EU sues Germany over controversial telecoms law

27 Feb 2007

The European Union is taking the German nation to court and has begun legal proceedings over a law that allegedly allows Deutsche Telekom to keep rivals from accessing a high speed network that allows German citizens to enjoy high speed internet and download movies.

Observers believe the case could end an era that has seen national governments shield incumbents from competition and bring national telecoms markets kicking and screaming into the digital age.

The case will be closely watched as it pits a national telecoms company against the EU and its outcome could have ramifications in markets where an incumbent operator has strove to frustrate competition.

Deutsche Telekom is in the process of building a new network that could allow users to download at 20 times the speed of existing connections. The company is in the process of investing €3bn in the new VDSL network.

EU telecoms commissioner Viviene Reding has written to the German government charging that the new law amounts to “legal holiday” and has given Germany 15 days to respond with action.

The case could end up in the European Court of Justice in the coming months. The court can force Germany to overturn the law and impose fines.

Like most State monopolies Deutsche Telekom has seen its traditional business shrink and has issues a series of profit warnings and warnings of looming layoffs.

According to the OECD Germany had less than 16 broadband lines per 100 inhabitants. The situation in Ireland is actually starker, with the OECD revealing last year that there were less than six broadband lines per 100 inhabitants.

The case is the latest in an escalation of a battle between the EU and Germany, which has six cases brought against it for infringing EU telecoms laws.

“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 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.”

In Germany, Deutsche Telekom controls access of 9,400,000 lines out of 12,900,000 lines. In turn, broadband penetration in Germany (16.36pc) is significantly weaker than in leading EU Member States like Denmark and The Netherlands which have a broadband penetration of nearly 30pc. In Ireland penetration stands at less than 10pc.

“The German decision to grant Deutsche Telekom a ‘regulatory holiday’ is bound to lead to numerous legal disputes at EU and national level,” said Commissioner Reding.

“This is the worst possible signal for investment, as now neither the incumbent nor new market entrants will have legal certainty in Germany. Efficient implementation of EU telecom rules would clearly have been the better way to promote both competition and investment.”

By John Kennedy