Lines, see a summary of this order in [1996] 5 CTLR T-125.

[15] Scheurle/Lehr/Mayen, Telekommunikationsrecht, Statute Book, Introduction (1996), at 6.

[16] Frankfurter Allgemeine Zeitung, Viag und BT erhalten Zuschlag für das vierte Mobilfunknetz, 5 February 1997, No. 30, p. 20.

[17] Federal Office for Posts and Telecommunications (BAPT), A Portrait, 1995, p. 3.

[18] See for an explicit statement to this effect the motives of the TKG, BT-Drucks. 13/3609, p. 34.

[19] See for example section 11(3) TKG.

[20] Directive 97/13/E.C. of April 10, 1997, [1997] O.J.L117/15

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