In a letter sent to the German telecom regulator Bundesnetzagentur (BNetzA), the Commission endorsed a regulatory measure proposed by BNetzA that would give new market entrants high-speed access to end-customers (or bitstream access) via the broadband networks of DT.
This measure is meant to remedy the position of dominance of Deutsche Telekom on the German broadband market, said the Commission. It added that it welcomes in particular that the remedy proposed now requires bitstream access regardless of the technology used by Deutsche Telekom (ADSL2, ADSL2+, SDSL and VDSL).
DT and the Commission have clashed repeatedly over Deutsche Telekom’s network exemptions for its new 3bn euro ($3.5bn) high-speed fiber-optic network. The German coalition government has a 31% stake in DT and reached an agreement with the German carrier to exempt its new network from regulation to ensure it achieved adequate returns.
The EC and Viviane Reding, the EU Commissioner for Information Society and Media, objected almost immediately, and the two sides continue to dispute the exception, which has been labeled by DT’s competitors as blatant protectionism.
DT’s project means that it is effectively stripping out large parts of its old copper wire network and replacing it with high-capacity fiber-optic cable capable of speeds of up to 50MBps. It is understood that DT has now completed the first phase of the project, namely to roll-out the upgrade to cover 10 unnamed German cities. DT hopes to reach 50 of Germany’s largest cities by 2007.
This new network was included in the Commission’s letter.
I welcome 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, commented Reding in a statement.
To open the German broadband market to competition will lead to better services and lower internet access prices for consumers. I however note that time is a crucial factor, she continued. While bitstream access has already been available to new market entrants in the vast majority of EU Member States for a number of years, it has taken the German regulator more than three years since the entry into force of the EU telecom rules and more than eight months since the finding of dominance of Deutsche Telekom to take the required measures. I therefore urge the German regulator to implement this remedy now without any further delay to ensure that both competitors and consumers can profit from fairer competition also in Germany.
Deutsche Telekom has 94% of the market share of telephone networks in Germany, and the Commission believes this gives DT an unhealthy commanding position in that market. This view seems to have some credence, as broadband levels in Germany are incredibly low for such a major western European country, with adoption levels of only 12% to 13%.
At the end of June 30, DT only had 10 million broadband lines in total, worldwide. Nine million were domestic (Germany), and of this only 2.5 million were reseller lines.
The Commission’s letter further increases the pressure on Ricke, who is struggling to turn around the fortunes of the carrier amid intense domestic competition. DT recently revealed that it had lost over 1 million fixed-line customers in the first six months of the year, as it is struggling to drive through a 3.3bn euros ($4bn) cost cutting program by axing 32,000 jobs over the next two years. To make matters worse, DT’s traditional savior, namely its mobile unit T-Mobile, now seems to be unable to compensate for declines in DT’s fixed-line and business customer units.
It therefore comes as little surprise that reports are also emerging that Ricke is facing shareholder opposition over plans to extend his contract at the carrier.
The Times newspaper said that the private equity group The Blackstone Group, is understood to be calling for the carrier to refuse an extension of Ricke’s contract. Another publication, Germany’s Focus magazine, understands that the German government is unhappy at the way the group has performed under Ricke’s leadership.
Ricke’s contract runs until Autumn 2007, but it had been expected that the group’s supervisory board would consider an extension of the contract. Whether a decision will be reached to extend or not extend his contract, should be a very telling indication of shareholder thinking at the German carrier.
Shares of DT rose 1.06%, to 11.42 euros ($14.74) on the Frankfurt Stock Exchange following the announcement.
