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November 28, 2005

EU urged to delay new rules on Deutsche Telekom network

In a move that can only deepen the growing rift between Deutsche Telekom AG and the European telecoms commissioner, the German telecoms regulator has asked the EU to hold off on regulation concerning Deutsche Telekom's new high-speed fiber-optic network.

By CBR Staff Writer

Bundesnetzagentur head Matthias Kurth said in an interview with the Financial Times that moving toward a regulatory regime now could hamper the development of new markets for new internet services such as high definition television.

Deutsche Telekom and the German government have recently been facing charges of protectionism after it was revealed that the carrier’s planned E3 billion ($3.5 billion) high-speed fiber-optic network was to be free from government regulation for two to three years.

The highly controversial precedent came after the new German coalition government, which took power on November 22, 2005, agreed with Deutsche Telekom to make the network exempt from regulation in order to ensure Deutsche Telekom achieved adequate returns.

The move in Germany follows similar deals in Japan and the US. Yet what this actually means in practice is that Deutsche Telekom will not be required to grant rival companies access to the network.

The European telecoms commissioner, Viviane Reding, was furious at this act of blatant protectionism from one of Europe’s leading countries, and sent a letter to Germany’s Federal Networks Agency saying she had serious concerns about the German regulator’s decision to take a hands-off approach to Deutsche Telekom’s new network.

The measure also attracted strong criticism from Deutsche Telekom’s foreign competitors operating in Germany. They are highly critical of the stance of the German government, and believe it will allow Deutsche Telekom to set excessive access prices, or even prevent access to its network. They also fear it could be a dangerous precedent for other countries.

In an effort to defuse the row, Deutsche Telekom chief executive Kai-Uwe Ricke said the German carrier would be prepared to give rivals access to the new network, although he did not specify at what point he would be prepared to sell access to the network to competitors.

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The Bonn, Germany-based carrier is looking to spend E3 billion ($3.5 billion) over two years to upgrade large parts of its network. The upgrade means the carrier will strip out large parts of its old copper wire network and replace it with high-capacity fiber-optic cable capable of speeds of up to 50MBps. The roll-out will then cover 10 unnamed German cities by mid-2006, and by 2007 this will reach 50 of Germany’s largest cities.

The upgrade is part of Deutsche Telekom’s strategy to provide its customers with so-called ‘triple-play services’ that could include high-definition television services. Triple-play is often regarded as the ‘holy grail’ for incumbent carriers because it will allow them to offer consumers voice calls, high-speed internet, and television over the same connection.

Triple-play is regarded as a key strategy to fend off intense competition, heavy regulatory pressure, and the move away from fixed-line to mobile phones. In the UK and US, this has largely been the preserve of cable companies, although fixed-line carriers on both sides of the Atlantic are currently scrambling to offer a comparable service.

Deutsche Telekom is lagging behind its European rivals such as France Telecom SA and BT Group Plc. It is upgrading only part of its network to fiber optic, but in the UK, for example, BT is already switching its old analog switched network to an IP-based network. The project, known as the 21st Century Network (21CN), will see BT’s entire PSTN based network replaced with an IP-based network and is already underway.

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