2. Economic report
2.1 General economic and sector conditions
General economic development
Following the sharp downturn in the global economy in 2020 as a result of the coronavirus pandemic, the figures published by the International Monetary Fund (IMF) in its latest economic outlook (World Economic Outlook, Update January 2022) indicate a return to economic growth in 2021, which was ultimately higher than expected at the beginning of the year (January 2021 outlook).
Specifically, the IMF reported growth of 5.9% for the global economy in 2021, based on preliminary calculations. Growth was thus significantly above the prior-year level (-3.1%) and also 0.4 percentage points higher than the IMF’s original outlook in January 2021 (5.5%).
This economic recovery is also reflected by the development of the United Internet Group’s target markets in North America. The IMF anticipates growth of 5.6% for the USA (prior year: -3.4%), and thus 0.5 percentage points more than in its January outlook. The forecast of 4.7% for Canada (prior year: -5.2%) is 1.1 percentage points more than originally expected. And for Mexico, the IMF forecasts an increase in economic output of 5.3% (prior year: -8.2%), and thus 1.0 percentage points more than at the beginning of the year.
The picture is similar in United Internet’s important eurozone region. The IMF now expects growth of 5.2% (prior year: -6.4%) and thus 1.0 percentage point more than it forecast in January. Growth of 6.7% was calculated for France (prior year: -8.0%), 6.2% for Italy (prior year: -8.9%), and 4.9% for Spain (prior year: -10.8%). This corresponds to an increase of 1.2 percentage points for France, and 3.2 percentage points for Italy, but a decrease of 1.0 percentage point for Spain compared to the January outlook.
For the UK, the IMF now expects growth of 7.2% (prior year: -9.4%), and thus 2.7 percentage points more than at the beginning of the year.
The economic recovery in Germany – United Internet’s most important market by far (sales share 2021: around 91%) – was slower than anticipated in 2021. The IMF has calculated that economic output increased by 2.7% (prior year: -4.6%) and thus 0.8 percentage points less than expected at the beginning of the year.
The IMF’s calculations for Germany are in line with the preliminary figures of the country’s Federal Statistics Office (Destatis), which – at its “GDP 2021” press conference on January 14, 2022 – forecast a 2.7% increase in (price-adjusted) gross domestic product (GDP) for 2021 (prior year: -4.6%). Following the sharp fall in GDP as a result of the coronavirus pandemic in 2020, the Federal Statistics Office had also forecast stronger growth and thus a faster recovery at the beginning of 2021. However, supply bottlenecks, increased prices for raw materials and energy, and generally high inflation had a negative impact on companies and consumers. The third and fourth coronavirus waves with rising infection rates also dampened trade, tourism and the hospitality industry, thus preventing the expected faster recovery.
Changes in growth forecasts made during 2021 for United Internet’s key target countries and regions
Source: International Monetary Fund, World Economic Outlook (Update), January 2022
Multi-period overview: GDP trend in United Internet’s key target countries and regions
Source: International Monetary Fund, World Economic Outlook (Update), January 2022
Multi-period overview: development of price-adjusted GDP in Germany
Source: Destatis, January 2022
Development of sector / core markets
At its annual press conference on January 11, 2022, the industry association Bitkom assumed growth of 3.9% (prior year: -0.6%) to € 178.4 billion for the German ICT market in 2021. At the beginning of 2021, the association had anticipated revenue growth of 2.7%.
The increase in the overall ICT market resulted in particular from strong growth in sales of information technology. According to Bitkom’s 2021 forecast, sales in this largest submarket rose by 6.3% (prior year: 1.3%) to € 102.5 billion – after growth of 4.2% had been expected at the beginning of the year. All segments of this sub-market made good progress, especially the IT hardware and software segments – of particular importance for United Internet’s cloud business (Infrastructure-as-a-Service/IaaS and Software-as-a-Service/SaaS). IT hardware grew by 8.3% (prior year: 3.1%), software by 8.0% (prior year: 5.1%), and IT services by 3.7% (prior year: -2.4%).
There was also good progress in the telecommunications submarket. For this second core market of United Internet, the industry association expects growth of 1.2% (prior year: -1.1%) to € 66.7 billion – compared its forecast of 1.0% at the beginning of the year. The individual segments of the telecommunications market developed quite differently: telecommunication services grew by 1.7% (prior year: -1.9%) and user devices by 0.2% (prior year: 3.0%), while the infrastructure business declined by -0.9% (prior year: -2.1%).
The smallest sub-market, consumer electronics (of no significance for United Internet) is in decline again and decreased by -1.6% (prior year: +6.3%) to € 9.2 billion.
The most important ICT markets for United Internet’s business model are the German telecommunications market (broadband connections and mobile internet) in its mostly subscription-financed Access division, as well as the global cloud computing market, and the German online advertising market for its subscription- and ad-financed Applications division.
(Stationary) broadband market in Germany
In view of the high level of household coverage already achieved and the strong trend toward mobile internet usage, demand for new landline broadband connections in Germany has slowed in recent years. With expected growth of 1.2 million, or 3.3%, to 37.4 million in 2021, the number of new connections was again well below earlier record years. These figures were calculated by the Association of Telecommunications and Value-Added Service Providers (Verband der Anbieter von Telekommunikations- und Mehrwertdiensten – VATM) and Dialog Consult in their joint “23rd TC Market Analysis for Germany 2021” (October 2021). Within the above mentioned growth, the connections of relevance for United Internet in the two technology fields of DSL and FTTB/FTTH grew by 0.3 million to 25.9 million and by 0.6 million to 2.5 million. The number of cable connections rose by 0.3 million to 9.0 million. A further
At € 33.0 billion, revenues generated in the landline business in 2021 were up 1.2% on the previous year (€ 32.6 billion). In addition to retail sales, these revenue figures also include wholesale, interconnection, and terminal device revenues.
According to calculations of Dialog Consult/VATM, the average volume of data used is rising much more strongly than the number of newly activated connections and landline revenues – as an indicator of continued growth in usage of e.g., IPTV and cloud applications – with growth of 30.2% to 230.7 GB (per connection and month).
As a result, demand for more powerful broadband connections also developed strongly. For example, the proportion of switched broadband connections with speeds of at least 50 Mbit/s increased by 3.5 percentage points, from 48.9% in the previous year to 52.4% in 2021. Fixed-line connections with speeds of at least 1 Gbit/s almost doubled their share to 5.3% (of all broadband connections).
Key market figures: fixed-line in Germany
Fixed-line revenues (in € billion)
Source: Dialog Consult / VATM, TC Market Analysis for Germany 2021, October 2021
Mobile internet market in Germany
According to estimates of Dialog Consult/VATM, the number of active SIM cards in the German mobile communications market increased by 7.8 million, or 5.2%, to 157.8 million in 2021. This growth is partly attributable to so-called M2M SIM cards (machine-to-machine SIM cards), which are used, for example, for the automated exchange of information between machines, vending machines, vehicles, etc. and/or with a central control station, which increased by 4.1 million to 40.2 million. The number of personal SIMs rose by 3.7 million to 117.6 million.
At the same time, mobile revenues rose by 0.8% to € 26.1 billion. In addition to retail sales, these revenue figures also include interconnection, wholesale, and user device sales.
According to forecasts of Dialog Consult/VATM, the average volume of data used (per connection and month) – as an indicator of the growing use of mobile data services – grew much faster than the number of SIM cards and mobile revenues by 26.5% to 3.27 GB.
In line with this growing usage, the number of (personal) SIM cards suitable for use in the faster 4G/5G networks also rose by 16.7 million to 86.6 million, while 2G/3G SIM cards fell by 13.0 million to 31.0 million.
Key market figures: mobile communications in Germany
Mobile revenues (in € billion)
Source: Dialog Consult / VATM, TC Market Analysis for Germany 2021, October 2021
Global cloud computing market
There was also further dynamic growth in the cloud computing market in 2021. Gartner Inc. forecasts global growth for public cloud services of 23.1% in 2021, from USD 270.03 billion to USD 332.35 billion.
Over the past ten years, cloud technology has evolved from a useful and competitive business tool to a key enterprise enabler.
The coronavirus pandemic in particular has accelerated the digitalization process across numerous sectors since 2020. Most companies now regard new technologies as essential tools for coping with the crisis. Within just a short period of time, for example, thousands of employees working from home were connected, new digital channels for sales and support were opened, and a large number of systems and data were moved to the cloud.
As a result, the migration of data, applications, and infrastructure to the cloud has become an integral part of most digital transformation strategies, with the aim of creating more agile and adaptable operations. While many organizations had already made good progress with their cloud migration efforts, the events surrounding the pandemic were a serious wake-up call for those still lagging behind. This pent-up demand, as well as the additional digitalization steps required by companies and public authorities, is also reflected in Gartner’s figures for 2021.
Key market figures: cloud computing worldwide
in $ billion
Global sales of public cloud services
thereof Application Infrastructure Services (PaaS)
thereof Application Services (SaaS)
thereof Business Process Services (BPaaS)
thereof Desktop as a Service (DaaS)
thereof Management and Security Services
thereof System Infrastructure Services (IaaS)
Source: Gartner, April 2021
German online advertising market
In its study “German Entertainment and Media Outlook 2021 – 2025” (September 2021), the auditing and consultancy company PricewaterhouseCoopers forecasts an increase in revenues of the German online advertising market (mobile advertising and desktop advertising) of 6.5% to a total of € 9.50 billion in 2021 – following the dip in growth of desktop advertising in 2020 and resulting slowdown of the overall market trend.
The increase was primarily attributable to mobile advertising, which grew by 12.1% to € 4.97 billion. Desktop advertising, on the other hand, rose by “just” 1.0% to € 4.53 billion.
In terms of advertising formats, video advertising (18.4%) and display advertising (6.2%) achieved the strongest growth of the overall market.
Key market figures: online advertising in Germany (mobile advertising & desktop advertising)
in € billion
Online advertising revenues
thereof search marketing
thereof display advertising
thereof video advertising
thereof affiliate / classifieds
Source: PricewaterhouseCoopers, German Entertainment and Media Outlook 2021 – 2025, November 2021
Legal conditions / significant events
Amendment of the German Telecommunications Act
The modernized German Telecommunications Act (“Telekommunikationsgesetz” -TKG) came into force on December 1, 2021. The TKG amendment transposes Directive (EU) 2018/1972 of December 11, 2018 on the European Electronic Communications Code into national law.
The modernized legislation focuses on the faster rollout of FTTH and mobile networks as well as consumer protection. For example, the legislature has enshrined in law for the first time the right of citizens to high-speed internet connections and is encouraging faster network rollout with new framework conditions and simplified approval procedures. In the interests of consumer protection, the terms of contracts in particular have been regulated, meaning that contracts can be terminated with one month’s notice at any time after expiry of the minimum contract term, unless an extension of the contract is actively requested.
These legal changes represent both opportunities and risks for United Internet. Improved provision of fast FTTH or mobile access offers potential for customer growth. Making it easier for consumers to terminate contracts offers both growth opportunities for all market players, but also the risk of losing customers more quickly. The specific impact on individual market players cannot be predicted at present.
The other legal parameters for United Internet’s business activities remained largely unchanged from the previous year in 2021 and thus had no significant influence on the development of the United Internet Group
National roaming agreement with Telefónica
On February 15, 2021, 1&1 AG accepted Telefónica Germany’s improved offer – following review by the EU Commission – for national roaming and thus also retroactively as of July 1, 2020 for the related MBA MVNO advance services. The offer accepted by 1&1 was transposed into a long-term national roaming agreement with Telefónica on May 21, 2021. The national roaming agreement has a basic term until June 30, 2025, which 1&1 can extend unilaterally until June 30, 2029, after which a further extension of up to 5 years is possible by negotiation.
The national roaming agreement includes annually decreasing prices, which are determined according to fixed rules in the first extension option until June 2029. After this, Telefónica is still is obliged to offer non-discriminatory prices. These advance service conditions are thus based again on pricing mechanisms comparable to those of the first five years of the MBA MVNO agreement. 1&1 can reduce or increase the required capacities several times a year in the future within contractually defined bandwidths.
The conclusion of this agreement and its retroactive effect had a positive earnings effect of € 39.4 million for 1&1 and thus also for United Internet – based on the period July 1 to December 31, 2020 – which was recognized as non-period income in the fiscal year 2021.
The national roaming agreement marks a further milestone on the way to the Company’s own 5G mobile network, as it ensures – during the rollout phase of the Company’s own network – the necessary nationwide mobile coverage for 1&1 customers by enabling them to use the Telefónica network.
New combined VDSL/FTTH agreement with Deutsche Telekom
Apart from the aforementioned national roaming negotiations, the first months of 2021 were dominated by measures for the expansion of the Company’s fixed network coverage. These include DSL and VDSL connections, but in future also an increasing number of fiber-optic household connections (fiber-to-the-home/FTTH).
In this connection, 1&1 AG entered into an agreement with its affiliate 1&1 Versatel regarding the long-term purchase of FTTH and VDSL complete packages including voice and IPTV effective from April 1, 2021. At the same time, 1&1 Versatel signed a long-term agreement with Deutsche Telekom on the use of the latter’s FTTH and VDSL connections for households. These enable 1&1 Versatel to provide FTTH/VDSL complete packages for 1&1, as 1&1 Versatel’s nationwide fiber-optic transport network is largely connected to the local broadband networks of Deutsche Telekom.
In addition to its existing access to FTTH connections of well-known city carriers, 1&1 Versatel will thus have initial access to approx. 750,000 additional FTTH connections. The number of marketable FTTH connections of Deutsche Telekom is expected to increase by an average of 2 million households per year in future. FTTH connections for private households enable bandwidths of up to 1 Gbit/s. Households not yet equipped with FTTH will be supplied with VDSL connections (up to 250 Mbit/s).
The existing pure VDSL advance service agreement between 1&1 and Deutsche Telekom was prematurely terminated by mutual agreement in view of the advantages of the new combined VDSL/FTTH agreement. As a result of the reassessment of the term of the agreement, prepaid expenses for existing VDSL customer contingents still available amounting to € 129.9 million were already written off in the Annual Financial Statements 2020. As a result, the derecognition already had a negative impact on earnings in the fiscal year 2020.
Technology partnership with Rakuten for 5G network rollout
After concluding the national roaming agreement with Telefónica, a strong technology partner was also found for the rollout of the Company’s own 5G network with the company Rakuten.
On August 4, 2021, 1&1 AG and the Rakuten Group, Inc. announced a long-term partnership for the construction of Germany’s fourth mobile communications network. Together with Rakuten, 1&1 will build Europe’s first fully virtualized mobile network based on innovative OpenRAN technology.
Rakuten is a pioneer of OpenRAN technology and, after several years of preparation and development work, launched the world’s first commercial fully virtualized Open-RAN in Japan as a newcomer to the market in April 2020. 1&1 will now benefit from this experience and expertise. Specifically, Rakuten will be responsible for the installation of the active network equipment and also for the overall performance of the 1&1 mobile network. 1&1 will have access to the Rakuten Communications Platform (RCP) with its access, core, cloud, and operating solutions, as well as to Rakuten’s partner network. In this connection, Rakuten will also provide access to its specially developed orchestration software, enabling the 1&1 network to be operated with a high degree of automation.
In contrast to traditional network architectures, the OpenRAN approach makes a strict separation between software and hardware. By using commercially available computers, so-called “COTS hardware (commercial off-the-shelf)”, a wide variety of software and antenna manufacturers can be combined as needed. This means that 1&1 is not dependent on the dominant providers and has the possibility to cooperate flexibly with various manufacturers. All network functions are located in the cloud and controlled by software. This means that time-consuming retrofits or maintenance at the antenna base stations are no longer necessary as they can be carried out efficiently and inexpensively via software updates. Four central data centers are planned for the core network. Hundreds of decentralized data centers throughout Germany will be connected to this core network, which in turn will be linked via fiber-optic cable to thousands of antenna sites.
Vantage Towers first partner for passive network infrastructure
On December 9, 2021, 1&1 AG signed a long-term agreement with Vantage Towers AG, one of Europe’s leading radio tower companies, for the renting of antenna locations.
Vantage Towers is one of the largest owners of radio towers in Germany. Under the new partnership, the company will therefore play a major role in providing the passive infrastructure for 1&1’s mobile communications network. This means that during the network construction phase, 1&1 will be able to access several thousand existing towers of Vantage Towers, as well as new antenna locations still to be developed. Specifically, it was agreed that 3,800 roof and mast locations can be shared until the end of 2025. In addition, there is a possible expansion to 5,000 locations. The individual location leases have terms of at least 20 years and can be prolonged by 1&1 several times.
Vantage Towers will also be responsible for installing 1&1’s 5G high-performance antennas on its towers as well as for services relating to approval procedures, preparatory work and the construction of new antenna sites.
Renting of fiber-optic lines and data centers from 1&1 Versatel
Also on December 9, 2021, 1&1 AG signed a long-term intercompany agreement with 1&1 Versatel Germany GmbH, an indirect subsidiary of United Internet AG, regarding cooperation on the construction and operation of its completely virtualized mobile communications network based on the new OpenRAN technology.
All 1&1 antennas of the planned 1&1 5G network will be connected to fiber-optic lines. Four central data centers are planned for the core network, with more than five hundred decentralized data centers connected to them, which in turn will be linked to the antenna sites. This architecture enables extremely short transmission paths, which are essential for real-time applications.
Among other things, the intercompany agreement specifies that 1&1 Versatel will provide its access network (especially fiber-optic cables) and data centers for operating the 1&1 mobile network on a rental basis. The agreement has an initial term until the end of 2050.
There were no other significant events in fiscal 2021 which had a material effect on the development of business.