Reding threatens Germany over DT network

A war of words has broken out between the German incumbent, Deutsche Telekom (DT) and the European Commission over a new law that allows the telecoms giant to keep rivals off its new high-speed network. On Monday the EC confirmed it had threatened the German government with legal action unless it scraps the law, passed Friday.

European media and telecommunications commissioner, Viviane Reding, warned DT in September last year to open its new VDSL high-speed broadband network to rival services. On Monday Reding sent a letter to the German government arguing that the new legislation – made law Friday – amounts to an illegal “regulatory holiday”.

Reding said: “I regret that Germany has chosen to ignore the Commission’s concerns about this new telecom law despite several clear warnings from the Commission.” She has given Germany 15 days to respond under an accelerated procedure but according to a spokesman, the case is expected to end up in the European Court of Justice.

Reding, no stranger to taking on the telecoms industry, added that the German law is “an attempt to stifle competition in a crucial sector of the economy and in violation of the EU telecom rules in place since 2002”.

Martin Selmayr, Reding’s spokesman is widely quoted saying, “We see no willingness of the Germans to end this case peacefully.”

The furore has been ongoing for more than a year. DT, like other European operators, is feeling the pinch from market pressures and has issued a series of profit warnings. The German government has sided with DT’s argument that to turn a profit on its new Eur 3bn network, it needed exemption from opening it to competitors.

The Commission has always countered saying such an arrangement would be unfair. Reding rounded on DT in her statement alleging that a lack of competition was already hampering broadband in Germany.

By Tuesday, Germany’s Economy Ministry reacted, stating that the new law creates “a balance between the necessary strengthening of competition and the concerns of companies that are willing to invest”. In a statement, the Ministry said the disputed regulation “does not foresee a special treatment of Deutsche Telekom AG’s glass-fiber DSL network, but deals abstractly with the question of regulation or non-regulation of new markets”.

Analyst at Ovum, Matthew Howett says the situation has far reaching implications. “Across Europe, operators and regulators alike are waiting to see what the outcome will be. This case is very much going to set the tone of what to expect in the future… Whilst proceedings have been expected for some time, the urgency with which the Commission is pressing ahead is worth noting. By reducing the time DT have to respond to the formal notice from the established 2 months to just 15 days reflects the seriousness the Commission have attached to this issue.

“With six outstanding procedures against it, Germany is no stranger to EU infringement proceedings. However this time we believe it may have bitten off more than it can chew. The Commission is certainly unlikely to back down now and to do so now would further reduce confidence in the already shaky framework. However whilst the EU may appear confident in its assessment of DT’s actions, it is unlikely to escape criticism itself.”