E.U., Deutsche Telekom Still at Odds on VDSL

Can speed—a very high speed—be a reason not to regulate a new broadband service? That’s at the heart of a regulatory battle that has pitted Deutsche Telekom and its major shareholder, the German government, against the country’s national regulator and the European Commission.

And it’s a battle that could spread to other markets where companies are willing to invest billions of dollars and euros in new high-speed networks to gain a competitive edge, provided they have a free hand in determining how to exploit these infrastructure assets.

On Monday, the European Commission ruled that Deutsche Telekom must give rivals affordable access to its broadband network infrastructure, regardless of underlying DSL technology, to spur broadband competition in Europe’s largest telecommunications market. The commission’s argument: The German operator already controls more than 60 percent of the country’s DSL market.

On the face of it, the Brussels decision threatens an ambitious business plan by Deutsche Telekom to invest 3 billion euros (US$3.9 billion) in building a super-fast, very-high-bit-rate DSL network. The incumbent operator has warned it will stop expansion of the network to 40 German cities if the new service is regulated. The carrier’s argument: VDSL infrastructure is costly to deploy, it’s an entirely new market with plenty of risks, and entrepreneurial freedom is necessary to recoup its investment.

No small wonder that Deutsche Telekom claims the commission’s decision has absolutely no effect on its VDSL plans.

“The commission’s decision isn’t about regulating VDSL but about providing DSL bitstream access, which we will,” said Andreas Middel, a spokesman at Deutsche Telekom. “As we have said all along, VDSL is a new market with new services. It’s not a higher-speed substitute for DSL.”

Proving that could be a challenge, however.

Deutsche Telekom has listed HD television, 3-D television and telemedicine as examples of new services that only a VDSL connection can deliver.

While high data transmission speeds are necessary to provide these services, who says that enhanced DSL technologies, such as ADSL2+, won’t be able to deliver them someday too, asked Rudolf Boll, a spokesman for the German regulator Bundesnetzagentur in Bonn. “Every time one of these ADSL technologies increases its speeds, that’s going to raise the bar for VDSL. So there is a real issue of substitution in this VDSL debate,” he said.

Although Deutsche Telekom has spoken of offering VDSL at speeds up to 50Mbps, one of its first offerings using the new infrastructure, an IPTV service launched earlier this month, is available at a much lower speed, according to Boll.

As the situation stands, the German cabinet has approved a new telecommunications bill that, in principle, would protect VDSL from regulation. The bill is expected to pass parliament either later this year or early next.

The commission, however, has already said it will challenge the legislation, and in the meantime ruled that Deutsche Telekom must grant IP bitstream, or DSL, access to its huge broadband network “without further delay.”

Moreover, the Bundesnetzagentur has agreed to evaluate Deutsche Telekom’s new VDSL services and issue a report to officials in Brussels, Boll said.

Should Deutsche Telekom convince the Bundesnetzagentur that VDSL is indeed a new market, the service provider could still face regulation, according to Boll. The watchdog must determine whether other operators in the country, such as city carriers, can successfully compete against Deutsche Telekom or whether the operator could have a market all to itself, he said.

The commission’s ruling comes at a difficult time for the former German monopoly telephone company, which this month reduced its sales and earnings targets for 2006 and 2007 amid fierce competition, particularly in its home market.

-John Blau, IDG News Service (Dusseldorf Bureau)

Check out our CIO News Alerts and Tech Informer pages for more updated news coverage.