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Summary

The European Commission (EC) has opened an investigation into the German telecoms regulator BNetzA's decision to allow Deutsche Telekom (DT) to upgrade its network with vectoring technology in areas close to its exchanges that was previously prohibited by the regulator. The technology only works when applied to a bundle of copper cables and therefore prevents the physical "unbundling" of individual subscriber lines by alternative operators. The EC has concerns that if DT is allowed to extend its use of vectoring, the alternative access solutions that it can offer to its competitors would not be sufficient to maintain competition and investment in the market.

BNetzA should ensure that competition and consumer choice in the broadband market are not restricted in the long term

At DT's request, BNetzA originally permitted the use of vectoring technology to upgrade the existing copper network in August 2013. Vectoring technology is an intermediary technology used to extend the life of copper networks by upgrading them to deliver increased broadband speeds in a more cost-effective way than deploying fiber networks. This allowed the operator to offer superfast broadband services, while still providing its competitors with access to the local loop at the street cabinet. Where this was not possible, DT was required to offer VULA or bitstream products as an alternative. The regulator initially prohibited the use of vectoring in areas close to the exchange; however, in November 2015, it published new draft measures that finally lifted this ban and allowed DT to use vectoring technology on its copper-based VDSL network.

The proposal to extend the use of vectoring technology could enhance infrastructure investment competition andlead to increased broadband speeds for 6 million households. Approximately 1.4 million of these households would receive speeds above 50Mbps for the first time. However, DT would probably be able to exclusively install the vectoring technology on more than 90% of the 6 million households. The proposal could therefore considerably restrict sustainable competition and prompt the EC to open an investigation into the draft decision. In particular, it is concerned that the measures could disincentivize future investment in networks.

Any alternative access solutions that have previously been offered by the operator may also not be sufficient to maintain competition and investment. The bitstream product offered by DT, for example, is not a functional equivalent to physical unbundling due to technical restrictions in the product design. This makes it difficult for alternative operators to differentiate their retail offers, thereby limiting consumer choice. On the other hand, the VULA product would put physical and economic limitations on access by competitors, which restricts competition.

Over the next three months, the investigation will assess whether more suitable solutions need to be found to encourage competition and future investment, while still allowing the network to be upgraded.Encouraging the installation of vectoring equipment by a dominant operator such as DT can obstruct competitors' plans to roll out fiber networks that would be capable of delivering twice the broadband speed. However, given that Germany's National Broadband Plan aims to deliver 50Mbps to all households by 2018 and coverage had only reached 70% by the end of 2015, vectoring would speed up the deployment. This would ensure that the country can meet its targets more easily, which might explain DT's motivation behind using vectoring, and why it has been approved by the regulator despite competition concerns.

Appendix

Further reading

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

"Vectoring takes off to prolong the life of copper," TE009-000971 (May 2013)

Author

Sarah McBride, Analyst, Regulation

sarah.mcbride@ovum.com

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