Prospectus-Final (clean) - Malta Financial Services Authority

economic climate is influencing customers' outsourcing activities, as they increasingly use theseservices to cut costs.• IT project business: This business area declined sharply in 2009, followed by mild growth in 2010.It increased significantly during 2011. The industry-specific systems integration business, driven byIT projects in the healthcare, energy and public sectors, recovered significantly faster thanstandard project business in the fields of enterprise resource planning, customer relationshipmanagement and supply chain management.RegulationOverviewDeutsche Telekom's operations worldwide, as well as those of its subsidiaries and affiliates, aresubject to sector-specific telecommunications regulations and general competition law, as well as avariety of other regulations. The extent to which telecommunications regulations apply to DeutscheTelekom depends largely on the nature of Deutsche Telekom's activities in a particular country, withthe conduct of traditional fixed-line telephony services usually being subject to the most extensiveregulation. Regulations can have a very direct and material effect on Deutsche Telekom's overallbusiness, particularly in jurisdictions that favor regulatory intervention.In 2011, the main areas of focus of regulatory intervention were:• at the EU level, regulations, directives, and other binding legislation, which, for example, regulateaccess network and roaming as well as legislative changes in Germany, such as the amendmentof the German Telecommunications Act;• regulation of charges, such as monthly line rental for the ULL and fixed-network termination rates;and• regulation of future wholesale broadband services and investments in new networks andinfrastructure, including next generation networks and next generation access.The EU Regulatory Framework for Electronic CommunicationsGeneralEU Member States are required to enact EU legislation in their domestic law and to take EU legislationinto account when applying domestic law. In each EU Member State, a national regulatory authority,or "NRA", is responsible for enforcing national telecommunications laws that are based on theRegulatory Framework for Electronic Communications in the European Union, or EU Framework.NRAs generally have significant powers under their relevant telecommunications laws, including theauthority to impose network access and interconnection obligations, and to approve or review thecharges and general business terms and conditions of providers with "significant market power". Ingeneral, a company can be considered to have significant market power if its share of a particularmarket exceeds 40%. NRAs also have the authority to assign wireless spectrum and supervisefrequencies and to impose universal service obligations.In December 2009, amendments to the 2002 EU Framework entered into force. Since the mostsignificant part of Deutsche Telekom's business is undertaken in the European Union, its operationsare, to a large extent, subject to the EU Framework and related telecommunications regulation. Theamended EU Framework provides NRAs' with the power to separate the access network operations ofproviders with significant market power from the service business of such providers in certaincircumstances, which is known as functional separation. This power is meant to be a remedy of lastresort, with high thresholds to be overcome before it can be employed. The German Parliament(Bundestag) passed the related amendment to the German Telecommunications Act on 27 October2011 and 9 February 2012. The chamber of the German Parliament representing the federal states(Bundesrat) ratified the law on 10 February 2012. It will take effect after publication in the Federal LawGazette. The amended German Telecommunications Act is intended to introduce better incentives forinvestments in new infrastructure and it also contains additional consumer protection requirements.National telecommunications laws in other EU Member States where Deutsche Telekom's subsidiariesare active are also being amended to reflect the revised EU Framework.54