Comment (2)It may be another copper-line reason not to invest in FTTH, but it is hardly copper-bottomed.
In an update buried in the German-language section of its website, Deutsche Telekom AG (NYSE: DT) has identified "super-vectoring" as the latest way to inject more pep into its VDSL fixed broadband services. Use of that technology could boost connection speeds to as high as 250 Mbit/s, claims the operator, from the 100 Mbit/s that plain old vectoring makes possible over the final copper connection to houses and businesses.
Clearly, this would address a growing concern that 100 Mbit/s is simply not going to be enough to halt Germany's DOCSIS 3.0-powered cable operators in their tracks. In November, Vodafone-owned Kabel Deutschland GmbH announced its launch of 200 Mbit/s services and promised these would be available to 3 million German households by September this year. Smaller rival Tele Columbus AG is plotting the launch of a 400 Mbit/s offer. Noting Deutsche Telekom's ongoing loss of broadband market share to cable rivals, investors may be feeling somewhat rattled. (See Tele Columbus to Launch 400Mbit/s Service and Speed Battle Rages in Germany.)
But Deutsche Telekom is not only looking for performance improvements. It has also rather dramatically upped the coverage targets for its vectoring service to 80% of Germany's population by 2018 from an original target of 65% by 2016. That will mean extending the high-speed service to another 5.9 million households.
Vectoring, of course, is integral to the strategy that Deutsche Telekom unveiled during its last capital markets day at the tail end of 2012. Promising to spend more than €6 billion (US$6.8 billion) on the technology over 2013-20, the operator has been counting on vectoring as a kind of broadband restorative. Yet these network investments have been eating away at free cash flow and dividends, and all while revenues from broadband and TV services have continued to fall. (See Vectoring: Some Va-Va-Voom for VDSL.)
No doubt, it is still early days. Vectoring was available to as few as 200,000 households in November, and Deutsche Telekom can hardly afford to relax while Kabel Deutschland and others invest in higher-speed technologies of their own. But the latest plans could present all sorts of challenges while raising further questions about Deutsche Telekom's FTTH avoidance strategy.
For one thing, regulators may balk at the expansion program. Vectoring prohibits any sub-loop unbundling (SLU), making virtual access products the only wholesale option for alternative operators at vectoring-enabled exchanges. Deutsche Telekom persuaded regulators to support the bulk of its original plan -- largely because SLU has failed to catch on -- but it was not permitted to terminate existing SLU arrangements if competitors refused to budge to vectoring.
Once again, the operator has approached authorities asking if it can say no to rivals that want to unbundle its network. It also wants to be able to terminate existing VDSL connections provided by its competitors. These "would have to be... switched to an alternative product to ensure a comprehensive vectoring supply," noted the operator in its statement. If regulators refuse to play along, Deutsche Telekom will have to rethink its plans.
Next page: Dividend pressure
