Vodafone in Germany has cut the first major deal of its type to access broadband lines owned by Deutsche Telecom using the bitstream concept. Instead of full unbundling, bitstream access is a form of unbundling in which the incumbent telco supplies the DSLAM, the copper wires and specifies modem designs, rather than allow access to third party resellers at the exchange and the DSLAM level.
The European Commission has been pushing for this to be the lowest level of unbundling allowed in Europe and was hoping to insist on it as a minimum in the anticipated re-wiring of Europe with fiber.
But then Vectoring came along, not only making it easier to get to 100 Mbps on existing copper wires so that fiber investment can be put off, but also making it far more effective to offer vectoring when operators have full control of a telco wire bundle. Vectoring works by cancelling cross-talk between wires in a bundle, and in order to get its full benefits, an operator needs to know what cross talk is being delivered over adjacent strands of wiring as it leaves the exchange. This doesn’t entirely kill the effectiveness of vectoring, but if you also have the capability of varying power or predicting cross talk on all of the lines at once, then the effect can be to double the total line throughput.
This has led to companies like Deutsche Telekom to push for bitstream agreements rather than full unbundling, and the incumbent in Belgium, Belgacom, does much the same. The third party reseller then pays the incumbent a monthly fee for the use of both the equipment and the network instead of just a line rental ‘ so the incumbent gets more of the pie, and this is anti-competitive in the eyes of the European Commission , because there is little incentive for the incumbent to innovate if it will get a piece of ALL of the telecoms business, anyway.
Some countries are now proposing a ‘first mover advantage’ model for copper, where the first operator willing to cover a certain area gets to roll out vectoring and offer bitstream to all the other operators.
By the two largest cellular operators agreeing a deal in Germany, this puts the European Commission on the back foot. Vodafone is also a minority player in fixed line broadband in Germany with the lines it inherited when it acquired Mannesmann there. It operates under the brand Arcor and has 3.3 million broadband lines, but because it has a minority of fixed lines, it finds it inefficient and expensive to install vectoring, so this gives it a watertight way of getting to 100Mbps and 200 Mbps, as cable companies like Unity Media and Kabel BW begin to offer advanced DOCSIS.
While no terms have been revealed on the deal, it is now obvious that Vodafone wanted the world to think that it was getting ready to buy Kabel Deutschland, for much the same purpose, to give it rapid broadband lines which it needs for a number of reasons ‘ to prevent churn on its existing DSL base, which in turn will give it the ability to use its 3.3 million homes as Homespots for WiFi offload; to have sufficient speeds to offer OTT video and to backhaul many of its own small cell base stations in its LTE rollout.
It is unlikely that we will ever know for sure if it really looked at a business case for buying Kabel Deutschland, or whether the entire enterprise was a hoax to bring it better terms with Deutsche Telekom on bitstream access.
Back in December Deutsche Telekom outlined a massive capex program for Germany, including fiber upgrades to many of its fixed broadband lines, and it will have wanted to ensure it had its biggest rival onside, in order to have ready-made business for those lines, to soften the investment blow.
That amounted to a $30 billion spending plan that would revolutionize its home network in Germany as well as its cellular network in the US. Deutsche Telekom will spend about $20 billion of that money on shoring up its home market and one of these moves involves a new type of hybrid home base station featuring both LTE and WiFi, as well a fiber to the curb wholesale strategy called VULA (virtual unbundled local access) where it invites its rival operators, likely other cellular players like Vodafone and Telefonica, to help it fight against cable by re-selling lines.
Vodafone will now have also agreed terms for when this is ready and will no doubt get access to those WiFi Homespots for cellular offload and the LTE portion for home LTE reach. Such a move will somewhat sour relations between Vodafone and Liberty Global, who have been making noises in the Netherlands and elsewhere regarding hybrid cellular WiFi partnerships, all because in Germany it has now put itself in a strong defensive position against Liberty Global’s broadband efforts.
At the time these investments were announced Deutsche Telekom CEO Rene Obermann hinted that he had a deal for the European Commission to reduce the pressure for full unbundling and instead go with this bitstream approach. Bitstream sharing of fiber to the curb would allow for vectored VDSL offering 200 Mbps upstream into a building and importantly 90 Mbps upstream.
And this is, he says, the secret to taking on cable, given that cable companies may be able to beat the download speed, but may not be able to match the upload, thus pushing cable out of genuine cloud services.
VULA would be offered on the basis of commercial negotiations with potential customer-competitors. In parallel with this DT will invest in Hotspots, clearly heading to take advantage of Passpoint, the WiFi 2.0 definition for seamless offloading between WiFi and LTE, lifting the number it has in Germany to 18,000 in the next couple of years and offering them free to its broadband and cellular customers. But given that Deutsche Telekom has 12.4 million broadband lines, virtually unchanged in years, these investments will put DT back on growth in broadband, and it could offer to share WiFi offload with Vodafone, from a huge base.
The press release says very clearly that the deal with Deutsche will allow Vodafone to offer IPTV services across Germany and describes it as a bespoke Layer 3 IP bitstream agreement taking Vodafone to speeds of up to 50 Mbps rising to 100 Mbps once DT has deployed vectoring.
Given that Vodafone has launched and then closed its IPTV service, and then offered a smaller OTT system, its statement that it will now offer both on-demand and broadcast IPTV leaves room for confusion about what exactly it can offer.
The two companies say they have also agreed that a new, more advanced Layer 2 bitstream product will be made available by DT to Vodafone from 2016, which must surely be about the new fiber arrangements. It will also likely mean each suppliers will be able to take a share of a line in multi-dwelling units as well as to enterprises.
The entire deal has to be ratified by the Federal Network Agency, which has shown in the past that it is behind such moves, although getting it sanctioned by the European Commission will depend entirely on the terms of the deal and its transparency for other customers. The EC will not like the top two cellular companies in Germany stitching up a deal that works for them, but where the same terms are denied to smaller players.
Meanwhile in the US, Fierce Wireless says that Cablevision has dropped the idea of using its contiguous Wi-Fi cloud to offer mobile services. We have now witnessed WiFi offloading becoming of huge significance in Europe and even in China, with companies like Free in France using it to create a disruptively priced cellular service. But Cablevision says that it is a not a fan of Quad play and will not go down this route after all, perhaps because it has no leverage for roaming with rival networks, or because it now expects a better deal through Verizon.