Broadband coverage High-Speed Internet in the Slow Lane

Many mid-size German companies still can't plug into high-speed internet networks, which are vital for their business. The government is responding but critics say not fast enough.
Germany mid-sizes companies are grabbing all the fiber-optic cable they can put their hands on.

Office furniture manufacturer Vario has been begging for a high-speed internet connection for years. The company isn’t located in the boondocks but just outside Germany’s financial capital Frankfurt and it’s struggling to run a business with a bit rate that often feels like molasses dripping from a bottle.

Mid-size companies like Vario, which form the backbone of Germany’s economy, “feel abandoned” by network operators, especially Deutsche Telekom, said Vario's IT director Volker Schwinn. Many of these so-called hidden champions, he noted, are located in smaller towns still outside the reach of the fiber-optic networks being built in metropolitan areas by Deutsche Telekom, Germany’s largest facilities-based operator and other providers. Vario is just 1.5 kilometers outside of the greater Frankfurt metropolitan area. "It’s really depressing how bad the high-speed internet coverage is in an economic powerhouse like Germany," Mr. Schwinn noted.

Fast internet is increasingly becoming a decisive location factor.

In 2015, Deutsche Telekom offered the company a fiber link that would cost €104,192 ($118,857) and take 22 months to install. "That was simply too expensive for us," the IT director said.

The lack of high-speed internet has forced some companies like De'Longhi to relocate. The Italian coffee machine manufacturer, which struggled with a 2 megabit per second (Mbps) connection, moved its German headquarters from Froschhausen to Neu-Isenburg, 20 kilometers away, where it could tap into speeds of 200 Mbps were available.

Fast internet, according to analysts, is increasingly becoming a decisive location factor, which lawmakers now realize. Until now, they have left supply largely up to the market, with the result that network operators like Deutsche Telekom have concentrated on lucrative urban areas. Businesses and municipalities outside of those areas, "have had to figure it out for themselves," said Ralph Sonnenschein, a broadband expert with German association of towns and municipalities.

Since November 2015, the federal government has been subsidizing the construction of broadband infrastructure to the tune of €4 billion, supplemented by further funds from the individual states. It aims to "make sure there are no blank spots on the map," said Alexander Dobrindt, the minister for transport and digital infrastructure.

By 2018, Berlin wants to guarantee 50 Mbps speeds nationwide. But it has a ways to go: At the end of 2016, only one-third of rural areas and two-thirds of semi-urban households had access to those speeds, according to TÜV Rheinland, a technological inspection organization. Last year, Deutsche Telekom invested around €4 billion of its own money in broadband expansion across the country.

Deutsche Telekom WTB 05-17

But even 50 Mbps may not be fast enough. The EU is pushing for a data transfer rate of at least 100 Mbps by 2026 across the bloc. Speeds reached with current technology on copper land lines max out at 100 Mbps. “This can be too little for companies that regularly transmit lots of data,” said Mr. Sonnenschein. "There is no way around fiber optic."

Germany, however, is lagging far behind the rest of the world in the rollout of fiber-optic networks, according to a study conducted by the Fraunhofer Institute for Systems and Innovation Research on behalf of the Bertelsmann Foundation. The alarming conclusion was that while most OECD countries are investing heavily in fiber-optic networks, Germany is still stuck in the slow lane. Only 6.6 percent of households in the country boast a fiber-optic connection, compared to 73 percent in Estonia, 56 percent in Sweden, 53 percent in Spain and 27 percent in Switzerland. Europe’s largest economy, Germany, is ranked 28 among 32 industrialized countries.

In the meantime, a number of district authorities, including the Rhine-Neckar district, have taken fiber infrastructure construction into their own hands. "Companies like SAP need fast internet in residential areas so that employees can work from their home office,” said district head Stefan Dallinger. In 2014, the district formed a special association with all 54 of its municipalities to connect to a new 320 kilometer fiber network by mid-2018. The state of Baden-Württemberg is also providing €300 million for new infrastructure.

"The investment required for Germany’s nationwide fiber-optic expansion will be around €100 billion over the next 10 years," Eric Schweitzer, president of the Association of German Chambers of Commerce and Industry, told Handelsblatt.

Tim Höttges, the chief executive of Deutsche Telekom, told shareholders in early June that the operator would supply 3,000 commercial zones with fiber. "Eighty percent of all companies are located within 3,000 commercial areas in Germany," he said. "The first 100 are already being planned. The next 200 are in sight.”

Katrin Terpitz and Anja Müller are reporters for Handelsblatt. To contact the authors: [email protected] and [email protected]