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State Aid for “Vectoring” Broadband Investment in Rural Germany?

Peter_Pitsch
Beginner
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Intel wants broadband to be affordable and high quality, but determining which last-mile broadband technology is most cost-effective (that is, weighing the tradeoff between affordability and high quality) can be challenging. Two leading choices are fiber to the premises (FTTP) and xDSL over existing twisted copper pair (with “vectoring”) which is less capacious, but also less expensive than FTTP. Another complication is how an incumbent’s facilities are made available to competing operators. For example, must competitors have access to physical unbundling? Or can the incumbent offer equivalent access via virtual unbundling? The European Commission has answered the latter question affirmatively as long as the equivalent access is truly equivalent, and physical unbundling is economically or technologically infeasible.

The above analysis is relevant to the broadband regulatory discussion underway in Germany where Deutsche Telekom has decided to invest roughly €6 billion between 2013 and 2020, in upgrading its fixed networks deploying a “vectoring/ fiber to the curb” solution serving roughly 65 percent of German households. Other network operators,   e. g., EWE Tel, have also announced vectoring rollout plans. So far, so good. The German regulator has already decided that DT and other network operators may deploy vectoring which does not allow for physical unbundling as long as they make equivalent virtual access available to competitors.

The rub is what should happen in rural areas aka the unprofitable part of the market? Certain state governments have expressed a willingness to provide state aid for rural broadband projects that might include vectoring/fiber to the curb deployment.  The Competition DG of the EC is currently weighing whether state aid should be permitted in these circumstances even though vectoring cannot enable physical unbundling. Vectoring may not be the right solution in every case, but as for the narrow competition question the state aid proposal raises, one respectfully wonders: if equivalent access is sufficient protection for competitors in the profitable parts of the market where entry might be economic and therefore might actually occur, how could it be insufficient where even the “first mover” broadband provider doesn’t find it profitable to enter without state aid?