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EU steps up pressure on Germany over telecom law

The European Union stepped up pressure on Germany to lift legal protections that shield Deutsche Telekom AG from competition, threatening a lawsuit atthe EU's highest court.

The European Commission in Brussels said today that it had started a „fast-tracked” infringement process and intends to refer the case to the European Court of Justice as soon as possible. Germany has 15 days to respond to a commission letter on the issue. In most cases, governments are given two months. „We have no hints that there will be a peaceful solution,” Martin Selmayr, a commission spokesman, told journalists yesterday. „We expect this to go to the bitter end.” The law, which stemmed from Chancellor Angela Merkel's agreement with her coalition partners in 2005, affects whether Bonn-based Deutsche Telekom will be forced to open its new fiber-optic network to rivals such as United Internet AG that didn't pay for start-up costs. Deutsche Telekom plans to invest as much as €3 billion ($4 billion) in the network. „I regret that Germany has chosen to ignore the commission's concerns about this new telecom law despite several clear warnings from the commission,” EU Media Commissioner Viviane Reding said in a statement yesterday. German Deputy Economics Minister Bernd Pfaffenbach said in a faxed statement today that the new law „creates a balance between the necessary strengthening of competition and the concerns of companies that want to invest.”

Deutsche Telekom, which is 32% owned by the government, has said it may halt spending on the network unless the company gets guarantees that it will have exclusive access long enough to recoup investments. „We welcome the law because it gives security to important investments,” Deutsche Telekom's Bonn-based spokesman Mark Nierwetberg said in a phone interview. He declined to comment on the action taken by the EU because it is „between two government bodies.” The fiber-optic system, which uses the so-called VDSL technology, allows transmission of data at 25 times the speed commonly used today. Deutsche Telekom has spent about €1 billion to connect 10 bigger cities to the network and offer combined Internet, phone and TV services. Rene Obermann, who took over as chief executive in November, hasn't given expansion details for the network.

The commission has told Germany that it was wrong to define Deutsche Telekom's new network as an „emerging market” for broadband Internet. The commission in an October 27 letter to the German government said the EU has sole discretion on whether new technologies can be considered a new market. Pfaffenbach said in the statement that the changed law complies with EU competition rules and leaves open the possibility that the Bonn-based federal regulator may interpret the revised law in the EU's favor. „The concrete decision whether a certain market – for instance Deutsche Telekom's VDSL network - should be subject to regulation isn't determined by the law but by the federal agency in cooperation with the EU Commission,” Pfaffenbach said. Pulling the plug on the network may jeopardize 5,000 jobs, Deutsche Telekom has said. The company is already cutting 32,000 German positions through 2008 as fixed-line phone revenue slumped for four consecutive years. Selmayr said the accelerated process was warranted because the legal positions of the EU and Germany are well known. „The purpose is to exchange arguments,” he said. „It won't take that long to know the commission's arguments.” The commission first told Germany that the law would violate EU rules more than a year ago. The commission typically issues two threats to a country that allegedly has broken EU rules, and the country has two months to respond to each threat. (Bloomberg)