GERMANY FOCUS: Optical opportunities trail metro market deregulation


In 2001, the roll-out of broadband Internet in Germany caused extraordinary Internet traffic growth. As a result, carriers required significant capital expenditures to upgrade their transport networks. With these networks now in place, operators are currently only adding capacity on an as-needed basis.

Germany's Regulatory Authority for Telecommuni-cations and Post (RegTP) reported that, in 2001, the German telecommunications sector witnessed a "growing trend" toward mergers and cooperation agreements. This was attributed to the dramatic changes in the capital markets and on the part of investors.

Although the telecommunications market was liberalised in 1998, only one-third of the German population had a choice of fixed-line providers at the end of 2001. Since liberalisation, alternative operators have managed to increase their number of telephone channels to 1.58m, representing a market share of only 3%.

At the end of 2001, there were more than 2.1m broadband Internet connections in operation in Germany, serving approximately 5% of all households. Of this amount, 2m were accounted for by Deutsche Telekom's T-DSL service; 70,000 by the xDSL lines of competing fixed network operators; 30,000 by .bi-directional cable connections; and the remainder by powerline communications and satellite connections. DT thus had a 95% share of the broadband market.

The volume of traffic in Germany in 2001 increased by 77% on traffic in 1997 to 315bn minutes. Dial-up Internet traffic alone accounted for nearly 30% of the total traffic volume. However, because this figure does not include Internet traffic that runs over DSL connections, the total traffic volume in Germany is even higher (source: RegTP).

Deutsche Telekom reported that the number of private Internet users in Germany rose to just under 29m at the end of 2001, a 26% increase over 23m a year earlier. Due in part to the company's highly successful DSL roll-out, IP traffic on the incumbent's backbone grew a whopping 600% in 2001!

And Deutsche Telekom continues to provide reasons for IP traffic to keep growing. In May 2002, the operator rolled out its new T-DSL 1500 residential service in four cities, which increased the downstream transmission rate from 768kbit/s to 1.5Mbit/s.

Alternative carriers Arcor and HanseNet are also contributing to IP growth in 2002 by offering video-on-demand services. Operators do not believe, however, that IP traffic will reach the same level of growth in 2002 as in 2001.

So what of today's competitive environment? It is still similar to the pre-liberalisation era.

Deutsche Telekom remains the über-provider of telecommunications services in Germany and has successfully maintained its dominant role in providing transport services within the country. Since it has also managed to capture nearly the entire broadband Internet market through its hugely successful T-DSL offer, in April 2002 RegTP reduced the provisioning and termination charges for access to Deutsche Telekom's local loops.

Although some alternative operators have since argued that Deutsche Telekom's wholesale price is still more expensive than the incumbent operator's retail price for end-users, they nevertheless provide a limited degree of competition with the incumbent.

Most of Deutsche Telekom's competition in Germany comes from metropolitan network operators, which have direct access to customers. As an example, Arcor — Germany's largest alternative operator — has a nationwide network that comprises more than 18,000km of fibre-optic cable. In order to gain direct access to end-customers, Arcor has recently become more active in the city carrier space: Effective as of the end of 2001, Arcor raised its shareholdings in city carriers Isis Multimedia Net (74.9%), Netcom Kassel (74.8%), and Würzburger Telekommunikationsgesellschaft (100%). By linking their fibre-optic networks to its own backbone, Arcor is able to bypass completely Deutsche Telekom's network.

City carrier HanseNet Telekommunikation, which is 80% owned by broadband telecommunications operator e.biscom (Italy), operates a network in the Hamburg metropolitan area that spans more than 900 cable-km. It is also part of the AG RegioNet partnership with five other city carriers: EWE TEL (Oldenburg), Isis Multimedia Net (Düsseldorf), NetCologne (Cologne), Versatel (Dortmund), and tesion (Stuttgart).

By linking their networks together, these carriers are able to switch voice traffic between the regions and circumvent the incumbent operator (see Fig.1). HanseNet invested EUR113m in its infrastructure in 2001, nearly 40% more than the previous five years combined. The operator's upgrades have allowed it to capture 20% of the DSL market share in Hamburg as of March 2002, and they also enabled the operator to begin offering fibre-to-the-home (FTTH) services in five areas in Hamburg.

Tropolys, which is majority owned by Elisa Kommunikation (a daughter company of Elisa Communications Corporation, Finland), is a consolidation of 14 city carriers in North Rhine-Westphalia, Rhineland/Saarland, and eastern Germany. These include ChemTel (Chemnitz), Citykom Münster, CNE Telekommunikation (Essen), DDkom (Dresden), HLkomm (Halle, Leipzig), HU-KOM (Hanau), jetz (Jena), Mainova (Frankfurt), MAINZ-KOM, MEOCOM (Oberhausen), Pulsaar (Saarbrücken), TeleBeL (Wuppertal), TeleLev (Leverkusen) and Telenet Potsdam.

Tropolys' combined network consists of 34,000km of fibre and copper. More than 20 national and international carriers, including cable network operators, currently use the company's fibre-optic network. The company is also in discussions with UMTS license holders about carrying their traffic and it plans to acquire additional city carriers in the future.

The success of the alternative carrier segment is affected by the will of the German regulatory authority and, in the case of publicly held companies, by the financial markets. Alternative operators will remain under significant pressure to limit spending on their networks until they receive assurance from both of these.

Robert Stouse
Analyst,Optical Networks,Europe, RHK
Robert Stouse covers service provider deployments in Europe. He is currently researching the growth potential of metro WDM networks in Germany.

Breko — Germany's association of city carriers — has over 50 members.(the country's overall market has some 120 players). Breko recently announced that investment in access technology has significantly dropped from EUR40m in 2001 and is expected to be just EUR20m in 2002. Backbone investment is down from EUR55m to EUR13m. Some 80% of Breko members use optical technology in the access network; only 15% rely on coaxial cable.

To date, Germany has had the most successful adoption of broadband Internet services in all of Europe. Due to the country's sluggish economy, delayed UMTS roll-out, and seemingly .irresolute regulator, carriers are spending on optical networking gear only as necessary to support additional traffic and to reduce operational costs.

In order to win contract awards in this difficult environment, vendors must respond to RFPs now and deliver their equipment to carriers' labs for testing. Optical networking vendors should not forget the alternative operator segment, particularly since Germany has such a large number of city carriers. Recent regulatory decisions may finally provide alternative carriers with a chance to compete in the, consequently affecting their equipment needs.

And, to be successful, vendors must establish a local presence or partner with a local company, such as Chinese telecommunications company Huawei's recent collaboration with Germany's Vierling Electronics.

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