EC Threatens Germany With Court Case
The European Commission today launched infringement proceedings against the German government over its new telecom law, which in effect gives Deutsche Telekom AG (NYSE: DT) a regulatory holiday for its €3 billion (US$4 billion) fiber-to-the-curb (FTTC) network.
But the legal tussle could give the German incumbent at least a two-year headstart over its local competitors in next-generation broadband access, exactly the kind of advantage the incumbent has been seeking and which its competitors have battled against. (See EC Goes to Court.)
Germany's new telecom law intends to relieve Deutsche Telekom of regulatory obligations on its new FTTC and VDSL2 network, which goes against European telecom law. The European Commission has issued several warnings to the Germans during the past year because the new law breached European rules. (See EU Orders DT to Share VDSL and Achtung! Regulators Force DT to Share.)
Now the EC has acted on those threats and launched infringement proceedings against the German government, bringing the total number of pending telecom cases against the mid-European country to six.
"It's surprising that Germany would take this measure," says a European Commission spokesman. "Germany is privileging the investment of Deutsche Telekom over the investment of new entrants, which is not in the spirit, nor in the letter, of European Union telecom law."
The German government has 15 days to respond to the Commission's letter issued today. If the government does not cooperate, then the EC will refer the case to the European Court of Justice. Once there, the case could take up to two-and-a-half years to be resolved, according to one regulatory analyst.
"It's a landmark decision because it sets a marker for what next-generation network regulation should look like," says Heavy Reading's chief analyst, Graham Finnie. "The EC's reaction gives a strong clue that they'll not allow countries to go down the Verizon Communications Inc. (NYSE: VZ)/Federal Communications Commission (FCC) route."
But the situation looks bleak for the competitive operators that rely on Deutsche Telekom's network for broadband access.
"The law creates a huge amount of uncertainty," says Ilsa Godlovitch, head of regulatory affairs at the European Competitive Telecommunications Association (ECTA) , an industry body that represents alternative service providers. "It could result in a very nasty and lengthy fight, which the market doesn't really need."
According to ECTA's latest broadband study, just 4 percent of broadband lines in Germany are supplied independently of the incumbent's network. "This is really not a country that can afford a regulatory holiday," says Godlovitch.
Deutsche Telekom planned to cover 50 cities in Germany with an FTTC and VDSL2 network by the end of this year. To date, the operator has rolled out the network in 10 cities and has said it will not continue the deployment until it had a legal guarantee of no regulation.
Now that this guarantee is in place, a spokesman says the rollout will continue, but details on how many cities, and the new timeframe, are not being revealed until the operator's investor day on March 1, when CEO Rene Obermann will outline his strategy.
"BT Germany is very concerned about Germany's attempt to carve parts of Deutsche Telekom's access infrastructure out of the scope of the EU telecommunications framework," says a BT Germany spokesman. "This court case will be embarrassing to the German government and detrimental to inbound investment."
Now that there are six unresolved cases against Germany, ECTA is uncertain what effect the latest action will have. "There is a big risk that the German government might not listen," says ECTA's Godlovitch. "It doesn't bode well."
The bigger issue is how to regulate next-gen access networks based on fiber access technology, whether it's fiber to the building or to the curb or node. The European Commission is set to address these issues in its next review of the telecom framework, but the first proposals are not expected until July this year, with implementation not expected until at least 2009. In other words, solutions to the problems the industry faces now won't arrive from Brussels for another two years.
"No one quite knows how unbundling would work with VDSL," says Finnie. "It's slowing everything down, which is frustrating for access service providers."
While the regulatory holiday spells bad news for the alternative carriers, it's good news for Alcatel-Lucent (NYSE: ALU), ECI Telecom Ltd. , and Siemens Communications Group , the vendors benefiting from the incumbent's new access network rollout. (See DT Flings Billions at Fiber Access and Alcatel, ECI Land DT Gig.)
— Michelle Donegan, European Editor, Light Reading