Germany, EC on collision course


BRUSSELS -- The European Commission on Monday launched a "fast track" action at the European Union's highest court against the German government over a new law that will exempt Deutsche Telekom's ultra-fast broadband network from competition.

Aimed at hauling the German government before the European Court of Justice in the shortest possible time, the infringement process gives Berlin just 15 days to respond to a commission letter on the issue, a far shorter period than the usual two-month window granted to governments.

The law, which came into effect Saturday, restricts competitors' access to Deutsche Telekom's €3 billion ($4 billion) high-speed Internet network that is intended to provide a vehicle for services such as Internet TV. German Economy Minister Michael Glos said the protection is needed to ensure Deutsche Telekom's returns from the huge investment in building the network.

But the decision has generated a furious response from the EC.

"I regret that Germany has chosen to ignore the commission's concerns about this new telecom law despite several clear warnings from the commission," EU Media and Telecoms Commissioner Viviane Reding said. "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."

The fiber-optic system, which uses the so-called VDSL technology, allows transmission of data at 25 times the speed commonly used today. However, public demand for VDSL services has been slower than Deutsche Telekom had hoped for and the telecoms bill is intended to increase confidence in the future of new Internet connections. Indeed, at 16.4%, overall broadband penetration in Germany is already significantly weaker than in other EU member states such as Denmark and the Netherlands, which have a penetration of nearly 30%.

Deutsche Telekom already has spent about €1 billion ($1.3 billion) to connect 10 bigger cities to the network and offer combined Internet, phone and TV services. The group threatened to pull the plug on building the Internet service if it had to open up to rivals, potentially jeopardizing 5,000 jobs. The company already is cutting 32,000 German positions through 2008 after fixed-line phone revenue slumped for four consecutive years.

But commission officials are adamant that national governments are no longer authorized to set restrictions on emerging markets such as broadband Internet, which are supposed to remain free to competition.

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

The German government, which owns 32% of Deutsche Telekom, would be severely embarrassed by any EU court action. Germany is currently holding the six-month rotating presidency of the EU, and is expected to set an example during its helming.