Germany Adopts Telecom Law That Irks EU Regulators (Update2)

Germany adopted a revised telecommunications law that European Union regulators said protects Deutsche Telekom AG, the country's former monopoly, from competition.

The law, passed by Germany's upper house of parliament in December, was published in the legal gazette today and will take effect tomorrow, the Economy Ministry said in a faxed statement. European Media Commissioner Viviane Reding has threatened to sue Germany, which holds the EU presidency in the first half of 2007, unless it scraps some provisions in the legislation.

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 euros ($4 billion) in the network.

``The law achieves a balance between the need to spur competition and companies' desire to invest,'' German Economy Minister Michael Glos said in the statement. Glos said accusations that the legislation gives some companies ``regulatory holidays'' are ``unfounded.''

Recouping Investment

Deutsche Telekom, which is 32 percent 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.

The European Commission said today it ``has taken notice of Germany's publication of the new telecom law'' and is set to start legal proceedings against the government.

``The commission will act as soon as the law actually takes effect,'' the agency said in an e-mailed statement from Brussels.

Germany's government views the law as being compatible with EU regulations, an Economy Ministry official who asked not to be identified said via phone today.

Shares of Deutsche Telekom rose 34 cents, or 2.5 percent, to 13.79 euros in Frankfurt. The stock has risen 3.5 percent in the past year, compared with a 19 percent gain by Germany's benchmark DAX Index.

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 euros 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.

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.

The T-Com fixed-line unit lost 2 million traditional connections to rivals including Arcor AG last year. Deutsche Telekom last month cut its 2007 profit forecast as competition in Germany intensifies and the dollar's decline against the euro erodes U.S. revenue.

To contact the reporters on this story: Kenneth Wong in Berlin at kwong11@bloomberg.net ; Brian Parkin in Berlin at bparkin@bloomberg.net .