Economic realities push German broadband providers to infrastructure sharing
Since 2006 Deutsch Telekom (DT) has been rolling out a hybrid fibre- and-copper network with a view to connecting up to 17 million households in some 750 towns. The core part of this network is based on ADSL2+, but 50 cities will be targeted with VDSL, offering up to 50Mb/s. In return for its substantial investment the company persuaded the government (a significant shareholder) that it should not have to open its network to rival carriers. The government agreed on the basis that VDSL was a new market and that it could not measure whether DT was dominant in VDSL until it became available. The EC then considered that services available over VDSL would not differ significantly from those offered over the existing DSL network, and that DT could not be excused from regulation in return for introducing innovative technology.
In February 2007 the Bundesrat exempted DT’s €3 billion VDSL investment from regulation for three years, essentially by amending the country’s Telecommunications Law to redefine what constitutes a new market. Infringement proceedings against Germany launched by the EC in the European Court of Justice (and supported by the German regulator) have shown little progress.
The economic realities of building such a large network are beginning to provide the results which legal proceedings have thus far failed to achieve. After initially insisting on building and operating all of its own network, by the end of 2008 DT considered co-operating with competitors to economise on CAPEX and extend these networks more widely across Germany. In this respect DT has moved to the position taken by the VATM (representing a number of DT’s competitors) which has promoted competitor involvement in a national network based on an open access system.
DT’s change of tack has begun to bare fruit. After calling for its competitors to help share the cost of broadband infrastructure, the company has since signed significant network sharing deals. In an agreement with the utilities provider Ewe (through its telco subsidiaries Ewe Tel and Ewe Netz), DT will share VDSL infrastructure in eight cities in Lower Saxony and Bremerhaven, with Ewe building its network in five of these cities. In a second major deal, Arcor will provide DT access to its new VDSL network in Heilbronn and Baden Wurtemberg, while DT in turn has given Arcor access to its network in Wuerzburg.
From these initial steps, network co-operation looks set to encompass a far greater footprint. DT recently announced that it would provide a wholesale service for VDSL double-play packages to all competitors, charging €30 per line. The arrangement is the only realistic way that broadband operators will be able to satisfy the government’s ambition (elucidated in its broadband strategy, published in February this year) to provide 75% of households with at least 50Mb/s by 2014. DT has thus far spent €500 million on its upgraded network, and planned to invest a further €300 million to provide an additional 250,000 lines. Yet the overall cost of a broader network cannot be met by itself alone, particularly since the company continues to haemorrhage customers at an alarming rate: it reported a 6% fall in its broadband and fixed-line division in 2008, while Group revenue was down 1%.
DT’s change of tack represents a major shift in strategy, one which has gained credibility across Europe. The significant and positive results are evident: the broader benefits of network sharing recently saw France Telecom get into bed with its fibre network rivals, which will help push France to the forefront of Europe’s IP future. May other incumbents considering their own way forward pay heed.
For more information, see separate reports:
April 3rd, 2009 at 5:20 pm
Similarly Vodafone & Telefonica in an infrastructure sharing deal. Recently I read a blog post that the firms will share existing networks in Germany and Ireland and will focus on jointly building new networks in U.K. This deal will bring down the network cost and improve coverage.
April 6th, 2009 at 3:47 pm
Indeed network sharing is making financial sense for any number of telcos. The era of individual networks closed to competitors has been knocked on the head several times during the last few years as a result of regulatory pressure and dawning commercial realities. Just as DT has been signing an increasing number of shared VDSL network contracts, it has also been putting on hold its own program to develop broadband coverage in rural areas. The excuse is that the company needs to recalculate costs and investments in the wake of the regulator’s 31 March reduction in LLU fees, though this was marginal.
Sharing mobile networks will become crucial in coming years as mobile broadband becomes an increasingly significant platform for broadband access. As Telefónica recently showed, current HSPA+ networks can outperform many fixed-line networks, though consumer use remains stunted by high access costs. The deal between Vodafone and Telefónica affects four European markets (Germany, Spain, Ireland and the UK with a possible extension to the Czech Republic), potentially saving each operator hundreds of millions of pounds/euros. Vodafone aims to cut operating costs by £1 billion a year by 2011.
June 11th, 2009 at 1:49 pm
[...] “Economic realities push German broadband providers to infrastructure sharing” and “EC approves plans to open broadband access (Denmark)” – I would not call it a trend, but these are interesting examples of how information infrastructure starts being shared. [...]