Deutsche Telekom's fiber-optic strategy: real offensive or "PR clambake"?

• Tim Höttges, chief executive of Deutsche Telekom, announced major investments in fiber-optic expansion at the Group’s Annual General Meeting: up to 2.5 billion euros a year.
• By 2024, Deutsche Telekom wants to equip ten million households with fiber-optic connections. By 2030, all households should even be connected to the fiber-optic network.
• So far, fiber-optic expansion in Germany has been slow. Experts consider Telekom’s plan to be “sporty”. One even speaks of “PR clambake.”
• See more stories on Insider’s business page.

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Tim Höttges has big plans. The Telekom CEO announced at last Thursday’s online AGM that he wants to supply all households in Germany with fiber optics by 2030. To do this, he needs the help of the competition, but Telekom also wants to provide fiber to ten million households itself by 2024. That would be around eight million more households than at present. Last year, Telekom only laid fiber to 0.6 million households. “By 2024, the number of households that will be continuously expanded with fiber optics each year is expected to increase to around 2.5 million,” a Telekom spokesperson told Business Insider. So the company will have to pick up the pace if it is to achieve its ambitious goals.

Fiber-optic expansion is essential for the digitization of Germany. Fiber optic cables are faster and more stable than TV and copper cables. Companies are just as dependent on fast Internet as private households, where more and more work is being done in the home office since the Corona crisis. The fact that video conferencing is jerky in many places is due to the fact that fiber-optic connections with 1000 Mbit/s or more are a rarity. According to the Federal Ministry of Transport and Digital Infrastructure, they are only available to 13.8 percent of households in Germany. In its coalition agreement, the German government set a goal: “Fiber optics in every region and every community, if possible directly to the home.”

“A huge investment”

Telekom CEO Höttges has to put up a lot of money for his fiber-optic offensive. Annual spending is set to rise to 2.5 billion euros by 2024, up from 1.5 billion euros a year most recently. “A huge investment,” said CEO Höttges. “Perhaps the biggest in Telekom’s history.” The investment is also necessary because the expansion is complicated and involves a lot of effort.

But how realistic is Höttges’ plan? Why should the rollout now suddenly progress more quickly than in the past? And what does that mean for the competition? Business Insider spoke with an expert in telecommunications economics, as well as with industry associations and a competitor. We also asked Telekom how it plans to implement the plan in detail.

When asked by Business Insider, a Telekom spokesperson said, “The fiber-optic rollout in Germany cannot be handled by one company alone.” He added that the Group had already “entered into numerous cooperative agreements with competitors.” He said he would like to see a regulatory environment “that also favors alternative laying methods. That would save time and money.”

One of those telecom competitors is the Deutsche Glasfaser group of companies. A spokesperson told Business Insider that they welcome “any initiative that advances the necessary fiber expansion in Germany.” Deutsche Glasfaser itself wants to expand six million fiber-optic connections in Germany in the medium term with a total investment volume of seven billion euros, a spokesperson told Business Insider.

“Höttges has hit the PR button”.

Professor Torsten J. Gerpott holds the Chair of Corporate and Technology Planning, with a focus on the telecommunications industry, at the University of Duisburg-Essen. In an interview with Business Insider, he expressed skepticism. Höttges had been hitting the “PR tube,” he said. “The targets seem to me to be less of a serious forecast than PR slapdash, against the backdrop of the pace of telecom expansion to date, bottlenecks in civil engineering, and the demanding building regulations in Germany.” He said he could not imagine that every household in Germany would be connected to fiber by 2030. Telekom has “never been the frontman” when it comes to fiber, he said. “The competition is driving the market.”

The investments seem “just plausible to Gerpott, albeit at the lower limit.” If eight million telecom connections are missing by 2024 and investments of about EUR 8 billion are planned, “then that means an average of EUR 1,000 per connection. In rural areas, however, it needs more like 1,500 to 2,500 euros per connection.”

“Sporting goals”

Wolfgang Heer, managing director of the Bundesverband Glasfaseranschluss (BUGLAS), called Telekom’s goals “sporty” to Business Insider. Nevertheless, he said, the association welcomed Telekom’s offensive because it was aimed at “equipping our country with the necessary and only sustainable communications infrastructure for the coming decades.” The decisive factor, he said, is “that households are connected that are not already covered with fiber optics by another provider.” Telekom would have to “significantly increase its pace of expansion.” The association is eager to know “when Telekom will approach our members with the aim of working the market in a cooperative manner in the future.”

In an interview with Business Insider, Sven Knapp, managing director of the capital city office of the German Broadband Communications Association (BREKO), welcomed “the fact that Telekom is finally also focusing on real fiber-optic expansion.” BREKO says it includes most of Germany’s fixed-network competitors – Telekom is not one of them. Knapp said that, together with Telekom, “as many fiber-optic connections as possible will be built” in the next few years. The money for the expansion is “sufficiently available on the market. The association agrees with Deutsche Telekom “that government funding should only ever be used as a supplement and in areas where the supply situation is particularly poor. It is clear that “money alone does not build fiber-optic networks.

So Deutsche Telekom and its boss Höttges need more than a “huge investment.”

With material from dpa

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