Deutsche Telekom Deflated by Flat-Rate Ruling

In a blow for Deutsche Telekom AG (DT) , the German telecommunications regulator, RegTP, today ordered the company to offer competing ISPs a "wholesale flat rate" for Internet connections starting Feb. 1, 2001.

The RegTP decision follows complaints from 16 ISPs, notably AOL Inc. (AOL) . Currently ISPs pay interconnection fees to Deutsche Telekom by the minute. Several ISPs that paid these fees while charging customers only for flat-rate access have been driven into bankruptcy - the most prominent being Gigabell, the first insolvency case at Germany's Neuer Markt stock exchange.

RegTP chief Klaus-Dieter Scheurle said the decision "will promote employment and consumer protection goals".

AOL Germany hailed the decision as "an important step to put Germany at the top of the new economy." The company hailed flat-rate access as "a viable business model."

Currently, T-Online - Deutsche Telekom's own online service - and AOL are the only reliable ISPs offering narrowband flat rates. Both are losing a lot of money on the scheme. T-Online said last week that the introduction of its flat-rate tariff was the main reason for its increasing losses in the third quarter. The company has to pay the same rates to its mother company, Deutsche Telekom, but it had profited more than others from bulk rebates. Unfortunately for T-Online, these rebates were also prohibited by RegTP.

A spokesman for Deutsche Telekom today reiterated the argument that the RegTP's decision "was not a step, but a jump backwards for the German Internet Economy." To keep up with the demand likely to be boosted by this decision, Deutsche Telekom would have to invest much more than the planned $937.2 million into its narrowband network.

"This September we already had four times as many online minutes than a year before," the spokesman says. For T-Online, one flat-rate user was equivalent to 15 to 20 regular telephone users, he adds.

Deutsche Telekom estimates that for every 50,000 new flat-rate users it has to invest $43.4 million in its phone network - money it would rather invest into broadband DSL connections.

RegTP didn't set a price for the "wholesale flat rate". This price has to be settled between Deutsche Telekom and the ISPs. If they don't reach a compromise, the ISPs may complain once again to the regulator.

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