BT Calls for Full Privatisation of Deutsche Telekom

The head of BT's German unit has called for the German government to exit from Deutsche Telekom in a move that is bound to infuriate its German peer. In an interview with the German financial daily, Handelsblatt, yesterday, Jan Geldmacher said the move will level the regulatory playing field in Germany. "We in Germany should orientate ourselves according to the British model," Geldmacher said, noting that the withdrawal of the state from the United Kingdom's telecoms sector has enabled the development of a functioning competitive environment with strong companies. The German government controls 32% of the shares in Deutsche Telekom, either directly or through the State-owned Reconstruction Loan Corporation (KfW) (see Europe: 22 March 2007: The EU's New Regulatory Framework; Benefits, Opportunities and Risks for Telcos).

Continuing further, Geldmacher said the involvement of the German government in Deutsche Telekom makes it difficult for the country's telecoms regulator to serve both the interests of the independent market players and the state. BT Germany's head dismissed Deutsche Telekom's call for a lightening of the regulatory burden, arguing that efficient competition is the best way to secure existing jobs. Geldmacher maintained that competition can only work if the state keeps out of the business entirely and that the regulator's role will be easier if it is freed from the Catch-22 scenario of having to balance the interest of the state and independent market players (see Germany: 31 December 2007: Deutsche Telekom Calls for Lighter Telecoms Regulation).

Outlook and Implications

• Breaking Ranks: Regardless of the merits of Geldmacher's call, such comments coming from a fellow former incumbent fixed telco undermines the solidarity that exists among former incumbents. Under the auspices of the European Telecommunications Network Operator's association (ETNO), former incumbent telcos across Europe have been presenting a united front on issues affecting their operations, especially regulatory matters. Interestingly, BT's comments go against some of the objectives of ETNO, which includes promoting co-operation and co-ordination of activities between its members and providing a forum for information exchange between members. ETNO members have tended to bind together to fend off proposals that could further erode their grip in their respective home markets from either the European Union (EU), their respective national governments and, importantly, from their key rivals under the banner of the European Competitive Telecommunication Association (ECTA). Accordingly, at a time when Deutsche Telekom is under pressure from the European Union (EU) to allow equal access to its new high-speed network to its rivals, criticism from BT, supposedly a peer, would be hard to take.

• Genuine Concern: Despite the varied interpretations that Geldmacher's call arouses, BT may have genuine concerns about competition in the German telecoms market. In mid-2007, the EU concluded that key segments of the German telecoms market needed targeted, speedy and efficient regulation to counter a lack of competition that has allowed Deutsche Telekom to maintain a dominant position. Importantly, given the dynamics in its home U.K. market, BT is the most likely ETNO member to break ranks and call for greater competition across Europe. The reasons are obvious. Until 1 January 2008, the company was the only former incumbent across Europe to have "functionally separated" its operations to create a wholly-owned but independent infrastructure company. Secondly, BT is among the few former incumbents with no visible state ownership or an invisible "golden share" for the state. Interestingly, though, despite the supposed holier-than-thou attitude, the U.K. group has not been free from criticism in its home market. In March 2006, France Telecom accused BT of excessive high charges for line rental aimed at tightening margins and forcing rival broadband providers out of business. However, despite BT's comments, it is business as usual in Germany and BT's call will become just one of the many voices calling for greater competition in the German telecoms market (see Europe: 29 March 2006: France Telecom Confronts BT on Last Mile).