Will Deutsche Telekom’s voluntary wholesale VDSL offer ward off the regulator for long?

Posted by Lucy Berridge Monday, March 9th, 2009

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Having fought a long battle to keep its EURO3 billion VDSL network to itself, Deutsche Telekom capitulated last week with the publication of a wholesale VDSL offer.

The incumbent prepared the ground to an extent last year when it said it would not grant competitors access to its network until it had signed up 500,000 triple-play customers, a target it had achieved by end-2008.

Now it has come to market with an incentive scheme for its rivals: the initial monthly tariff of around EURO30 per line will fall as subscriber take-up increases. Fees will also be lower for operators signing long-term contracts and for those who pre-pay, according to local press reports citing the incumbent. UK regulator Ofcom has also proposed a flexible pricing structure in its recent statement on next-generation access.

The incumbent had deployed 10.9 million VDSL lines by end-2008 and will complete the rollout in Germany’s 50 largest cities by mid-year.

Even before the wholesale announcement, cooperation agreements between the incumbent and various rivals had started to spring up across Germany.

Agreements between Deutsche Telekom and Vodafone, announced in December, cover Heilbronn and Wurzburg. In Heilbronn, the operators will jointly deploy the network, with Vodafone upgrading the street cabinets and the incumbent rolling out fiber. In Wurzburg, where the incumbent has already deployed VDSL, Vodafone will gain access to street cabinets and ducts.

In January the incumbent signed a letter of intent with Oldenburg-based EWE Tel under which Deutsche Telekom will roll out VDSL in four specified towns and EWE Tel in a further five. The operators will then grant each another access to their networks though they have not disclosed final details.

Deutsche Telekom has confirmed it is discussing cooperation agreements with other providers. Though it has not confirmed which, observers say it has plans to work with NetCologne in Aachen and is in talks with Munich-based M-Net.

NetCologne is rolling out fiber-to-the-building in its home city and will do the same in Aachen via Accom, the Aachen-based city carrier in which NetCologne took an 84% stake in January. NetCologne plans to begin its fiber rollout in Aachen in late 2009. Insiders expect Deutsche Telekom to roll out VDSL in Aachen’s suburbs, and the two operators will access each other’s networks.

City carriers NetCologne and M-Net are two of the nine founder members of the National Fiber Association established last month. The new group aims to have passed 1 million of Germany’s 40.5 million households with fiber by end-2012.

In order to achieve its objectives, the association will lobby for government funding for fiber and for new industry standards to support open-access networks. It is also calling on the telecoms regulator BNetzA not to reduce local-loop unbundling tariffs. Although a number of the fiber association’s members offer LLU-based DSL, they also want to protect what are likely to be higher investments in fiber. NetCologne and M-Net are in a strong position financially, others are less well placed to roll out fiber.

The founder members are NetCologne, M-Net, Helinet, Wilhelm-Tel, Willy-Tel, Stadtwerke Schwerte, Accom, VSE Net and HL Komm. Some, such as NetCologne and Wilhelm-Tel, already offer commercial FTTx services, while others are in the trial or planning stage.

Helinet, the umbrella group for nine local providers in the west of the country, is a pioneer of the open-access model in Germany. Its pilot FTTH network known as City2020 launched on an open-access basis in three cities in late 2008. The association will discuss proposals for open-access models in greater detail once the group has been formally registered in the next few months.

From the incumbent’s perspective, cooperating with rivals may enable it to retain its presence in areas where it otherwise might have seen its network and market share eroded by rivals offering services over superior infrastructure.

Cost-sharing is also important. VDSL take-up has not been overwhelming to date, and operators agree that customers are not willing to pay a premium for higher speeds alone. By teaming up with other providers, Deutsche Telekom will be able to share the costs of rolling out the networks required by the government’s recently published broadband strategy. This ambitious plan calls for nationwide broadband access by end-2010 and services of at least 50Mbps available to 75% of Germany’s population of 82.4 million by 2014 and nationwide by 2018. Deutsche Telekom will invest EURO300 million this year, one third in rural areas, to provide at least 250,000 additional broadband lines.

Deutsche Telekom’s initiatives may be defensive rather than altruistic but these are positive steps for next-generation development in Germany. However only time will tell how workable these voluntary cooperation agreements are in practice and whether the regulator BNetzA will eventually have to step in. If geographical pockets develop where the incumbent becomes too dominant, observers believe BNetzA will have to create a regulatory framework for FTTx