For eight years, the office furniture manufacturer Vario has been desperately struggling to get faster internet connectivity. The company is not out in the country but just outside of Frankfurt.
"We are only 1.5 kilometers from the city limits of Frankfurt, nevertheless we have sluggish internet of two megabits per second (Mbps) with frequent outages," complained Volker Schwinn, head of IT for the company, which was founded in 1872. The impacts on the staff of 100 is significant. "If a retailer downloads brochures from our homepage, our internal internet connection goes to standstill. The same thing happens when our new edge machine is being serviced externally.”
"We Mittelstand businesses [small- and medium-sized German companies] feel abandoned by Deutsche Telekom as a network operator," Mr. Schwinn said. They would rather connect up residential areas than commercial areas, he said, because they are more lucrative. Solving Vario’s connectivity issue has been put off again and again, he said.
It is depressing how bad the high speed internet coverage is in an economic power like Germany. Volker Schwinn, Chief of IT, Vario
The fact is there are still broadband deserts throughout Germany. Many German world market leaders, the so-called hidden champions, traditionally have decentralized offices far from infrastructure networks, and great logistical effort is required for these companies to connect to broadband.
The internet can be slow in sparsely populated areas such as the state of Saxony-Anhalt and the Eifel and Sauerland regions. However, even around economic centers such as the Rhine-Main region, Kassel or Freiburg, parts of the network run at a snail’s pace. In the age of digital networking, however, companies depend on reliable and fast data exchange, regardless of their size or location.
Outside of Frankfurt, Vario has felt increasingly disadvantaged by its network capabilities.
"This distorts the competition," Mr. Schwinn said. Vario provides companies such as the advertising firm Grey and Porsche Consulting with modern office furniture.
In 2015, Vario was promised a fast fiber connection, but the bill from Deutsche Telekom was to be €104,192 ($118,857) and it would take 22 months. "That was too expensive for us," Mr. Schwinn said. "It is depressing how bad the high speed internet coverage is in an economic power like Germany."
Some companies have already relocated within the country because of the difficult internet speed situation, including De'Longhi. In 2012, the Italian coffee machine manufacturer relocated its German headquarters from Froschhausen to Neu-Isenburg, 20 kilometers away. “We had to fight against a very slow 2-Mbps connection in Froschhausen. It was not possible to fully take orders online, communicate via the global SAP system, or use emails and other important services,” the company said.
De'Longhi, active in 33 countries, had 130 employees in its Froschhausen location. Since they couldn’t upgrade, they had to move. Neu-Isenburg was chosen because it was one of the first cities in Germany to be upgraded with fiber optic cable by Deutsche Telekom. "We have a speed of 200 Mbps here and are now fit for the future," an employee of De'Longhi said.
Fast internet is increasingly becoming a decisive location factor in global competition. German politicians have finally recognized this. Previously, they had largely left supply up to the market. As a result, network operators such as Deutsche Telekom concentrated on lucrative areas.
"So far, businesses or municipalities had to figure it out for themselves," said Ralph Sonnenschein, a broadband expert from the German Association of Towns and Municipalities.
Since November 2015, broadband construction has been publicly subsidized. The government is providing more than €4 billion, supplemented by further funds from the individual states. "To make sure there are no blank spots on the map," is what Alexander Dobrindt, Germany’s Minister for Transport and Digital Infrastructure promised. By 2018, the federal government wants to guarantee 50 Mbps nationwide. By the end of 2016 only one-third of the rural areas and two-thirds of the semi-urban households had access to those speeds, the TÜV Rheinland, a technological inspection association, determined. Last year, Deutsche Telekom invested around €4 billion of its own money in broadband expansion across the country.
But even 50 Mbps might not be fast enough.The EU is planning for a data transfer rate of at least 100 Mbps by 2026 across the region. The 50 Mbps goal might suffice for the next few years, but even those speeds would quickly become anachronistically slow. Data sets will grow tenfold over the next 10 years, according to a study by Seagate and IDC. If around 16 zettabytes of data were generated around the world in 2016, the study predicts it will be about 163 Zettabyte in 2025. That’s 163 with 21 zeros.
However, in the medium term, such data sets can only be processed with a fiber optic connections.
"According to the current state of the art, copper leads max out at 100 Mbps. However, this can quickly be too little for companies that regularly have to transmit lots of data,” said Mr. Sonnenschein. "There is no way around fiber optic."
However, Germany is lagging far behind the rest of the world in fiber optic installation. This is underscored by a recent study from the Fraunhofer Institute for Systems and Innovation Research (ISI) commissioned by the Bertelsmann Foundation. The alarming conclusion was that almost all OECD countries are investing in fiber optic networks and adding fast tracks to their data highways. Germany, on the other hand, is still stuck in the slow lane. Only 6.6 percent of households can boast a fiber-optic connection - in rural areas it is only 1.4 percent. By comparison, the same figure is 73 percent in Estonia, 56 percent in Sweden, 53 percent in Spain and 27 percent in Switzerland. In an OECD comparison, the economic powerhouse Germany is at a frightening 28th place among 32 industrialized countries.
In the meantime, a number of languishing regions have taken fiber infrastructure construction into their own hands, like the Rhine-Neckar-Kreis district. "Companies like SAP need fast internet in residential areas, so that employees can work from their home office. The private ISPs, however, were not moving,” said Stefan Dallinger, head of the district. In 2014, the district formed a special association with all 54 of its municipalities to connect the region to fiber itself. This was more complicated than imagined. Only because a "market failure" by the private provider was demonstrable were the public authorities allowed to act themselves.
In 2015 was the group’s first groundbreak, however, Mr. Dallinger quickly realized that, "this is not a 100-meter-sprint, but a marathon." A problem emerged with engineering firms and construction companies throughout Germany being saturated with orders for fiber cable laying. By mid-2018, however, 320 km of fiber basic network is expected to be laid out in the district. Then, gradually, all commercial and residential areas will be connected. The state of Baden-Wurttemberg is also contributing funding to help with the €300 million price tag.
The costs for the entire country are significantly higher. "For a nationwide fiber expansion in Germany, the investment requirement will add up to €100 billion over the next 10 years," DIHK President Eric Schweitzer told Handelsblatt. No business should be disconnected from the network, he warned. Companies need a viable digital infrastructure all over Germany, he added.
Telecom CEO Tim Höttges announced at the beginning of June that Deutsche Telekom would supply 3,000 commercial zones with fiber. "Eighty percent of all companies are located within 3,000 commercial areas in Germany," he said at his company’s annual general meeting. "The first 100 are already being planned. The next 200 are in sight.”
Mittelstand-company Viessmann is already using fiber as the technology of the future. The 11,000-employee heating and cooling system manufacturer is based in Allendorf in the state of Hessen.
In France, Viessmann manufactures storage and solar collectors, in China it makes solar collectors and gas wall units, and in Wroclaw, Poland it develops apps. All of the sites need to be networked. Since the end of 2016, Viessmann is moving forward and reached a deal with Deutsche Telekom to upgrade its networks to fiber in all Viessmann branches. About a quarter of its sites have been upgraded so far.
Vario, the office furniture manufacturer, has also finally embarked on new digital times. After eight years of struggling with slow internet, Vodafone finally offered up a copper line that could handle 10 Mbps. "It’s still slow," says Mr. Schwinn, "But, for us it’s a huge boost.”
Anja Müller writes about family and small- and medium-sized firms. Katrin Terpitz covers companies and markets at Handelsblatt, focusing on Germany’s Mittelstand and family-owned businesses. To contact the authors: [email protected], [email protected]