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FTTH Pressure Grows on Deutsche Telekom

Could cable-based rivalry and 5G realities force Deutsche Telekom to give up its FTTH resistance?

Iain Morris

July 25, 2017

7 Min Read
FTTH Pressure Grows on Deutsche Telekom

Think of high-speed German infrastructure and one is likely to imagine the country's autobahns, where cars can still be driven (legally) as fast as they will go -- not its broadband networks.

While former state-owned telcos in France and Spain are building super-fast fiber networks to customers' doorsteps, Deutsche Telekom is still polishing its much slower copper lines. If gigabit-speed services become economically important in the next few years, Germany could find itself in Europe's slow lane. (See Germany's Gigabit Lag and Orange Sticks to High-Fiber Diet.)

Pressure is mounting on Deutsche Telekom AG (NYSE: DT) to embrace fiber. In the latest competitive development, rival operator Vodafone Germany has bragged that its 500Mbit/s cable service is now available to about 2.5 million households, more than 6% of the country total, across 100 German cities. It is now focused on expanding service availability in the capital city of Berlin. (See Eurobites: Google's Q2 Gouged by EU Mega-Fine.)

High-speed competition from cable rivals is a worry for Deutsche Telekom, which has continued to lose broadband market share to these players. It was this trend that in 2012 persuaded the incumbent to start investing in a technology called vectoring, which boosts broadband speeds by cutting out the interference between copper lines. Even with vectoring, though, Deutsche Telekom cannot deliver more than 100 Mbit/s over its ageing last-mile networks.

Figure 1: Don't Cut the Red Wire! Technicians work on the expansion of Deutsche Telekom's fixed-line network. Technicians work on the expansion of Deutsche Telekom's fixed-line network.

The operator's most recent step is to commit funds to super vectoring, an even higher-speed copper-based technology that extends the frequency range over which signals travel. Deutsche Telekom plans to launch a super-vectoring service in mid-2018, it told analysts in May when announcing results for the first three months of this year. But super vectoring also looks relatively pedestrian next to Vodafone's latest offering, topping out at about 250 Mbit/s.

Timotheus Höttges, Deutsche Telekom's chief executive, has repeatedly insisted that a major rollout of fiber-to-the-home (FTTH) networks could not be justified commercially. Following substantial investments in previous years, the company is to spend €1.5 billion ($1.8 billion) in 2017 on expanding its fiber-to-the-curb networks. That equates to as much as 15% of annual revenues from German fixed-line services. Yet despite all of its investments so far, more than 12 million German homes still cannot get any kind of fiber-based service from Deutsche Telekom, and more than one half of households cannot receive more than 50 Mbit/s. Connecting every premise in Germany to fiber would cost between €60 billion ($70 billion) and €80 billion ($93 billion), Deutsche Telekom has previously indicated. And the availability of higher-speed networks has not led to an uptick in service revenues in other parts of the world.

The rollout of Gigabit broadband access networks is spreading. Find out what's happening where in our dedicated Gigabit Cities content channel here on Light Reading.

In Germany, regulation is also a persistent bugbear. Because it is deemed to be a dominant player, Deutsche Telekom has been required -- like Europe's other fixed-line incumbents -- to provide wholesale services to rivals on terms acceptable to authorities. The difficulty of agreeing on what was acceptable to both Deutsche Telekom and the regulator previously appeared to hold up the deployment of vectoring. Given the economics involved, finding common ground on FTTH would be even harder. "We do not want to build a network for United Internet," said Höttges last year, referring to a company that has relied on wholesale arrangements with Deutsche Telekom to provide broadband services. (See DT's $1.1B Vectoring Plans Thrown Into Doubt After New Ruling.)

Next page: The fiber squeeze

The fiber squeeze
But it is not just Germany's cable operators that are putting the fiber squeeze on Deutsche Telekom. Germany's government is eager to have "gigabit-capable" infrastructure in place by 2025, at least partly to support the rollout of 5G mobile services in the same timeframe. In a recent 5G strategy paper, the Federal Ministry for Transport, Innovation and Technology said it "assumed" that network operators would "significantly increase their investments in fiber optics for connection to basestations." Because Deutsche Telekom remains Germany's biggest network operator by far, it will be expected to shoulder much of this "backhaul" investment burden. (See Germany Urges Telcos to Up Fiber Game for 5G.)

Regardless of government involvement, Deutsche Telekom is determined to build 5G networks across the entirety of its footprint, it told attendees at this year's Mobile World Congress. Although it has not set any deadlines, Höttges has expressed concern about the scale of the 5G investment that lies ahead. Thomas Dannenfeldt, the operator's chief financial officer, has also dropped a few clues about the effort that will be needed. A 4G network in Germany is "22,000 to 25,000 towers," he told analysts on the first-quarter earnings call. "With the 4.5G, 5G development you see that is not enough anymore," he explained. "We will enhance that number significantly by the magnitude of roughly two." (See DT Plots 5G Across Entire Footprint.)

While Deutsche Telekom expects to make use of about 7,700 towers it has acquired from rival Telefónica Deutschland, its 5G deployment seems bound to entail a significant expansion of tower sites. And while most existing 4G sites are already hooked up to fiber (according to a Deutsche Telekom spokesperson), providing this kind of backhaul connectivity to most future 5G sites would gobble up funds. In some cases, Deutsche Telekom might be able to rely on lower-cost microwave technology, from companies such as the UK's CBNL, for its backhaul needs. But not everyone is convinced that microwave will measure up in a 5G setting. (See CBNL: 5G Backhaul Pain Can Be Microwave's Gain.)

Want to know more about 5G? Check out our dedicated 5G content channel here on
Light Reading.

Indeed, that may include Deutsche Telekom itself. "5G requires fiber networks in nearly every street," the operator's spokesperson told Light Reading. A widely deployed FTTH network, then, could provide an ideal platform from which to support 5G offerings. That is certainly what the UK's Institution of Engineering and Technology believes. "FTTH technology is not just about consumer broadband," it said in a paper about 5G networks for policy makers published in March this year. "It can be used to connect businesses and for mobile backhaul." (See DT: Fiber Regulation Could Hinder 5G Rollout.)

Could these various forces persuade Deutsche Telekom to give up its fiber resistance? If an FTTH network were built with 5G as well as residential connectivity in mind, the return on investment would look far more attractive than if it were solely about broadband. There could also be cost benefits. During a conference in Nice last year, Sascha Vorbeck, Deutsche Telekom's head of network development core, said that signal attenuation on copper lines was forcing the operator to maintain facilities just hundreds of meters from customer premises. Those could be phased out in an FTTH environment. (See DT Eyes FTTH Solution to German Opex Issue.)

If Deutsche Telekom is to start thinking seriously about some kind of FTTH rollout, however, it will need more support and assurances from regulatory authorities. To aid 5G rollout, the government reckons passive infrastructure owned by public utilities could be made available to fiber operators. But Deutsche Telekom is demanding a lot more. "What is crucial is that there is no regulation of further fiber expansion in order to facilitate private investment," said the operator's spokesperson in a previous exchange of emails. Zero regulation would be unprecedented, of course, as Deutsche Telekom is only too aware.

In the meantime, Höttges remains steadfast. "From a capacity perspective, from a rollout perspective, from a coverage perspective and a strategy perspective, it is not our intent to follow this FTTH rollout," he said when asked on the first-quarter earnings call if Deutsche Telekom might warm to FTTH, as the UK's BT Group plc (NYSE: BT; London: BTA) has recently showed signs of doing. As the pressure continues to mount, it will become a lot harder for Höttges to brush aside those questions.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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