Vodafone Calls for Broadband Regulation Shake-Up in Germany

Vodafone has lashed out at German telecom authorities for blessing Deutsche Telekom's vectoring plans, saying they will lead to "re-monopolization" in Germany's broadband market.

Vodafone also says that current broadband regulations need to be overhauled -- giving it more access to ducts and dark fiber -- before it can substantially increase its own investments in higher-speed network infrastructure.

Deutsche Telekom AG (NYSE: DT) is pushing ahead with a multi-billion-euro upgrade of its broadband networks so that it can better compete against cable operators that offer higher-speed services: Its plans entail the use of vectoring, which enhances the capacity of last-mile copper connections by cutting out interference between lines. (See Vectoring: Some Va-Va-Voom for VDSL.)

Having previously secured permission for a vectoring deployment covering about 65% of Germany's population, Deutsche Telekom received clearance in November to extend vectoring to another 6 million premises, representing another 15% of the population. (See DT Expands Its Vectoring Commitments.)

Vectoring is controversial because it cannot easily be used in conjunction with unbundling, whereby a rival would install its own equipment in Deutsche Telekom's exchanges and street cabinets to provide services. The decision by Germany's Bundesnetzagentur (BNetzA) allows Deutsche Telekom to restrict competitors' access to its facilities in certain circumstances.

Vodafone Group plc (NYSE: VOD) signed an agreement in 2013 to buy wholesale services based on vectoring from Deutsche Telekom, but it now argues that vectoring and the regulations surrounding it will have "detrimental effects on infrastructure-based competition."

"Competitors would lose the option to use physical unbundling to create their own products on the basis of VDSL and would be pushed back to access products at the lower end of the value chain," said a Vodafone spokesperson in comments emailed to Light Reading. "The process of upgrading copper networks by FTTC [fiber-to-the-curb]/vectoring is, from our point of view, cementing the dominance of incumbents."

A caveat attached to BNetzA's latest decision is that Deutsche Telekom must develop a new wholesale offering based on virtual unbundled local access (VULA) technology, which is supposed to give alternative operators more control than older bitstream-based products.

But Vodafone describes BNetzA's VULA proposals as "insufficient," claiming they will not allow competitors to make economical use of VULA at street cabinets.

"Compared to physical unbundling costs for competitors, costs would increase by 60-90%, leading to a price for VULA that makes it impossible to compete with Deutsche Telekom retail offers," says Vodafone's spokesperson.

Deutsche Telekom has also expressed misgivings about the VULA regulation, suggesting the move could drive up its costs and force it to think twice about its vectoring plans. (See DT's $1.1B Vectoring Plans Thrown Into Doubt After New Ruling.)

"Deutsche Telekom must provide another regulated wholesale product [and] this means more regulation and more administrative effort and affects the investment decisions," a spokesperson for the company told Light Reading back in November.

The former state-owned monopoly has previously outlined plans of extending vectoring to 80% of premises by 2018, but this target is looking increasingly ambitious.

Last July, Deutsche Telekom revealed to Light Reading that vectoring was then available to just 2.5 million homes -- or 6% of total households in Germany -- and that it was aiming to cover 6 million by the end of 2015.

More recently, it has refused to disclose figures about the status of the vectoring rollout, instead referring to a German-language website that includes broad details of the areas in which vectoring is available.

Vodafone believes Germany needs more infrastructure-based competition if its broadband market is to thrive, but it says the existing regulatory framework prevents it from making new investments.

"We first need appropriate market conditions," says the operator's spokesperson. "In Germany, access to passive infrastructure like ducts and dark fiber is restricted … This is -- apart from high access fees -- why fiber rollout, so far, has not progressed significantly in Germany, and why other countries like Spain or Portugal that are following a pro-competitive approach are much more advanced when it comes to the deployment of future-proof networks."

Vodafone acquired Kabel Deutschland GmbH , Germany's biggest cable operator, in 2013 and says that investments in DOCSIS 3.0 and DOCSIS 3.1 cable technologies should allow it to offer gigabit-speed services to customers in future.

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.

Yet Kabel Deutschland's network passed just 15.3 million homes at the end of September, or about 38% of the country's total, forcing Vodafone to look to broadband alternatives in areas outside that footprint.

Regulatory authorities in Spain allow alternative operators to gain access to passive infrastructure owned by Telefónica , the fixed-line incumbent, and Vodafone promised to increase fiber investments in this market and others when reporting earnings for last year's July-to-September quarter. (See Telefónica's Fiber Fix.)

"We're going to build more in Portugal, in Spain, in Italy," said Vittorio Colao, Vodafone's CEO, during the results call.

But Colao has sounded as unhappy about the situation in the UK, Vodafone's domestic market, as the one in Germany, even calling for a carve-up of BT Group plc (NYSE: BT; London: BTA), the fixed-line incumbent, to spur broadband competition.

"We want fair competition," was all Vodafone's spokesperson would say when asked whether Deutsche Telekom should also be subject to "structural separation."

Vodafone made its comments to Light Reading following the publication of a blog by Roland Koch, a member of the supervisory board of Vodafone Deutschland, in which he also slammed Deutsche Telekom's vectoring strategy. "Through the process of vectoring, Deutsche Telekom is aiming to exploit the existing outdated copper network infrastructure to offer only minimally increased broadband speeds -- to the detriment of necessary investment in modern fiber-optic technology," wrote Koch.

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

iainmorris 1/18/2016 | 11:01:17 AM
Re: any prospect of change? Possibly, although this can't help Deutsche Telekom's case. Regulation appears to have really hampered the rollout of vectoring, which Deutsche Telekom first started talking about as far back as 2012. Cable operators might not be able to compete against it on a national scale but they've continued to erode its market share over the past few years and some are now offering services of up to 400Mbit/s. Vectoring tops out at 100Mbit/s in the most ideal circumstances. Does Deutsche Telekom need to rethink its strategy here?
[email protected] 1/18/2016 | 10:55:34 AM
any prospect of change? Does Vodafone hold any realistic prospect of regulatory change? Or is it just highlighting what it believes is an uneven playing field to use as ammunition in other battles?
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