Fiber optics: Who pays the bill when companies miscalculate?

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The red pen is being applied to fiber optic expansion in Germany. Increased construction and financing costs, as well as intensive competition with other expanding telecommunications companies (TKUs), are leading network operators to re-evaluate their projects – and to hit the brakes on unprofitable expansion projects or withdraw from letters of intent altogether.

Currently, districts and municipalities are experiencing this, where “Unsere Grüne Glasfaser” (UGG) intended to build new networks. For example, UGG planned to build 15,000 fiber optic connections in Lüdenscheid. In Würselen, people are particularly annoyed by UGG's poor communication, which ultimately led to a withdrawal from the letter of intent signed in 2023.

The municipality of Würselen has complained to the Federal Network Agency (BNetzA) about the company because, in the municipality's view, the continuous delays have hindered other expansion and funding alternatives.

Withdrawal an “harsh setback”

Companies such as Deutsche GigaNetz or Deutsche Glasfaser are also reviewing their expansion plans. In the Karlsruhe district, Deutsche Glasfaser wanted to produce 100,000 connections but stopped the expansion at the end of March 2026. Nothing will happen here in the next two years. The so-called "height districts" of Karlsruhe are also affected by this.

For Lord Mayor Frank Mentrup, Deutsche Glasfaser's withdrawal is a “harsh setback.” In an open letter to Federal Digital Minister Karsten Wildberger, Mentrup explains that the legislator offers the city few alternatives to positively influence fiber optic expansion. The forecasts for self-financed expansion were too optimistic for Karlsruhe, which is why Mentrup is calling for the funding program to be opened up to large cities.

“The increasing withdrawal of telecommunications companies, including in urban areas, shows that the broadband funding regulations need to be reconsidered and that large cities must not be treated worse than areas with low population density in the future,” a spokesperson for the city of Karlsruhe told heise online.

Expand funding to cities?

So, does the federal government have to dig deeper into its pockets to drive fiber optic expansion? Should tax money also flow into large cities? Densely populated areas are not per se excluded from the funding guidelines of the Federal Ministry for Digital and Transport (BMDS). The guidelines do not differentiate between city and country but define so-called “trigger thresholds” that are decisive for the funding eligibility of an area. These are download and upload bandwidths in existing networks.

Another trigger threshold is the availability of a cable network (Hybrid Fiber Coax, HFC), in which the Docsis 3.1 transmission standard provides Gigabit speeds. If such a network is available or planned within the next 12 months, the area is excluded from funding eligibility. That is why Karlsruhe's chances of receiving tax money for fiber optic expansion under the current funding regime are slim. According to the Gigabit Cadastre, HFC coverage is just under 94 percent.

Closing coverage gaps

A blanket expansion of Gigabit funding to large cities is viewed critically by the TK industry, politics, and experts. Industry representatives fear that self-financed fiber optic expansion will be slowed down by an expansion of funding. “Why should a company invest millions when a subsidized network is being built right next door with tax money?” asks Sascha Brok, managing director of the broadband association ANGA, which represents many cable network operators.

Nevertheless, it cannot be denied that the withdrawal of fiber optic providers from expansion areas once considered to be self-financially developable is a clear indication that companies – and their investors – now assess profitability as lower and are setting different priorities. For areas considered economically difficult to develop, municipalities are likely to have problems finding a new expansion partner. This creates coverage gaps.

Gerrit Wernke, head of the Berlin office of the Association of Digital and Telecommunications Providers (VATM), is open to expanding funding to close such gaps. “Especially with densification, residual gaps, or individual non-economically developable addresses, it can make sense to specifically develop existing instruments further,” explains Wernke.

Strategic Overbuilding and Cherry-Picking

Maximilian Bunse, managing director of the Federal Association for Fiber Optic Connections (Buglas), sees it similarly. However, both lobbyists insist that funding must not hinder privately financed fiber optic expansion in any way. They therefore prefer better framework conditions for self-financed expansion. These include faster, fully digital approval processes, more open access, i.e., opening up fiber optic networks to Internet Service Providers (ISPs), and the promotion of alternative laying methods.

Another thorn in the industry's side is strategic overbuilding or double rollout and so-called cherry-picking, i.e., selecting particularly attractive expansion areas such as city centers while neglecting peripheral areas. “Strategic double rollout, or even the threat of it, is a major reason for the current reluctance to invest,” says Sven Knapp, head of the Berlin office of the Federal Association for Broadband Communication (Breko).

From the perspective of Rebecca Lenhard, digital policy spokesperson for the Green Party parliamentary group, the federal government is not addressing the problem of overbuilding. It is not addressed in the amendment to the Telecommunications Act (TKG). “If several companies build in the same attractive areas simultaneously, the cross-subsidization potential that makes expansion in more difficult areas economically viable is eroded,” says Lenhard.

Cross-subsidization potential is understood as the ability to finance fiber optic supply in less profitable regions by developing economically attractive areas. However, cherry-picking torpedoes such mixed calculations.

Industry representatives like ANGA managing director Brok accuse Telekom of selectively announcing expansions in areas where competitors are already far advanced in their planning. “If the 'cherry-picking' by a market-dominant player means that the mixed calculation – for example, city versus more expensive outskirts – no longer works for the competitor, the entire area ultimately suffers.”

Mixed Calculation vs. New Prioritization

For experts at the Institute for Infrastructure and Communications (WIK), the current withdrawals by some TKUs are not a consequence of overestimated cross-subsidization potentials, but an expression of changed priorities. WIK experts assume that more than 60 percent of the total investment required for the outstanding fiber optic expansion still needs to be made. Therefore, TKUs must set priorities for their further investments. This ultimately means that some cities and districts will have to wait longer for fiber optics than others.

In the WIK short study “Incentive effect of current Gigabit funding on self-financed fiber optic expansion in Germany”, the authors demonstrate that city-states like Hamburg or Berlin could be almost completely developed on a self-financed basis. According to the study, the rates are 97 and 96 percent of households, respectively.

Therefore, WIK experts are critical of expanding funding to densely populated areas. “The connection density and the required investments are generally profitable to achieve on a self-financed basis here,” it states in response to a query from heise online. “Funding under these circumstances would also not be in line with the EU Commission's State Aid Guidelines.”