The war of words between European telecoms commissioner Viviane Reding and Deutsche Telekom AG shows no signs of abating after Reding warned she was prepared to take Germany to court over that country’s plans to exempt Deutsche Telekom’s new 3bn euro ($3.5bn) high-speed fiber-optic network from regulation for two to three years.
According to German weekly news magazine Focus, Reding has written to the German economics minister Michael Glos to express concern about the revised telecommunications law, which will give Deutsche Telekom a regulatory holiday for its new network. This exception, she argues, would create a new monopoly in violation of EU laws.
The future of the telecommunications market is not by establishing new monopolies on the basis of old ones, Reding told a press conference in Brussels. Instead, new infrastructure should be opened to competition, she said, arguing that competition led to increased revenue.
Reding had previously hinted that she would refer Germany to the European Court of Justice if it does not amend draft regulations for the telecommunications sector being drawn up by the government.
The spat began after the Bonn, Germany-based carrier lobbied the new coalition government of Chancellor Angela Merkel over its new network to ensure it achieved adequate returns. It said it would spend 3bn euros ($3.5bn) over two years to upgrade large parts of its network. The upgrade meant stripping out large parts of its old copper wire network and replacing it with high-capacity fiber-optic cable capable of speeds of up to 50MBps. The roll-out would cover 10 unnamed German cities by mid-2006, and by 2007 this would reach 50 of Germany’s largest cities.
Merkel backed the idea and promised in November that investments in new markets should be exempt from regulations for a certain period of time in order to stimulate demand for broadband communication services.
Reding however was furious and sent a letter to Germany’s Federal Networks Agency (BnetzA) saying she had serious concerns about the German regulator’s decision to take a hands-off approach to DT’s new network.
The measure also attracted strong criticism from DT’s foreign competitors operating in Germany. They were highly critical of the stance of the German government, and said it would allow DT to set excessive access prices, or even prevent access to its network. They also said it could be a dangerous precedent for other countries.
The pressure took its toll and the German regulator eventually backed down. However, the German government responded by calling for a more flexible approach from the European regulators, arguing that businesses need to be able to recoup the cost of their investments if they are to remain competitive.
Yet Reding refused to give way and last month issued a blunt warning to European member states, reminding them about the rules governing telecom investments.
It is absolutely crucial that we all understand that this (common rules agreed by member states) is a European process, and that the European Commission cannot tolerate fragmented national approaches which may favor only the former national incumbents and could thereby block the development of a true European eCommunications market, she said at the time.
But the CEO of Deutsche Telekom, Kai-Uwe Ricke, is refusing to let the matter go and two weeks publicly criticized recent draft legislation of Germany’s telecom laws. He said the recent draft has to be revised substantially in order to guarantee that DT would not be forced to share its new network.
Indeed, DT is still insisting on the guarantee or will it not make the investment. We cannot possibly invest 3bn euros ($3.5bn) in setting up a network without receiving adequate protection for our investment in return, a Deutsche Telekom spokesperson told Focus Magazine.
The German coalition government then tabled amendments to its telecoms legislation granting DT a regulatory holiday. The EU and Germany are set on a collision course, and it remains to be seen whether Reding will follow through on her threat of legal action.