Digital Risk Lord of the Networks

In its bid to rival Internet powers like Google, Deutsche Telekom wants to see regulations loosened up. Its rivals fear that could make the former monopoly too strong.
</a> Deutsche Telekom CEO Timotheus Höttges.
</a> Deutsche Telekom CEO Timotheus Höttges.

 

Timotheus Höttges, the chief executive of Deutsche Telekom, is pushing hard these days to loosen price and antitrust regulations, which he claims make it hard to turn a profit and also hinder network expansion in Europe.

After nearly a year on the job, his lobbying might be paying off – a prospect that alarms competitors.

In Europe’s fragmented telecommunications industry, consumers have long benefited as companies compete to offer the best rates for cellphone, cable and pay-TV services.  For the companies, however, it’s harder and harder to make money.

Deutsche Telekom lobbyists are fighting back with a 22-page paper titled “Europe’s Digital Economy at Risk.” It complains about declining revenues, “harsh regulation” and “tough antitrust monitoring” in a market with more than 200 national providers. It argues that Europe’s telecommunications firms are being “squeezed and squashed” by global giants like Google and AT&T.

Freed from the legal restraints of regulation, Europe’s telecommunications companies could compete with the IT giants of Silicon Valley and fill gaps in their own broadband service, the company says.

“Compulsory price reductions” are an obstacle to necessary investments, Deutsche Telekom officials say. Germany’s Federal Network Agency determines what price competitors have to pay for renting available networks, and there is no other industry where prices have fallen so dramatically, the company argues.

Deutsche Telekom’s future is important to Germany in many ways.

We don’t want a monopoly. We want fair competition. Timotheus Höttges, CEO, Deutsche Telekom

For the federal government it presents something of a dilemma. While the authorities want to encourage competition and ensure the best prices for consumers, as the former monopoly’s largest shareholder with a 31-percent stake, the government in Berlin has an interest in the company making a profit.

The German government also depends on the company to help expand the nation’s broadband networks. In 2014 alone, Deutsche Telekom invested €4 billion ($4.9 billion) in upgrading networks — and now it expects something in return.

“In order to keep extending broadband service, investments must become more attractive,” Mr. Höttges told Handelsblatt.  He said that means not devaluing “infrastructure with price reductions dictated by governmental agencies.”

“We don’t want a monopoly,” Mr. Höttges said. “We want fair competition.”

His message has the attention of Germany’s economics minister, Sigmar Gabriel, who said he is seeking an “intelligent regulation framework” for upgrading the network. He believes antitrust regulations should not hamper mergers and collaboration in the industry.

The European Union’s new commissioner for digital affairs also sees a need for change. “The focus must be more on making it possible for companies to make a fair profit,” said Günther Oettinger, the German commissioner who took over the post at the start of the month.

The new approach leaves many experts skeptical — and makes competitors of the Bonn-based company nervous. In creating an open digital market in Europe, they fear Mr. Oettinger could become a henchman for Deutsche Telekom.

Jürgen Grützner, director of the Association of Telecommunications and Value-Added Service Providers, calls Deutsche Telekom’s arguments for less regulation “downright absurd.”

Germany is the only Western country in which the state still controls a large telecommunications company. Christoph Wagner, media lawyer

His group represents many competitors that, during the 1990s, wrested market share from the former monopoly.  Mr. Grützner said the company is creating “fear of American companies (among politicians) in Brussels and Berlin to pursue its own interests.”

Much is at stake for telecommunications companies in coming months — especially in Brussels. The new European Commission, the executive arm of the European Union, is setting new targets for the industry and they are expected to be finished in about six months.

Companies such as Vodafone and Telefónica also are calling for deregulation. “We are being battered by fragmentation,” said Jens Schulte-Bockum, the head of Vodafone Germany.

But none of them are lining up on Deutsche Telekom’s side. They worry about their dominant rival marketing VDSL technology as the next big thing in ultra-fast Internet connections.

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Instead of new networks actually being built, old copper cables can be used and that gives Deutsche Telekom a huge advantage. If other providers want to make the same subscription offers, they have to use the company’s network.

Andreas Mundt, the head of Germany’s antitrust agency, is wary of arguments that favor Deutsche Telekom’s bid for deregulation.

“We continue to warn against the idea of European champions and support for large European providers,” he told the daily newspaper Bonner General-Anzeiger. “Size can bring disadvantages for consumers. Many of the large companies are also former monopolies. We must be careful not to promote the very structures that we are seeking to overcome.”

Many in the industry have long argued that the German government should sell its stake in Deutsche Telekom. “Germany is the only Western country in which the state still controls a large telecommunications company,” said Berlin media lawyer Christoph Wagner.

All those shares would bring in €20 billion, or about $24.8 billion, he estimated – enough to pay for upgrading and expanding broadband networks in Germany.

 

Till Hoppe reports for Handelsblatt from Berlin. Ina Karabasz is based in Düsseldorf and reports for the companies and markets desk. To contact the authors: [email protected], [email protected].