The dispute between Brussels and Berlin/Bonn looks likely to set an ominous precedent for overall EU regulatory reform in the ICT arena. It reveals an unholy trinity of incumbent, national regulator and government. 

In the first article of this series, we saw how the argument over pan-European roaming charges pitted the European Commission (EC) against the combined and vested interests of European major states. The dispute also revealed fissures within the Commission itself – and it is arguably these that ultimately decided the outcome.

The row over Deutsche Telekom’s new VDSL network in Germany is an altogether different kettle of regulatory fish. When the proposed €3bn investment was announced late last year (click here), the suggestion that it would be exempt from conventional regulation was ridiculed. Laughter turned to alarm when the German national regulator, the Bundesnetzagentur (BNetzA), gave in (click here) under pressure from the newly-elected German government which had made the exemption a campaign issue.

The German policy of Angela Merkel was put as follows: "In order to safeguard the industrial & research position of Germany, the coalition parties wish to give incentives for the construction and/or extension of a more modern and broadband telecommunications network. In order that this may be achieved through the investment necessary for the development of new markets, it should be exempted from the effects of regulation for a period of time so as to provide the necessary stability for investment planning.”

The required Law is on the verge of being passed. Brussels, in the formidable shape of Commissioner Viviane Reding, has repeatedly stated its objections to the plan and threatened legal action – but still the two sides are on a collision course.

When the prospect first arose, Jürgen Grützner, head of the Association of Telecommunications and Value-Added Service Providers, argued: "No other country in Europe has carried out for so long such a unilateral policy in favour of an ex-monopoly."

Divided and ruled
Unlike the roaming issue, where the division between 'incumbents’ and ‘new entrants rarely surfaces, and certainly does not apply on roaming issues, this is a classic case of pro-incumbent regulation. This adds a significant arrow to the EC’s bow.

On roaming, Reding claimed to back the interests of business and consumer end-users, of economy and society, against the massed ranks of operators. The latter enjoyed lukewarm support from national regulators and, to a lesser extent, national governments.

On the VDSL exemption, the Commission might claim to act on behalf of the same end-users plus industry  rivals to the incumbent. The latter appears to enjoy the backing of the NRA, but the suspicion is that this has only come about thanks to pressure from the government. After all, most European NRAs have a fairly good track-record when it comes to squeezing incumbents. So why the dispensation this time?

Because DT is threatening to walk away from the project unless it gets its way. In February, it said: "Germany has a major opportunity to take a leading position in international competition with its information and communications industry. But for this to happen, we have to be able to develop our innovative strengths unfettered." Underlining DT’s position, chairman of the board of management Kai-Uwe Ricke said: "We still have the resources in Germany , but we need to establish the necessary framework conditions."

Who are you kidding?
One senior telecom figure, who spoke to TelecomRedux on condition of anonymity, said last week: “The German parliament's stance casts a shadow on Reding's proposal to make bitstream unbundling a legal obligation throughout the EU. If Germany can defy the EU, any government can.”

“European Telcos have found out that the most effective way of maintaining their margin levels is to lobby for government's protection. Governments feel happy to comply, as they can put their name tag on great investment projects without having to pay the price. What is disgusting and horrifying about this picture is how unjust, let alone protectionist, all this is”, he adds. ”For every €100 of a typical European Telco's revenues, there are around €5 in high-speed fibre-based investments and €25 in margin before interest and tax. So telcos are whining about their €5 investment to protect their fat €25. Pretty clever – and hypocritical – isn't it?”

The economic argument against lax regulation on new investments extends to the fact that operators, as well as governments, herald them as ‘trophy’ projects without making full use of them. As one rival to DT put it: “they will pay three times more than they have to for a network they do not understand and do not use. They will [then] need to ask us to [unbundle] in order to get the money back from it.”

The nub of the matter here is that Member States are prepared to adopt a pan-European line when it suits them but are ready to opt out when they choose. On key issues, ‘independent’ regulators will bow to pressure from national politicians, the latter aware that they can always tap into the underlying current of anti-EU sentiment that exists in most countries.

This bodes ill for the Commission’s latest Framework for Telecommunications, which is now in the preparatory stage. In the final part of this series, we’ll examine in more detail just how that process is likely to pan out in the wake of these recent and controversial developments.
Jim Chalmers