Broadband Update Battle of the Bits

Competitors and experts fear that German telecommunications giant Deutsche Telekom could soon regain its old monopoly over the broadband network.
Competition is heating up to take part in updating Germany's broadband network.

Berlin has promised that by 2018 every household will have a 50 megabit per second (6.25 Megabyte per second) Internet connection.

In response, Germany's telecommunications giant Deutsche Telekom is promising to invest an extra €1 billion ($1.1 billion) in the project. But only if it is guaranteed exclusivity by being allowed to set up its own "vectoring” technology in certain areas.

Deutsche Telekom says its vectoring technology can achieve speeds up to 100 megabits per second, and that in the long term “super-vectoring” should be able to attain 250 megabits per second.

With authorities likely to approve the proposal, competitors are nervous that the company could return to having a monopoly over the high speed broadband network as it develops in the coming years.

The former state-owned telecommunications company put the proposals on the table at the Federal Network Agency (BNA) a year ago. Now, the BNA has put forward a draft decision that is now up for debate. The authority wants to rubber stamp the application, but competitors and experts are up in arms.

They say a decision in favor of Deutsche Telekom would make investments in the expansion of the fiber-optic network unattractive. Furthermore, only glass fiber can meet the demands of the gigabyte society and industry 4.0, the so-called “fourth industrial revolution,” they say.

For companies that are on a fiber optic network, the connection to the outside is adequate in most cases, but connections via copper are just not good enough. Thomas Wiegand, Head of the Fraunhofer Institute for Telecommunications

Fewer than one in three businesses employing ten or more people in Germany have a fast enough Internet connection. That's according to a recent survey by the Federal Statistics Bureau, which showed than only 31 percent of businesses had a broadband speed of at least 30 Megabits per second.

A survey by the Association of Family Businesses and its subsidiary association for young entrepreneurs, the BJU, shows that 81 percent of the 745 association members said the expansion of high-speed broadband was the most urgent necessity for the nation's small businesses.

In the survey, seen exclusively by Handelsblatt, 82 percent of respondents also said that digitization was important or very important for their businesses. Yet 77 percent said that government policy did not provide sufficient guidance for the digitization of the economy.

In a 2015 survey of 1,849 businesses by the German Chamber of Industry and Commerce (DIHK), nearly one third said that a slow Internet connection was hindering the digital growth of their business.

But the head of the Fraunhofer Institute for Telecommunications, Thomas Wiegand, said the network put forward by Deutsche Telekom will be inadequate for Germany's future needs, labeling vectoring a dead-end technology.

Industry 4.0, defined by digitized production and services, depends on connectivity between companies and the Internet, he said.

“For companies that are on a fiber-optic network, the connection to the outside is adequate in most cases,” he said. “But connections via copper are just not good enough.”

He said that the internal network in manufacturing companies have an even higher need for capacity.

“For example, for machines to communicate, or robots to be controlled, we need to make significant progress,” he said.

Mr. Wiegand said that alongside the fiber optic network, the subject of 5G, the next generation of mobile telecommunications, is also on the agenda. He said Germany now sits mid-field when compared to other industrialized nations, and that the country needs to act fast to retain its competitive advantage.

The BNA's advisory board, made up of both federal and state politicians, is to meet on Monday. Over the past seven weeks, they've been trying to agree on a common stance on Deutsche Telekom's application. Because the issue is so politically sensitive, it has been “an astonishingly difficult process,” the authority said.

In the states governed by the minor coalition partner, the center-left Social Democratic Party, the SPD, the debate has been divisive. The federal branch of the SPD has now demanded a “future-proof fiber-optic strategy for a gigabyte-net,” with 500 Mbps instead of the up to 100 Mbps that Deutsche Telekom promises with its vectoring technology. The SPD says that in the next ten years €100 billion from primarily private sources, but also from government, would be poured into the fiber-optic “gigabyte network.”

Deutsche Telekom is already moving to upgrade its copper cables and offer faster Internet in certain regions, but there has been strong criticism that the telecom company is cherry-picking when it comes to expanding the network -- and that it is hindering partnerships of convenience that want to invest in the sector.

In a letter to the BNA on the weekend, there was a broad call for a revamp of regulations, from the Association of Local Utilities (VKU), the Rural Districts Association, trades and farmers' associations and city representatives. Deutsche Telekom is the only market player in a position to offer a nationwide commitment to develop the network, which means it can secure pretty much exclusive rights, thus excluding regional providers.

The associations complain that the market dominance of Deutsche Telekom will be perpetuated. They say the proposed decision would make the comprehensive development of a fiber optic network more difficult in the long-run, potentially scaring off investors.

Deutsche Telekom's competitors are complaining loudly.

“We're appalled and believe this is a scandal,” said Matthias Brückmann, head of the Oldenburg-based energy provider EWE. 

The organizations concerned with fair competition have turned to a letter-writing campaign addressing politicians including German Chancellor Angela Merkel (CDU). Now they're threatening a complaint in the constitutional court.

Deutsche Telekom has said that this is a ploy to gain media attention, rather than engage in serious debate. A spokesperson denied the accusation that an exclusive network expansion by Deutsche Telekom would deter investors.

“We are quite happy to have infrastructure competition,” the spokesperson said. “If competitors want to invest in the expansion of fiber to the homes, nobody is preventing them.”

The Greens have taken their own position and demand more competition and a correction of the favorable treatment which Telekom has received until now.

The BNA says it will consider the objections and deliver a final decision at the end of February. After that, the European Commission will have to give its approval.


Daniel Delhaes reports on politics, transport and airlines from Handelsblatt's Berlin office. Ina Karabasz is an editor on the companies and markets team, covering telecommunications, IT and security issues. To contact the authors: [email protected], [email protected]