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Government keeps rivals off Deutsche Telekom's VDSL network

Thu, 05/18/2006 - 6:46am

World Markets Research Limited
May 18, 2006
From Lexis Nexis

The German cabinet has approved a new telecommunications bill that allows incumbent Deutsche Telekom to ban rivals from its 3 billion euro (US$3.86 billion) ultra high-speed broadband network. Under the proposed law, the incumbent's high-speed fibre-optic network would be exempted from regulation and any requirement to open VDSL lines to competitors.

Should Deutsche Telekom decide to share its network with rivals, it will also be exempted from price regulation, which will enable the incumbent to set its own prices for access to its new VDSL lines.

The European Union (EU) commissioner for the information society, Viviane Reding, is planning to launch infringement proceedings against Germany if the German legislature endorses the decision, which gives Deutsche Telekom immunity from having to offer new broadband lines to its rivals.

The bill still requires approval by the lower and upper houses of parliament, which is expected after the summer break and will be enforced by the end of this year.

The German government holds a 15.7% stake in Deutsche Telekom, while state-owned bank KfW Group owns 17.3% of the incumbent. The state plans to fully privatise Deutsche Telekom. Last month, U.S. private-equity fund Blackstone Group acquired a 4.5% stake in German telecoms giant Deutsche Telekom for 2.68 billion euro from KfW Group, becoming a major shareholder in Europe's largest telecoms group in revenue terms.

If enforced later this year, the protectionist measure approved by the German government would send shockwaves across broadband markets in Europe, setting a precedent for other European regulators to follow. The EU has been raising pressure on Germany to open up the telecoms sector, in line with the EU rules, as opening up Deutsche Telekom's planned fibre-optic network to rivals would stimulate competition in the broadband market and give precedent for other European regulators to follow.

The German incumbent's claim that sharing its new VDSL infrastructure would mean that it would not recoup its 3 billion euro investment in the project has, however, been endorsed by the German government. It said that the ruling is the way to 'promote investment in broadband telecoms network and create incentives for innovation.'

Deutsche Telekom plans to connect half a million homes and businesses in the first phase of its VDSL network roll-out, in 10 German cities, by June 2006. Forty other German cities will be connected in the second phase of the roll-out, by 2008. The move to ban rivals from accessing its new VDSL network is likely to spur a new wave of investment into alternative broadband network and technologies in attempts to lessen other telcos' dependence on Deutsche Telekom.

At the end of last year, Italian ISP Tiscali announced its plans to roll out its German broadband network in the city of Frankfurt at an initial cost of 2 million euro. Tiscali plans to invest 60-70 million euro in its German broadband network its medium term, which will enable the company to roll out the network to one-third of German territory.

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