• Rethink on mix of German next-gen deployment will see Group need a year more than expected to get up to full roll out speed.

Deutsche Telekom takes rain-check on full-fibre target

Deutsche Telekom takes rain-check on full-fibre target

Source: John Adams / Unsplash

Telekom Deutschland (TDE) is to take a year longer than expected to ramp up its fibre‑to-the‑home (FTTH) rollout programme in Germany to targeted pace levels, according to numbers revealed by Group leadership in its November 2020 results presentation.

The presentation, for the quarter to 30 September 2020 (Q3 FY20), saw both Deutsche Telekom (DT) Chief Executive Timotheus Höttges and Chief Financial Officer Christian Illek imply that the Group will not reach a two million household passed-per-annum run rate during FY21 — one of the high profile operational goals it laid at its last CapitalMarketsDay (DeutscheTelekomwatch, #94).

The leadership duo said TDE will pass 600,000 homes during FY20, and although they diverged slightly on longer‑term forecasts, both suggested the operator will fall short of the two million run‑rate target during FY21. Illek indicated FY20’s 600,000 figure will be doubled during FY21, while Höttges referenced a 1.5 million–1.8 million range.

Just a strategy tweak, says DT

DT Head of Investor Relations Hannes Wittig confirmed to DeutscheTelekomwatch that the operator is now aiming to hit the two million household goal in FY22. He said the roadmap tweak was down to a change in the “mix” of sites being targeted with FTTH, including a greater leaning towards rural areas, business-to-business locations, and schools.

There was no indication regulatory red tape, COVID‑19 disruption, or ongoing investor concerns regarding Deutsche Telekom’s FTTH capital expenditure burden, had played a part in the pullback. The operator gave reassurances earlier this year that the pandemic had not knocked its FTTH rollout programme off course (although had muddied tower expansion plans at wireless infrastructure unit Deutsche Funkturm).

The pressures surrounding the FTTH ramp‑up have seen Höttges mandate new Telekom Deutschland Chief Executive Srini Gopalan to innovate further with the operator’s fibre rollout model in Germany, in a bid to reduce per-household roll out costs and allow it to spread deployment wider.

DT continues to argue, with the benefit of hindsight, that its measured and strategic approach to FTTH rollout has been a boon for Germany during the pandemic, meaning more home‑workers have had superfast connectivity available than would have been the case if it had channelled cash towards a narrower, ultrafast programme.

CategoryAreaAmbition (FY17–FY21 unless stated)
Germany segment strategic and financial objectives, FY17–FY21
 Source: Deutsche Telekom.

Customer Experience

Mobile service revenue growth

2% CAGR

Broadband revenue growth

3%–4% CAGR

MagentaEINS traction

30% share of broadband households (FY21)

Business Productivity

B2B revenue

+€500m

Technology

FTTP rollout

Rollout to two million additional households annually (FY21)

Value Transformation

Indirect cost

–€750m (net)

Financials

Revenue growth

>1% CAGR

Adjusted EBITDA growth

2%–2.5% CAGR

Cash contribution growth

4%–5% CAGR

Barriers coming up on partnership route to FTTP expansion?

The change to the full‑fibre target came as it emerged Thomas Eibeck, the former Head of Broadband Partnerships at TDE, is to take on the role of Managing Director at new broadband network provider SachsenGigaBit from January 2021.

SachsenGigaBit is due to start operations from 2021, and will bundle together the fibre and telecoms activities of eastern German utilities ENSO Energie Sachsen Ost AG (ENSO) and DREWAG Stadtwerke Dresden GmbH, as well as Saxony‑based network operator desaNet Telekommunikation GmbH (desaNet). ENSO and DREWAG are merging to form SachsenEnergie AG from January, while desaNet is already a 100%‑owned subsidiary of ENSO. SachsenGigaBit will therefore operate as the broadband and telecoms subsidiary of SachsenEnergie.

Eibeck is to take over the management of SachsenGigaBit alongside Jens Schaller, the current Managing Director of desaNet. Eibeck originally joined TDE in October 2017 and previously held roles at other providers, including Vodafone Germany-owned cableco Kabel Deutschland from 2013 to 2015.

While at TDE, Eibeck was involved in forging partnerships with alternative network providers. The NatCo has long flagged its intent to form regional tie‑ups to reduce the investment burden of FTTP rollout, although traction with prospective partners has appeared hard to come by. Its most high‑profile tie‑up so far is the Glasfaser Nordwest joint venture (JV) it formed with energy, IT, and telecoms group EWE, which debuted earlier in 2020 after a long regulatory approval process (Deutsche Telekomwatch, #90 and passim).

At the time, Germany’s Bundeskartellamt (Federal Cartel Office) backed the JV as a means to bring “significant improvements” to infrastructure in the area where it will concentrate (EWE’s footprint in Lower Saxony, plus the neighbouring states of Bremen and North Rhine Westphalia). However, there are indications that the Bundeskartellamt might have become more cautious about approving such fibre collaborations, especially when Germany’s large telecoms operators are involved.

For example, the subject of the EWE JV was raised by analysts during the Q3 call. It was noted that the Bundeskartellamt had recommended to the German government that fibre partnerships, such as the one between TDE and EWE, should be prohibited for future fibre buildouts unless absolutely necessary.

In response, Wittig said the concessions agreed as part of the joint venture had addressed any concerns. However, he acknowledged that “there are principal concerns with regard to collaborations in fibre, because they might foreclose some competition, which I take pretty much as a holding statement for the agency that… they don’t want to write out a blank cheque for this kind of collaboration going forward”.

In a November 2020 press release, Andreas Mundt, President of the Bundeskartellamt, revealed some of the issues that are exercising the minds of those at the agency. While noting that cooperation between fibre broadband providers can help speed up the provision of high‑speed broadband connectivity, he also said that such partnerships “between large telecommunications companies often have considerable effects on competition”. “Ultimately consumers only benefit from such cooperations if deployment is really accelerated and results in attractive products at reasonable prices. This requires the right framework conditions for cooperation and a competitive environment”, Mundt said.