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DT's Biggest BT Bother: Break-Up, Not Brexit

A German split
Despite Deutsche Telekom's broadband dominance, structural separation has certainly not generated the same vigorous debate in Germany that it has in the UK. That seems largely a product of market dynamics. In the UK, BT's largest broadband rival and fiercest critic is Sky , which uses the BT network to provide services and also competes aggressively against BT in the pay-TV arena. In Germany, by contrast, Deutsche Telekom's main competitors have less broadband muscle and often have recourse to their own cable networks. Sky Deutschland sells TV services to Deutsche Telekom but has no broadband role.

That does not mean structural separation has no German supporters, however. Breko, an organization that represents many of Deutsche Telekom's broadband rivals, last year urged German regulatory authorities to break the incumbent apart. Another break-up fan is Thomas Langer, a finance consultant with the FTTH Council Europe , an industry association promoting fiber-to-the-home technology. "Structural separation is potentially the way to go but it must be fully supported by the government and the regulator," said Langer during a Light Reading conference in Germany last year. (See Can DT, Regulators Find Common FTTH Ground?.)

It is conceivable that German authorities could warm to structural separation amid concern about the country's broadband networks. Under plans announced this year, the government is trying to ensure Germany has "gigabit-capable" infrastructure by 2025. Yet Deutsche Telekom, the only company with a nationwide network, has been reluctant to invest in gigabit-speed technology it would be forced to open to rivals under stringent conditions. Instead, it is upgrading its copper lines to support vectoring, which can deliver up to 100 Mbit/s to users. "After 2018 or 2019, we then have to discuss what the next step toward more broadband could look like, but there is nothing we are [now] discussing," said Höttges last week. (See Germany's Gigabit Lag.)

In all likelihood, though, German regulators will remain warier than UK ones. According to estimates, connecting every home and business to an FTTH network would cost somewhere between €60 billion ($64 billion) and €80 billion ($86 billion) in Germany, which has relatively few of the multi-dwelling units that have made rollouts more economical elsewhere. In the absence of powerful broadband rivals, weakening Deutsche Telekom through structural separation could undermine Germany's chances of becoming gigabit-capable, not improve them.

For now, Höttges is probably right to be sanguine but not complacent. EC intervention in the UK, while it remains a part of the EU, could make life very uncomfortable for Europe's other fixed-line incumbents. Yet it currently seems a long way off, and may never happen if the UK leaves the EU by early 2019, as the government intends. That does not eliminate the risk of unfavorable regulation from Ofcom, however. And with Brexit and BT's eye-watering pension deficit to worry about, Deutsche Telekom has plenty of reasons to be weighing its options, even if it denies it is discussing a sale. Expect the rumors to persist.

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

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