An article by Dirk Wössner, from January 2018 to October 2020 Board Member for Germany and Managing Director of Telekom Deutschland GmbH.
A powerful agreement. And a milestone in terms of broadband build-out: Deutsche Telekom and Telefónica announced today that Telefónica will continue to use Telekom’s broadband network over the next ten years. And not only that: For the first time, we are offering another company fast fiber-optic lines to the home (fiber to the home/FTTH).
To this end, the companies have agreed to extend a so-called contingent contract. Under this agreement, Telefonica will take a contingent which it will receive at discounted prices. This gives both parties long-term planning security. It allows Deutsche Telekom to reinvest the financial resources from the purchase of these lines in its network expansion. On the other hand, it allows Telefonica to continue using the most modern telecommunications network.
Germany has never before seen such a comprehensive agreement on the joint use of FTTH infrastructure. This cooperation is pioneering. And Deutsche Telekom will also offer this cooperation model to other companies on the market. And not only for copper lines, the aim is to also continue the philosophy of open access in terms of FTTH build-out in the future.
Sharing investment risks
Sharing investment risks is common practice in the industry. We also learn from start-ups who are ahead of the established players in terms of creativity and new business models. The expression for this: coopetition. Collaboration under competitive conditions. And we are doing exactly this with Telefónica. The build-out of fiber-optic broadband networks is extremely expensive. One kilometer of civil engineering alone costs approximately 100,000 euros. Thousands of diggers are required to supply large areas of Germany with the fast internet. And we need to lay even more kilometers of fiber-optic cable. As other network-building companies, we pay for this in advance in order to earn back these investments on the market. Therefore, the agreement with Telefónica is an important additional lever.
Not the first cooperation
Networks can only be built-out and marketed with cooperations in Germany. Alongside our financially-viable build-out and the subsidized build-out, cooperations have been the third pillar of our network strategy for years. We generated revenues of around three billion euros last year by allowing other companies onto our broadband network. Vodafone, 1&1, and Telefónica account for three-quarters of the volume. We call this business “wholesale”.
On the other hand, our Broadband Cooperation team is working intensively every day to ensure we can offer our products on the networks of other companies. We call this “wholebuy”. We currently use the wholesale service of 14 partner companies. This is on top of the approximately 33 million households and company sites that we independently supply with VDSL. And, in terms of the future FTTH provision, we are already cooperating with other companies such as Deutsche Glasfaser, Süwag, and Stadtwerke Münster today. We are also exploring new directions. This is demonstrated by the establishment of the Glasfaser Nordwest joint venture with EWE or the public-private partnership in the Stuttgart gigabit region.
Open network and market power
What is ultimately important? Network build-out is complicated. Network build-out requires endurance. And, last but not least, network build-out is very expensive. Nobody can do this alone. Open networks for everyone who accepts fair and commercial conditions. On a voluntary basis. That’s what we consider open access to be. We network operators are happy with political decisions that support this type of FTTH build-out so that those who want to build are rewarded.