Regulation of the Deutsche Telekom Network: National or European Issue?

By November 04, 2006

With its i2010 project, the European Commission hopes to establish an open and competitive, single information and communication market in Europe. It is therefore trying to battle against any kind of competition-hampering national or European monopolistic situation liable to stymie universal access to new technologies and paralyze the market. Deutsche Telekom, Europe’s telecommunications leader, recently experienced being the object of this scrutiny. Already in financial difficulty and having just recently revised downward its 2006 and 2007 targets, the company was then hit by new tribulations that shake its leading position: On Monday August 21st, the European Commission endorsed a proposal submitted by the German telecom regulator Bundesnetzagentur (BNetzA) that requires Deutsche Telekom to immediately open up its ultra-high-speed network to competitors.

With 60% of the broadband market, Deutsche Telekom has, until now, significantly dominated Germany’s insulated multimedia landscape. To counteract the company’s overshadowing presence compared to the market share of leaders in other European countries, which generally hovers around 50%, BNetzA proposed the radical measure. From Brussels’ standpoint, “bitstream access has been available to new market entrants in the vast majority of EU Member States for a number years,” said Information Society and Media Commissioner Viviane Reding. Germany has to step into line.

Reding acknowledges that she is relieved by this decision. In a press release, she welcomes the fact that “in spite of considerable political pressure, the German regulator has proved its independence by proposing to the Commission, as required by EU law, to remedy the well-known competition problems on the German broadband market.” It has taken BNetzA three years since the EU telecom rules entered into force in 2003 to get the measure approved over the opposition of the German government, which was preparing a bill to exclude this type of regulation. (The government owns one third of Deutsche Telekom shares.)

Deutsche Telekom must soon open up all of its technologies to competition: ADSL2, ADSL2+, SDSL, and even VDSL—a new ultra-high-speed system that combines fiber optics and copper wire. That’s what hurts. The company has, at great expense (€500 million), just equipped ten cities with VDSL and is loath to see other operators benefit from the technology, which has yet to yield an investment return.

Now the matter is in the hands of the Commission, which does not consider the use of fiber optics a new technology, but a simple service upgrade. As such, the Commission is unwilling to allow the German company any kind of monopoly. To protest against what it calls an unfair measure and overregulation, Deutsche Telekom has threatened to halt all installation if it is not granted exclusive use of the new network, at least temporarily. The matter could escalate further: Reding’s spokesperson has pointed out that if the national plan remains unchanged, an infringement proceeding would be brought against Germany.

Brussels has also required that, in the “near future,” access to the ultra-high-speed network become independent from purchase of a Deutsche Telekom subscription. It also expects the operator to open up its high-speed business access to competition so that this service can be used for videoconferencing.

The initiative should revitalize an industry that has stiffened under long years of monopoly. In January 2006, Germany’s penetration rate stood at 12.8%. France, which opened its network to competition back in 2002, averages 16.4%. With the possibility of alternative operators getting some maneuvering room and being able to offer a broader range of products and services, the German telecom market should become more attractive and catch the interest of a greater number of future Internet users.

Other European operators have also been affected by fallout from the events in Germany. At a hearing held by the French Ministry of the Economy, Finance and Industry, France Telecom opposed regulation of its ultra-high-speed network and reiterated its desire to maintain exclusive operation of the fiber optics it is currently building into its networks. For France Telecom, like for Deutsche Telekom, regulation means a substantial loss of income. Brussels will have to decide…

Legal mentions © L’Atelier BNP Paribas