EU Takes on Telecom Law
February 26, 2007
The European Commission has given Berlin 15 days to respond to its formal warning about a new telecommunications law, the first step of legal action under "fast-track" procedures, instead of the usual two months.
The European Union's executive arm said the telecom law in Germany, which went into effect on Saturday, effectively allow Deutsche Telekom to avoid opening its fastest Internet network to rivals.
EU regulators decided to take the action after repeated warnings about the so-called "regulatory holiday" were ignored and German lawmakers went ahead and enacted it.
"I regret that Germany has chosen to ignore the commission's concerns about this new telecom law despite several clear warnings from the commission," said EU Commissioner for Information Society and Media Viviane Reding.
"The granting of regulatory holidays to incumbent operators 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," she added.
Telekom enjoying unfair advantage?
Germany is building a fiber optic network that is supposed to cover 50 cities and expected to cost 3 billion euros ($3.95 billion).
The network is already up and running in 10 cities but Deutsche Telekom asked the government to allow it to block access to rivals during the first years of operation to help recoup its investment costs.
"In the commission's view, the German law, as now adopted, jeopardizes the competitive position of Deutsche Telekom's existing competitors and makes it much harder for new competitors to enter German markets," the EU executive said in a statement.
Moreover, the commission said the law went against the wishes of the German Internet authority, the Bundesnetzagentur, which has also called on Deutsche Telekom to allow rivals to use the network.
With no indication that Berlin intends to back down, the commission could seek a injunction or a fast-track case before the European Court of Justice.
Along with Poland, Germany now faces the highest number of EU legal proceedings against it with six pending cases.
Deutsche Telekom, about 32 percent of which is owned by the German state, enjoys a broad share of the national telephone market, controlling access of 9,400,000 lines in Germany out of a total of 12,900,000 lines.
However, there is considerable scope for the former state monopoly to strengthen its hand in the Internet access market with Germany having a broadband penetration rate in Germany at well below other leading EU countries.
The commission estimates that only 16 percent of the German population has access to broadband Internet access compared with nearly 30 percent in Denmark and The Netherlands.
Preventing Germany from setting an example
Analyst Theo Kitz at German bank Merck Fink said Deutsche Telekom has run into relatively weak demand among customers for broadband access mainly because it is too expensive.
"They have told us the customer take-up is slow," he said. "In my opinion, it's because of pricing, they have to lower prices."
He predicted that the European Commission would take a "hard line" in the case so as not to tempt other companies in other countries to try to seek regulatory holidays.
"They're very tough and very serious because they fear that if they open the door a little some other company will push it open," he said. "If they make an exception in a country, some others could follow."