Deutsche Telekom heads for clash with EU

With the support of German lawmakers, incumbent telecommunications operator Deutsche Telekom is racing into a head-on clash with the European Commission over a decision to keep rival operators off its new high-speed broadband network.

The upper house of the German parliament approved a revised telecommunications law on Friday. The law will allow partially state-owned Deutsche Telekom to ban competitors from using its VDSL (Very high bit-rate Digital Subscriber Line) network to sell services.

The decision flies in the face of Commission legislation that mandates member states to force telecommunications companies with dominant positions -- in most cases former state-owned monopolies -- into opening their network infrastructure to rival operators on favorable terms.

While Deutsche Telekom eventually opened its local-loop infrastructure under pressure from Brussels, the operator has fought attempts to allow competition on its new network. It argues that the VDSL network represents a new market for combined triple-play telephony, high-speed Internet and TV services, and new markets are protected under European Union law; in addition, it needs to protect its €3 billion ($3.9 billion) investment in the super high-speed network.

German lawmakers have become slightly sympathetic to Deutsche Telekom, which has been bleeding fixed-line customers by the millions and consequently forced to lower operating costs, largely through job cuts. Since its privatization, the operator has reduced its workforce from more than 250,000 at the peak to around 180,000 today.

Over the years, Deutsche Telekom and the German government have clashed with Brussels on issues including the divestment of the operator's cable TV network and local-loop unbundling.

In repeated warnings over the past several months, the Commission has said it will take whatever action is necessary to make Germany observe E.U. law.

The issue could land in the European Court of Justice, which is responsible for handling E.U. treaty infringements. Court decisions can take years, however. Rival fixed-line operators, including Arcor & Co., which is owned by the Vodafone Group, have made it clear they don't want the former monopoly telephone operator to be given any advantages to dominate another market as it has with the market for telephone service.