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Author: Stefano Nicoletti, Dan Bieler
Deutsche Telekom's IPTV offering, T-Home, was supposed to launch in early August, in time for the start of the German soccer league season. However, having visited several T-Punkte, Deutsche Telekom's retail outlets, over recent days, we could not find the offering or any staff who were aware of it. But we found someone who told us that the rollout was behind schedule because of the long winter.
We were informed that the offer would hit the market in October. Apparently it will be a bundled product, comprising flat-rate broadband access and telephony (domestic fixed), a set-top box/modem, a range of free-to air TV channels and a full Premiere package, including Bundesliga games. The price, we're told, will be around €90 per month. The hardware and set-up charges are likely to be covered by Deutsche Telekom.
Comment: During its H1 2006 analyst call, Deutsche Telekom said that the rollout would depend on 'demand for the service' as well as a 'friendly' regulatory environment for its VDSL rollout. We believe it is highly unlikely that Deutsche Telekom will actually shelve its triple-play offering, as cable operators and alt carriers are making inroads with their own triple-play offerings. Given Deutsche Telekom's poor domestic performance, it can hardly afford to lose much more market share to the competition.
As far as the demand for the triple-play/IPTV service is concerned, we believe that Deutsche Telekom must simplify its notoriously complex product range. Effective bundling and attractive pricing is the only way to attract customers for a triple-play offering. Should the offer actually cost €90, then we see basically no saving potential. Consumers can get DSL and flat-rate voice offers for around €60 and a cable package for €10. They can also subscribe to Premiere, which sells thematic packages for €9.99 and Bundesliga for €14.90. In other words, a plain vanilla IPTV triple-play offering from Deutsche Telekom could prove to be a hard sale.
On the regulatory side, Deutsche Telekom's ignorance of the EU position is remarkable. Just a month ago EU commissioner Viviane Reding gave her speech to introduce the 2006 regulatory framework overhaul. She clearly pointed the finger at the German government and Deutsche Telekom. Her message was that an open access policy is a keystone of EU dictate and that Deutsche Telekom and its planned €3bn VDSL investment should not be exempt from it. Moreover, she insisted that the German request for a "regulatory moratoria" is not only against the EU dictate but would also create a dangerous precedent. Reding actually threatened to launch an infringement procedure - in her view there's no chance of a regulatory holiday.
The reaction to Deutsche Telekom's IPTV soft-launch during the European holiday season has been harsh. The European association for alternative carriers, ECTA, vigorously expressed its dismay. ECTA labels VDSL an extension to IP bitstream products, and says as such it should be offered at a wholesale level and under non-discriminatory terms. In case of a higher market risk, this should be reflected in the wholesale price through a higher cost of capital component, but Steen Clausen, CEO of ECTA, asserts that products must be available at wholesale level.
While the fight between Brussels and Berlin is gaining momentum, we doubt the threat of an infringement procedure, or even a competition court case, would stop Deutsche Telekom trying to bar others from its VDSL network. Any potential legal rulings are likely to take a long time. That would provide Deutsche Telekom with the opportunity to grasp market leadership in the IPTV and triple-play space. However, our concerns over the attractiveness of such a bundle remain, and only German consumers can decide on the eventual success of the VDSL offering.
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