Follow up – developments in the Deutsche Telekom plans concerning the new high-speed VDSL markets

Several months ago it was described on this website that the new German coalition government had undertaken not to regulate the new high-speed VDSL markets run by Deutsche Telekom. The idea of such exclusion was to encourage DT to invest in this new market. Almost simultaneously the European Commission received a notification from the German National Regulatory Authority (BNetzA) about their plans to grant DT regulatory holidays for such markets claiming that they were new emerging markets – VSDL was a new product and it was impossible to tell what services it might spawn; as a result this market was not caught by the EU regulatory framework in the area of electronic communications. It was also stressed that the Commission strongly disagreed with this reasoning and that it was unlikely that the decision of BNetzA would be accepted: since the Commission has powers to block BNetzA decisions there needed to be a compromise. Just before the Commission goes onto Christmas holidays such a compromise seems to have been reached. BNetzA has undertaken to regulate parts of VDSL network after the Commission threatened to veto its decision to grant regulatory holidays to DT plans. Under the compromise, BNetzA would regulate parts of the VDSL network if services provided on it were in direct competition with services provided on the existing lines. However, services which are emerging markets in their true sense such as web-based television would for now be exempt from scrutiny. This case probably best shows the key role the Commission plays in safeguarding competition and as a result investment and growth in markets of electronic communications. Granting regulatory holidays is definitely the easiest way to attract short-term investments for the economy. However, as the German case highlights in most cases this leads to factual monopoly, no competition, higher prices and under-investment in the long run. BNetzA has always been criticised by the Commission for being too lenient with the dominant firms especially DT. BNetzA has to a certain degree often before tried to apply the concept of regulatory holidays. And in most cases it has not achieved the results expected – one can understand this by looking at the statistics such as broadband penetration: Germany is doing much worse than many EU countries which have not deserted the fundamental principles of competition. One can only hope that BNetzA will understand that their approach towards regulation and ensuring competition is not the most effective one so that such rather useless arguments with the Commission as those concerning VDSL can be avoided in the future.