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Summary

The European Commission (EC) has accepted the German telecoms regulator BNetzA's revised decision to allow Deutsche Telekom (DT) to roll out VDSL2 vectoring. In May 2016, the EC raised serious concerns about the proposal, which allows DT to upgrade its network with vectoring technology in areas close to its exchanges, stating that it couldrestrict competition and investment in the market. BNetzA has since amended its proposal. Although the EC will no longer block the vectoring plans, it requires BNetzA to make further improvements, including introducing a new Layer 2 product that meets the relevant VULA criteria. Operators looking to deploy vectoring technology elsewhere in Europe will be reassured by this outcome but will need to monitor how the alternative access product evolves.

Vectoring technology would allow DT to achieve National Broadband Plan targets by 2018

Given that it only works when applied to a bundle of DT's copper cables, vectoring prevents the physical unbundling of individual subscriber lines by alternative operators. DT would be able to exclusively install vectoring technology for more than 90% of households. Therefore, it has been important that the EC ensures that there are sufficient alternative access solutions available to competitors to maintain consumer choice in the broadband market. Not only did the EC raise doubts over the proposal, but it was also contested by some of DT's competitors, especially Vodafone, which has detailed concerns over its ability to compete and the impact of delaying Germany's transition to fiber.

BNetzA has since amended its proposal, removing the restriction on the number of access seekers at the street cabinet as well as granting access to ducts and dark fiber for two years to those alternative operators that are currently present at the local exchange and want to use VULA at street cabinets. This has been supported by a reduction in duct access prices, and the regulator has also redesigned the eligibility criteria to increase nearshore vectoring possibilities.

Most encouraging for DT's competitors is the fact that BNetzA has also committed to ensuring that a new Layer 2 product is introduced to act as a substitute for physical unbundling, which would not be possible after vectoring is implemented. The exact technical details of the Layer 2 product still have to be outlined; however, it will need to meet the relevant VULA criteria, including price and technical parameters, and the EC's own recommendations following a separate consultation period. BNetzA is expected to release the specifications in the coming months. Therefore, it is likely that vectoring will not be implemented close to the exchange before 2017. This is because until the EC has accepted BNetzA's replacement wholesale offer, DT will not be allowed to stop current physical access at exchanges, and therefore vectoring cannot take place.

Despite BNetzA making considerable changes to its proposal, which have been welcomed by the EC, it is still being criticized in other areas. For example, more work should be done to improve the market definition that currently states that any virtual Layer 2 access product would not qualify as a substitute to physical unbundling. The EC has also requested that the introduction of an "all-or-nothing" requirement in the eligibility criteria be reconsidered because it could result in some operators not being able to make use of vectoring. The EC is also asking that BNetzA address its concerns around limiting the ability of alternative operators to access DT's ducts to the loop between local exchange and the street cabinet.

Vectoring technology has been successfully deployed in several other EU countries, including Belgium, Denmark, and Austria, to achieve high coverage of next-generation access (NGA) networks. However, they tend not to concern nearshore vectoring. If they do, there is a suitable virtual access product already in place at the exchange. In Germany, vectoring has been used by the incumbent operator to offer superfast broadband services since 2013. However, up until now, the incumbent operator has been prohibited from using vectoring in areas close to the exchange. Promisingly, extending its use could lead to increased broadband speeds for 6 million households. Given that one of the aims of Germany's National Broadband Plan is to deliver 50Mbps to all households by 2018 and coverage had only reached 70% by the end of 2015, vectoring would also speed up this deployment.

Appendix

Further reading

Germany (Country Regulation Overview), TE0007-000977 (January 2016)

"Vectoring in Germany prompts EC investigation," TE0007-001025 (May 2016)

Author

Sarah McBride, Analyst, Regulation

sarah.mcbride@ovum.com

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