Internet expansion Regulator Defends Broadband 'Exclusivity' Deal

Germany's former state telecoms provider Deutsche Telekom has been handed near-exclusivity to expand broadband services across the country by the Federal Network Agency. Its rivals aren't happy, forcing the regulator on the defensive.
Bringing broadband to the masses, one cable at a time.

Jochen Homann and his staff at the Federal Network Agency, Germany’s telecoms regulator, spent more than a year discussing how to set future rules for broadband expansion – and received plenty of resistance along the way. "Rarely have so many people gathered under the banner of competition, only to pursue chiefly their own economic interests in the end," the president of the agency told Handelsblatt.

When the chief regulator makes decisions, they usually have to do with business interests. There is top dog Deutsche Telekom, the former state-run monopoly, calling many of the shots, and then there are competitors that want a slice of the business.

But ever since the German government set the goal of guaranteeing high-speed Internet connections at speeds of at least 50 megabits per second (Mbit/s) throughout Germany by 2018, telecoms firms have been trying to expand networks as quickly as possible. Not surprising seeing as about 30 percent of German households still lack this level of high-speed Internet.

Deutsche Telekom wants to lead the charge, provided the competition makes room. Mr. Homann approved its request and announced in early April that the operator was being granted special rights for Internet expansion. "If the Federal Network Agency had not approved vectoring [upgrading of old copper wires to increase broadband speeds], 1.4 million households would not enjoy higher bandwidths as quickly," he said by way of justification.

It's faster to upgrade old copper wire than to install new fiber-optic cable, and it's also cheaper. Hannes Ametsreiter, Leader, Vodafone Deutschland

Deutsche Telekom is now permitted to almost exclusively offer six million households in inner cities and town centers high-speed Internet through its copper-wire network. To this end, the firm is using vectoring technology to accelerate data transmission along the last few meters from street exchanges into households at speeds of up to 100 Mbit/s. However, because of electromagnetic radiation, use of the technology means that rivals can no longer use the exchange boxes.

It's faster to upgrade old copper wire than to install new fiber-optic cable, and it's also cheaper. However, according to experts, only the fiber-optic cable provides the bandwidths that will soon be needed, as more streaming services, telemedicine and driverless cars become established.

Deutsche Telekom wants to invest €1 billion ($1.1 billion) in vectoring. To make sure the project pays off, the company has insisted on control over all exchange boxes in the telephone network. "We had to make a decision: How far can we go so that the business model is still profitable, competitors can also use vectoring and, in the end, and in the consumer's interest, we have complete coverage with fast broadband connections?" asked Mr. Homann. The decision, he added, provides "a further contribution."

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According to Mr. Homann, "three times as much" fiber-optic cable would have to be installed than has been installed to date. It is "a longer path, but the more sustainable one, and it will come," he explained. Deutsche Telekom officials said that if demand grows, "the remaining copper segments will also be replaced," explaining that this is "the second step in the gigabit society."

The Federal Network Agency is independent, which explains why there is hardly any official criticism from lawmakers, but there is criticism behind the scenes. For instance, Ernst Wilmsmann, head of the ruling chamber, got an earful from both sides of the political spectrum in a meeting of the Digital Committee of the German Parliament last week.

One lawmaker was "outraged," while another was "very dissatisfied." After all, the advisory board of the regulatory agency had already received requested changes in favor of competitors in January. But they were apparently not taken into account.

For instance, one Deutsche Telekom competitor wanted permission to expand vectoring itself if it had connected the largest number of households in a given area. According to the decision, however, that number must consist of at least half of all connections in the area. According to Mr. Homann, it is true "that this will be Telekom in the overwhelming majority of cases."

Competitors are also unhappy with the agency's decision. Wolfgang Heer, managing director of the Fiber Optic Connection Association (Buglas), warned against making bad investments. He noted that Deutsche Telekom must also expand vectoring in places where competitors have already installed fiber-optic networks up to homes. This isn't just "economically pointless, but it also worsens refinancing options for fiber-optic cable already installed," Mr. Heer said.

Deutsche Telekom has made a voluntary commitment to quickly expand the network by the end of 2018. If it does not uphold its pledge, it could face penalties of up to €244 million, although it is unclear how they would be applied.

According to Mr. Homann, the agreement has not yet been certified. This will only happen once the European Commission has examined the resolution. Competitors hope to see corrections. "We now expect a strong signal from the European Commission in favor of healthy, self-sustaining and lasting competition," said Vodafone Germany head Hannes Ametsreiter.

 

Daniel Delhaes reports on politics, transport and airlines from Handelsblatt's Berlin office. To contact the author: [email protected]