The German government has requested the EU to relax its grip on the telecoms sector, warning that too much regulation is putting European companies at a disadvantage. The warning came after the German government was forced to back down after rivals accused it of protectionism over its decision to grant Deutsche Telekom AG virtually no government regulation for two to three years for its new 3bn euro ($3.5bn) high-speed fiber-optic network.
The new German coalition government, which took power on November 22, had agreed with Deutsche Telekom to exempt the network from regulation in order to ensure Deutsche Telekom achieved adequate returns.
The European telecoms commissioner, Viviane Reding, was furious at this act of protectionism from one of Europe’s leading countries, and sent a letter to Germany’s Federal Networks Agency saying she had serious concerns about the German regulator’s decision to take a hands-off approach to Deutsche Telekom’s new network.
The measure also attracted strong criticism from Deutsche Telekom’s foreign competitors operating in Germany. They were highly critical of the stance of the German government, and said it would allow Deutsche Telekom 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 Bonn, Germany-based carrier is looking to spend 3bn euros ($3.5bn) over two years to upgrade large parts of its network. The upgrade means the carrier will strip out large parts of its old copper wire network and replace it with high-capacity fiber-optic cable capable of speeds of up to 50MBps. The roll-out will then cover 10 unnamed German cities by mid-2006, and by 2007 this will reach 50 of Germany’s largest cities.
In the end, the pressure from Reding forced Germany to backtrack on plans to exempt the network from regulation. But it seems that this humiliating climb down has not been forgotten in Berlin, which now wants 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.
Bureaucratic practices must be avoided [and] policy options of member states should not be inadmissibly curtailed, said the German economics ministry in a position paper quoted by FT Europe. Temporary monopolies are vital elements of dynamic telecoms markets.