Announcing new coverage targets for its vectored broadband service, German incumbent Deutsche Telekom is looking to 'super-vectoring' to fend off its cable rivals.

Iain Morris, International Editor

February 24, 2015

5 Min Read
DT Expands Its Vectoring Commitments

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.)

For more fixed broadband market coverage and insights, check out our dedicated Broadband content channel here on Light Reading.

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

Dividend pressure
Even so, the SLU footprint seems relatively small. A more pressing concern for investors may be what these plans mean for dividend payments over the next few years. In fairness, Deutsche Telekom cannot be accused of springing them on the market without any warning. The presentation it issued at its 2012 capital markets day indicates that vectoring could be extended to 80% of households beyond 2016 as a "further option." But the financial implications of this move are not made explicit.

Investors can expect to hear more on that subject later this week, with Deutsche Telekom due to announce 2014 results and provide a strategy update. Yet executives have already expressed disappointment with the performance of the broadband-and-TV business, which was lagging growth targets as recently as September 2014, and Germany's cable operators are in combative spirits. When DOCSIS 3.1 technology becomes available later this year, they will be an even bigger threat. (See The Chips Fall for DOCSIS 3.1 .)

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.

Can super-vectoring swoop to Deutsche Telekom's rescue? Unlike vectoring, it is not an industry standard but a proprietary technology developed by China's Huawei Technologies Co. Ltd. , which claims it is capable of supporting 400 Mbit/s connections over a loop length of 300 meters. Like -- another copper-fortifying broadband technology -- it seems to work by extending the range of frequencies over which broadband signals travel. Rival vendor Alcatel-Lucent (NYSE: ALU) is promoting a similar technology called Vplus. Both, however, remain commercially unproven. (See The Dawn of Gigabit Copper?)

Perhaps more could be gained from, which is now starting to influence the decision-making of some leading European operators. UK fixed-line incumbent BT reckons could be used to support 500 Mbit/s services for most of the country's population, and 1 Gbit/s for the hungriest broadband customers, over the next few years. Deutsche Telekom, though, has been circumspect when it comes to and has yet to even acknowledge the standard in official announcements. That it touts super-vectoring in preference to suggests it harbors serious doubts about the latter. (See BT Puts at Heart of Ultra-Fast Broadband Plans.)

Ultimately, none of these copper options will stand up to long-term scrutiny. Deutsche Telekom expected standard vectoring to help it compete more effectively against faster cable services, but cable operators have not been standing still. The arrival of ultra-high-definition TV and more advanced Internet applications will put fresh demands on Europe's broadband networks. Before long, Deutsche Telekom will be forced to take that FTTH plunge. (See The Perennial Need for Speed.)

— 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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