The era of alliances: innovation to better connect Germany’s rural areas

 Telefónica and Allianz announced the creation of a partnership to deploy fibre in Germany through an open access wholesale only company last October. With this initiative, Telefónica and Allianz group agreed to introduce an innovative scheme into the European telecommunication market by creating a joint venture to deploy fibre-to-the-home (FTTH) across Germany’s federal states. The announcement shows a new approach on how cooperation between companies from different sectors can help to unlock private investments to deploy infrastructure where traditional business models did not succeed.In our recently published Digital Deal to build back better our societies and economies, we asked for new private-led business models and cooperation to be able to attract investments that help close the digital divide between urban and rural areas. We believe that it is key to review all levers that are blocking the business case for rural network deployment. Consequently, we recommend policymakers to reform regulation and define policies with the objective to connect all as part of social cohesion policies. Aspects such as reduced cost of spectrum, fiscal incentives and public funding support for supply and demand stimulation can help in making the business case for network deployment in rural areas viable. In this sense, regulation should focus on eliminating all hurdles for more efficient investments in remote and rural areas while public policies should support making private investments feasible.

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The partnership with Allianz and other recent agreements reached by Telefónica are nothing but a perfect example of what we stated. Indeed, voluntary network sharing alliances and new forms of cooperation among different players (e.g. public development banks, digital service providers, etc.) are a great opportunity to improve profitability and reduce costs, allowing for a more efficient network deployment while improving coverage and quality.

Over the past few years, we have experienced a clear erosion in the telecommunication companies’ value due to a regulatory framework and a digital market imbalanced. In this context, their Return on Capital Employed has been compromised, affecting their capacity to invest in the deployment of new networks. Policy and regulatory support for innovative models of alliances, network sharing agreements and possibilities for closer collaboration by communication operators on joint projects would support a stronger sector and more investments.

In Europe, ongoing digitalisation of our society and increasing data volumes more and more require high bandwidth for households as has been evidenced during the COVID-19 pandemic with millions of people having shifted to working and learning from home. The current context of crisis should accelerate the tendency to achieve innovative alliances and the consolidation of the sector in the name of the improvement of the European digital sovereignty.

In this sense, Telefónica and Allianz will create an independent open-access wholesale operator focused on deploying fibre in rural and semi-rural areas all over Germany to tap the potential of Europe’s largest broadband market. This new operator will be committed to accelerating Germany’s social, economic and digital development by providing ultrafast broadband connectivity to underserved regions through a sustainable energy-efficient network. The project envisages an overall investment of 5 billion euros over the coming six years, contributing to the German government’s plan to provide nationwide convergent Gigabit internet infrastructure by 2025.

Allianz, one of the world’s leading insurers and investors, contributes its experience from several fibre investments, longstanding investment strength and expertise as well as strong local presence. Telefónica leverages its technical capabilities and expertise in deploying and operating fibre networks to efficiently serve difficult to reach locations. An innovative alliance to foster the digitalisation of Europe in the context of a new Digital Deal.

After the COVID-19 crisis, a long period for the recovery of the economy and societies will open up. However, the consideration of telecommunications networks as strategic assets and the importance of the resilience of these infrastructures are already critical today. In a context where the deployment of fibre and 5G networks in Europe is a determining factor in achieving European digital sovereignty, the search for new business models that use resources more efficiently and support from public policies and regulatory frameworks become equally essential. In this context, the Age of Alliances for the deployment of strategic infrastructures is here to stay.