Why cable TV should continue to be part of the ancillary rental costs

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For around twelve million households in Germany, the TV broadband connection is billed by the landlord with the rent via the ancillary costs.

With the amendment to the Telecommunications Act, the federal government now wants to abolish this long-established possibility of passing the costs of operating a broadband network on to tenants.

The apportionability inhibits tenants' freedom of choice and therefore hinders competition.

On the face of it, this may seem conclusive, but on closer inspection it turns out that it is just as simple on the face of it.

Firstly, it can be assumed that today's pay-as-you-go ability is beneficial for tenants as a whole.

And secondly, the abolition would entail considerable risks for the expansion of modern gigabit-capable house distribution networks.

Why is that so?

First of all, it should be noted that there is fierce competition for contracts with the housing industry.

Providers such as Vodafone, pyur (Tele Columbus), Deutsche Telekom and various city network operators such as Net Cologne, WilhelmTel and others are competing intensely to supply properties with a large number of residential units.

The European Commission recently officially established this as part of the merger of Vodafone and Unitymedia.

The competition here is not so much about individual households, but about supplying entire properties.

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Such competition is always particularly advantageous from an economic point of view when economies of scale play a role, i.e. the average cost of supply decreases with increasing volume.

The commissioning of a service is then the cheaper per unit, the larger the commissioned quantity.

For example, it would be considerably more expensive per apartment to equip 20 of them with broadband connections in a residential building with 100 residential units than to provide a broadband connection for all 100 units.

With falling average costs, the competition for each individual customer is therefore by no means automatically superior to the competition for collective agreements.

On the contrary: the competition for collective agreements can produce more efficient results, especially if the coordination effort would otherwise be high.

From an economic perspective, there are so-called external effects.

When ordering a connection, each individual does not consider that ordering them will also make the order cheaper for others.

There is therefore a tendency for few users to order a broadband connection inefficiently because they do not adequately consider the positive (cost-reducing) effects on third parties in their calculations.

A collective appointment can be economically efficient in such cases.

Why landlords care about ancillary costs

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Instead, some commentators put forward the argument that there would be no competition for these households due to the allocation of additional rental costs.

The landlords do not care what additional costs their tenants pay because additional costs are a transitory item.

However, this thesis is not tenable both theoretically and practically.

Theoretically, it is wrong, because higher ancillary costs make a property less attractive for tenants, because for the tenants the rent including the ancillary costs is ultimately decisive.

With higher ancillary costs, however, the attractiveness of properties decreases without the landlord benefiting from it, because the ancillary costs are a transitory item for him.

If, on the other hand, the ancillary costs are low, it is easier for landlords to rent out a property, even if the rent is higher.

The landlord is therefore fundamentally interested in low ancillary costs, because he can then demand a higher rent excluding bills within the legal limits.

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A landlord will only order a TV connection for the tenant if this increases the attractiveness of the property to be rented, but not if it makes the rental property less attractive for tenants.

The attractiveness of the apartments can be increased by the included broadband connection for tenants, because landlords receive more favorable terms through collective orders for multi-family houses than individual tenants with individual orders.

The more apartments a property contains, the more the average costs tend to decrease and the more difficult it would be for tenants (including changing ones) to organize a collective commissioning of broadband cabling in order to benefit from the corresponding volume discounts.

In practical terms, too, it is evident that prices in business with the housing industry have fallen significantly over the past three years.

In large real estate projects, prices fell by up to 18 percent, and according to data from Vodafone Kabel Deutschland, prices in smaller projects have also fallen, albeit not as significantly.

Such a drop in prices would hardly be explainable if the landlords didn't care how high the costs are for their tenants.

Falling prices are a strong indicator of functioning competition.

German prices for cable TV in Europe are comparatively low

Due to the intense competition, TV prices in Germany are also among the lowest in Europe.

According to an analysis by the consulting firm Analysys Mason, the average monthly expenditure per user for paid TV access was 15.10 euros in Germany.

In Western Europe, these expenses are only lower in Finland at 12.10 euros and Portugal at 13.20 euros, while consumers in numerous countries pay well twice as much or more, such as in Switzerland (30.70 euros), Great Britain (31 , 30 euros), Denmark (36.30 euros), Norway (37.10 euros) and Italy (38.30 euros).

In Ireland, consumers pay almost 50 euros per month (48.70 euros).

In the Netherlands, Austria, Belgium and Spain, too, consumers pay significantly more than in Germany.

The costs in France are roughly comparable to Germany.

At the same time, the European Commission stated that not only do cable TV networks compete in this market today, but also fiber optic networks in particular.

The landlord, in turn, can increase the attractiveness of his residential property with gigabit connections.

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As the European Commission has repeatedly pointed out, housing companies are indeed increasingly asking for fiber optics for their tenants.

The ability to allocate the costs for the broadband network should therefore advance the expansion of fiber optics in Germany better than if each tenant had to take care of it himself.

A levy overcomes the collective coordination problem, which is otherwise likely to be considerable, especially in large residential complexes.

The apportionability is thus not only a means of keeping TV costs low for tenants, but also of substantially accelerating the expansion of fiber optics in Germany.

The abolition of the apportionment eligibility would therefore also be counterproductive.

On behalf of Vodafone, the author has dealt with the economic effects of a possible abolition of the ability to allocate the costs of operating the broadband cable network in a brief expert report.