Ladies and Gentlemen,

I want to thank Nortel Networks for this opportunity to share with you some thoughts about the German telecommunications market and German and U.S. telecommunications policy in general.

It may be a bit unusual for an Ambassador to speak on such a technical matter, and I hope you will not test my knowledge too much on such thorny issues as interconnection charges or the intricacies of Section 310 of the U.S. Telecommunications Act. However, I was pleased to accept this invitation to speak on German telecom policy, because it gives me an opportunity to clear up a few misperceptions, which seem to still persist.

Misperception No 1: The German telecom market is the protected playground of Deutsche Telekom.

On January 1, 1998, the German telecommunications market was fully liberalized. One of the world's most liberal telecommunications laws entered into force, ensuring that market access is unrestricted and fully open to foreign investment.

Three years ago, there was basically only one provider of telecommunications services: the former monopoly and recently privatized incumbent Deutsche Telekom. Today there are 550 licensed telecom businesses competing in the German market, many of them American companies; AOL ranks as the number two Internet service provider; BellSouth has a controlling stake in the third largest wireless carrier. In fact, many US and other foreign carriers have entered the German market so successfully that today Deutsche Telekom is the only major player in the German telecom market that is not controlled by a foreign entity.

Competition has developed in all market segments, including local, long distance, wireless, and Internet services. DTAG has lost around 40 percent of its long-distance market to competitive carriers. In the wireless sector, it ranks second to Vodafone (41%), with a market share of only 39 percent.

With regards to the market for local services in Germany, RegTP ordered the unbundling of the local loop at the outset of telecom liberalization in 1998. Germany was among the first in Europe to put such an obligation on the incumbent carrier. It is now part of a European-wide regulation. At the end of 2000, almost 100 agreements had been concluded between Deutsche Telekom and its competitors for unbundled access to the local loop.. In addition, frequencies for wireless local loop were allocated in 1999 and 2000--most of them, by the way, to US companies. Those efforts, coupled with the divestiture of DT’s regional cable holdings, provide means for fostering local competition.

As a result of intense competition, prices have fallen dramatically since 1998. Domestic long-distance calls now cost up to 89 percent less than they did before liberalization; international calls, up to 93 percent less. This development is unprecedented in the international arena. Similar price reductions in the U.S. have taken seven years to materialize.

To ensure competition, the Regulatory Authority for Telecommunications and Posts was established under the Telecommunications Act as an independent federal authority. Like the FCC, it is equipped with effective procedures and instruments, including investigative rights and sanctions. Transparent and independent decisions are guaranteed by procedures that are similar to court proceedings. Decisions have to be taken within set time frames and are open to appeal before the German administrative courts. They cannot be halted, canceled, or modified by the German Government.

Misperception No. 2: Germany is an Internet wasteland.

Internet usage dramatically increased by more than 70 percent last year. By the end of 2000, 20 million Germans were online. This means that today almost a third of all households are connected to the Internet. The U.S. is still ahead, with 41 percent of all households, but Germany is catching up fast. Metered Internet access has become so cheap that fees for an average usage of 30 hours are now below comparable costs in the U.S. Prices for metered Internet access have fallen by 80 percent in the last two years.

RegTP’s ruling last November instructing Deutsche Telecom to offer wholesale flat rates to ISPs on a nondiscriminatory basis will give Internet usage and e-commerce a further boost. Already, flat-rate prices dropped by 60 percent in 2000, to an average price of $35/DM 78 a month.

Moreover, similar to efforts in the United States, Germany puts a high emphasis on ensuring that schools have access to the Internet. Several privately-funded programs ensure that all German schools will be hooked up to the Internet this year.

Misperception No 3: Germany is lagging behind in top-notch information technology.

In 1999, the German information and communications market grew by 8 percent, with $117 billion in revenues. It is thus becoming the most important business sector in the German economy and has even superseded the - still formidable - German auto industry. Within the next five years, we expect growth in this sector to rise to $150 billion and lead to the creation of 750,000 jobs by 2010.

Last summer, 6 UMTS licenses were auctioned off and spectrum was allocated to wireless operators -- five of which were in fact international consortia. These licenses will ensure that Germany is among the first to introduce 3rd generation wireless technology in Europe. It has also, by the way, provided the German Government with $46 billion in unexpected revenues.

In the last two years, the market for wireless services has exploded in Germany, with growth rates of over 100 percent. There are now 48 million users of wireless services -- over 50 percent of the German population. With the auctioning of UMTS licenses to six international operators, broadband wireless services will become available by 2002. Thus, the framework has been set for mobile Internet -- commonly referred to as "m-commerce„ -- to become a revolutionary new medium for future commerce and services.

Ladies and Gentlemen,

Telecommunications has become an increasingly important issue in trade relations between Germany and the U.S. In March 1999, almost immediately following the opening of the German telecommunications market, USTR initiated an out-of-cycle review of Germany’s compliance with telecom trade agreements under Section 1377 of the Omnibus Trade and Competitiveness Act of 1988. USTR followed up on a number of complaints raised by new entrants from the U.S., in particular with regard to their interconnection agreements with Deutsche Telekom. While USTR has continued to monitor the situation in Germany, it has welcomed the decisions by RegTP, which have addressed U.S. concerns. We are in a continuing dialogue with the US government on these matters and are hopeful that we will be able to resolve the remaining issues in the future.

On the other side, access to the U.S. telecommunications market became a serious concern in our bilateral trade relations last year, when Deutsche Telekom faced political opposition -- particularly from the U.S. Senate -- in its attempt to acquire VoiceStream and thus enter the U.S. wireless market. We see a strain of protectionist thinking at work here, which clearly has the potential for eroding the very basis of free trade. Fairness, reciprocity, and respect for international agreements are always based on a process of give and take. The denial of access to the U.S. market would not only be a clear violation of WTO commitments, but would also be contradictory to one of the fundamental principles of U.S. economic philosophy -- that free trade promotes competition, serves the consumer, and creates economic growth.

Political opposition to the DTAG-VoiceStream merger largely stems from the assumption that the German Government effectively controls DTAG through its direct and indirect (KfW) stake in the company. The opposite is true: the German Government is not involved in the day-to-day management decisions of the company. In fact, the German Government directly holds only one of 20 seats on DT's supervisory board. Moreover, the Government has made a clear pledge to sell its entire stake in Deutsche Telekom as market conditions permit.

Since 1995, the German Government’s interest has rapidly diminished from 100 percent to a direct ownership share of 43.2 percent. Fifteen percent have been irrevocably sold to a public bank (KfW), for sale to the public as market conditions permit. After the merger with VoiceStream (and Powertel), the German Government will control directly and indirectly only about 45 percent of Deutsche Telekom.

Ladies and Gentlemen,

Globalization does not work on the presumption that one’s home turf can be spared from competition. You cannot have your cake and eat it too. Protecting the U.S. market from foreign competition would be an ill-conceived policy: it would hurt U.S. consumers, and it would undermine U.S. credibility in negotiating further market liberalization, such as the upcoming WTO negotiations on trade in services.

I think it is time to take a forward-looking approach. The EU-U.S. trade agenda is beset with unnecessary burdens, which we have to solve soon. We should not allow bananas and hormone beef to get in the way of what is really a flourishing, mutually beneficial economic partnership. And I am confident that the new Congress and Administration will honor U.S. international commitments and pursue a policy of fostering free trade -- in the interest of the consumer and for the benefit of transatlantic relations.

Telecommunications and information technology are becoming the most important sector of our economies. It should therefore be in our common interest not to kill the goose that lays the golden eggs. Thank you!

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