Deutsche Telekom defends fiber-network turf

Deutsche Telekom defends fiber-network turf


Europe`s largest telecommunications company, Deutsche Telekom, faces increasing competition from abroad in its fiber-optic networking market. Consequently, the network operator is taking strong measures to bolster its position as the leading supplier of fiber-optics networks in Germany.

As evidence of intense competition within Germany, one of Deutsche Telekom`s adversaries, British Telecom, has established a joint venture with VIAG, a German energy and chemical group. This joint venture offers data services to corporate customers through a 4000-kilometer fiber-optic network. This network, the largest outside of Deutsche Telekom, serves regional customers in Bavaria, including power generation installations. British Telecom is posturing to secure 10% to 15% of the German business market shortly after the year 2000.

A British fiber-optic company, MFS, has received the go-ahead to build and operate a 10-km-long fiber-optic metropolitan area network in Frankfurt, specifically to serve the financial market. Moreover, AT&T has plans to partner with RWE AG of Germany, which has already built a 4300-km fiber-optic network. This RWE network supervises energy distribution throughout Germany. RWE is the largest power utility in Europe.

To maintain its competitive position, Deutsche Telekom is re-evaluating its customers` needs and plans to use that information as a springboard for new services. Deutsche Telekom has some 400 consultants surveying customers to determine what services--including multimedia--they want. Moreover, Deutsche Telekom has research centers in Darmstadt and Berlin that are cooperating with leading universities and well-known German companies.

Telecommunications bonanza

After the Cold War and the fall of the Iron Curtain, many worldwide telecommunications manufacturers have viewed the former Eastern Bloc countries as a fiber-optic gold mine in the international market. The region`s fiber-optic market is expected to total more than $1.5 billion by the end of the century, up from only $42 million in 1991. Virtually all of these countries have invested little in their telecommunications systems over the last 45 years.

These networks are obsolete analog systems that in the past have been run by rigid and inefficient operating entities. The governments of Eastern Europe are well aware that a modern telecommunications infrastructure is essential to their economic success. Deutsche Tele kom is, therefore, moving quickly to forge agreements with the new governments.

In fact, Deutsche Telekom has posted major contracts wins. For example, the Trans-European-Link is a joint project of Germany, Poland, Hungary, the Czech Republic and Slovakia to build a fiber-optic telecommunications link. The first phase of project became operational in January 1994. It runs 3700 km from Frankfurt/Mainz, Germany, through Warsaw and Prague, to Bratislava, in Slovakia, and onto Budapest. The minimum data transfer rate of that link is 140 megabits per second.

In the future, additional spurs are planned to reach Lithuania, Belarus, Romania, Bulgaria and Moldova. When completed, the network is expected to span more than 14,000 route-km at a cost of almost $500 million. More than 30 international carriers, led by Deutsche Telekom, are interested in acquiring capacity on the Trans-European-Link. The consortium includes Belgacom (the Belgian network operator), France Telecom, British Telecom, the Japanese New Common Carrier and International Digital Communications.

In another development, US West and the Turkish state-owned telephone company are the key sponsors of a fiber-optic backbone network known as the Central European Fibre Optic System to link the Eastern Mediterranean region to northern Europe. This $350 million project has been under negotiation since 1991. US West plans to eventually link this system with Russia`s ambitious 50x50 fiber-optic project.

In August 1993, Deutsche Telekom signed a memorandum of understanding with Rostelekom, the Russian state-owned telephone company, to help build a $1 billion communications overlay network in Russia. The 50x50 project involves the connection of 50 exchanges in 50 Russian towns to a 50,000-node network consisting of fiber-optic, satellite and digital microwave transmission equipment. The intercity network will provide the means for doubling the number of telephone lines in Russia to 20 million by 2004.

Rostelekom selected the German network operator because of Deutsche Telekom`s extensive experience in upgrading telecommunications networks in eastern Germany. France Telecom is also a partner in the joint venture, which will be 68% owned by Rostelekom. The remainder will be held by foreign partners.

In additional developments, other companies from Europe, the United States and Japan are pursuing networking opportunities in Eastern Europe. Such companies as AT&T, Alcoa-Fujikura Ltd. and Andrew Corp. have won major contracts.

International efforts

Deutsche Telekom wants to serve other international markets besides Eastern Europe. It is proposing to buy a 10% share in Sprint, which would provide a U.S. beachhead. France Telecom is also expected to purchase a 10% share. Freidel Schwarz, who heads Deutsche Telekom`s procurement efforts from its Washington, DC, office, believes the partnership will be approved soon. Furthermore, a major data communications merger is in the works again with France Telecom, to provide datacommunications services from headquarters in Brussels, Belgium.

According to Schwarz, the main task of Deutsche Telekom is to achieve the best network regardless of the equipment used. Therefore, Deutsche Telekom is shifting all of its switches over to all-digital switches, a task that Schwar¥says will be completed by 1997.

"Deutsche Telekom recognizes any company as a qualified German vendor that has a German mailing address," Schwar¥declares. "The company plans to publish internationally any request for quotation that exceeds $800,000."

In 1990, Deutsche Bundespost Telekom started a field trial in Cologne, Germany, of fiber-optic transmission systems in its access network. The first system, OPAL 1 (Optical Access Line), served 192 households using a fiber-to-the-curb solution delivering telephony and cable-TV services. The participating companies concentrated on solutions for cost-optimal cabling, connection and installation techniques, development of hybrid transceivers, and concepts for low-cost interconnection of digital switching units.

Currently, customers are offered interactive and distribution services, frequently on a fiber-to-the-building basis. With the experience from the OPAL projects, and based on emerging technologies, refined specifications for the OPAL-95 project (500,000 lines) have been worked out, says Manfred Rocks of the Research Institute of the Deutsche Telekom in Berlin. Rocks is responsible for research activities in the field of optical transmission systems. Approximately 1.19 million subscribers are currently involved in the OPAL projects.

Severe cutbacks

The privatization of Deutsche Telekom has been difficult due to many official protests. "You cannot take people, particularly older people, and expect them to change overnight," admits Schwarz. "However, it was an inevitable hurdle on the way to becoming a strong international competitor. Furthermore, severe worker cutbacks are necessary to keep the company competitive in the future."

About 60,000 positions will be cut within the next five years. These cuts comprise 20% of the total staff of Deutsche Telekom. Furthermore, rates for local calls will be increased in 1996, although the German customer already pays more for a local call than customers in any other country in the world. Also under consideration is the issue of increasing the costs for calls from public telephones at airports and railway stations.

Since the liberalization of the telecommunications market and the release of Deutsche Telekom from the constraints of public ownership, German managers and politicians have failed to attack the resulting problems, say industry observers. Instead, the company has been starved of resources at a time when massive investment and freedom to develop a global presence are urgently needed. q

Achim Strass writes from Munich, Federal Republic of Germany.

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