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Author: Daniel Bieler
German alternative carrier QSC and Sweden's Tele2 have set up a new DSL infrastructure business, called Plusnet. Plusnet provides both companies with access to an unbundled local loop (ULL) broadband network. QSC will hold 67.5% and Tele2 32.5% of the new entity.
As part of the deal, QSC will bring its 1,000 central offices to the venture, whilst Tele2 contributes €50m for further network upgrades to ADSL2+ and the creation of an additional 900 central offices.
Comment: The deal is good news for both companies, as it will boost their joint population coverage from 30% to about 50%. Moreover, the companies estimate that the arrangement will help them to reach about 70% of companies with a potential need for VPN solutions.
The move will help them compete more effectively against Deutsche Telekom and its DSL offering, which has already come under intense pressure. Last year its share of DSL net additions slipped significantly. After years of dominance, alternative carriers are making real inroads into the DSL marketplace.
In addition to enabling a faster network rollout (by 12-18 months) and opex savings of about €10m per annum from 2007, the deal is particularly significant given the ULL aspect. The ability to tailor DSL solutions will put QSC and Tele2 in a better position to provide competitive offerings than resellers of Deutsche Telekom DSL products.
Moreover, we see only limited overlap between customer target groups, with QSC primarily serving VPN requirements of SMEs, and Tele2 aiming to up-sell DSL to its over 2m pre-select customers. Whilst the additional capex of €50m is small change compared to Deutsche Telekom's potential investment of €3bn for its fibre-optic network, the message from QSC and Tele2 to Deutsche Telekom is clear. After having grabbed a significant slice of the voice market, competitive carriers now are targeting unbundled broadband solutions. The development is crucial, as the broadband solutions form the basis for future IP-based services.
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