Fiber optics

High-Speed Internet: A Hot-Button Election Issue

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The stuff that dreams are made of. Source: Reuters

Martin Wolff has a dream. Convinced that a connected, digital-savvy society is the key to future German prosperity, Mr. Wolff wants to bring gigabyte-speed internet to all the homes in Bretten, a town of 28,000 inhabitants near the city of Karlsruhe in western Germany, where he is the mayor.

The problem was that Deutsche Telekom, the telephone behemoth that controls most of the internet market in Germany, wasn’t interested. Nor were competitors like Britain’s Vodafone because the cost of laying fiber-optic cable, one of the ways to achieve gigabyte speeds, was too high. “They are only interested in serving the cream of the crop in the cities and don’t come to rural areas,” Mr. Wolff said.

Rather than defeating the mayor, the rejections energized him. He convinced a private fiber-optics company called BBV to lay the cables to his town and arranged €10 million ($12 million) in funding from a Dutch infrastructure investment fund run by the Rabo Real Estate group to help pay for it. “The biggest problem is financing the high construction costs,” said BBV Managing Director Manfred Maschek.

While Americans were captivated by concerns of fake news on the internet during their recent elections, Germans are more focused on just getting good internet service in their elections for a new government on September 24. All the big parties have broadband position papers, most of which promise to upgrade the country’s creaking internet infrastructure over 10 or 20 years. The internet has become a big issue in German politics, debated more than economic policy or relations with Donald Trump.

“Germany is one of the most under-supplied countries in Europe, especially in terms of rural coverage.”

Bernd Beckert, Internet expert, Fraunhofer Institute for Systems and Innovation Research

“Germany is one of the most under-supplied countries in Europe, especially in terms of rural coverage,” wrote Bernd Beckert, an internet expert at the Fraunhofer Institute for Systems and Innovation Research, in a recent study of European broadband. He said countries such as Switzerland, Spain and even tiny Estonia are far ahead of Germany and are trying new strategies that Europe’s largest economy could profit from.

According to the Organization of Economic Cooperation and Development, a research center composed of the world’s most developed economies, Germany’s adoption of fiber-optic cable stands at just 1.8 percent of Internet users, putting it fifth from the bottom in the list of the OECD’s 35 members. In contrast both Japan and South Korea have more than 70 percent of subscribers on super-fast fiber-optic cable.

In fact, more than 70 percent of the country gets the Internet streamed down telephone wires using a relatively old technology called DSL. While Deutsche Telekom’s monopoly on supplying internet service ended in 1998, rival firms such as Versatel, Vodafone and Telefonica Germany are only able to rent local lines from Telekom, so they cannot offer any faster service than the former state-owned phone company.

The concern is not just about browsing Facebook and Instagram, either. German businesses have complained vocally that the country is facing an “internet emergency” because they are unable to get sufficient data access to run their companies outside the main cities.

One of the main issues is Deutsche Telekom’s reluctance to invest in fiber-optic cable. The government has so far accepted the network operator’s plans to roll out a higher-speed version of DSL called vectoring, instead of switching to cable or fiber-optics. While an improvement, many politicians have complained that the country is falling behind competitors as a result.

“Telekom decides for copper,” said Christian Lindner, the leader of the pro-business Free Democratic Party. “That only extends the present and creates no future.” Mr. Lindner wants to sell off the state’s 32 percent ownership of the telecoms company and use the proceeds to fund a communications infrastructure building program.

06 WiWo36 p44 Germanys Large Glass Fiber Gap-01

Deutsche Telekom reportedly has the opposite idea. According to the business weekly WirtschaftsWoche, a sister publication of Handelsblatt, Telekom executives made an audacious proposal to the government: The company would agree to build out a fiber-optic network everywhere in Germany provided that it is excluded from European anti-monopoly rules so that it wouldn’t be forced to open the network to competition.

“A fundamental departure from the kind of logic that viewed regulation of Deutsche Telekom as the normal state in the last 20 years is urgently needed,” the company said in a filing with the German Federal Network Agency, which regulates the internet in the country.

But many telecommunications experts believe that it is Deutsche Telekom’s relative monopoly on Internet provision that is the main problem. They note, for example, in cities where private fiber-optic companies have offered bundled television and Internet service, such as M-Net in Munich and NetCologne, Telekom has quickly responded by offering a rival fiber-optic service.

The fact that patience is running out with the partially state-owned network operator was evident in a recent debate among smaller opposition parties. Both the left and the right of the political spectrum agreed that a Telekom monopoly is a bad idea – even if the Left Party proposed nationalization and the pro-business Free Democratic Party proposes injecting more private competition to solve the problem.

Germany also lags behind other countries in rolling out high-speed mobile internet, which doesn’t require as much infrastructure spending as cabled Internet. It’s striking because Telekom owns a controlling interest in a mobile network called T-Mobile, which is among the toughest competitors in the US market, offering innovative services and pricing strategies not available in Germany.

Valentina Daiber, a member of the board of Telefonica, argued that “no provider can achieve the fiber-optic expansion on its own,” especially Deutsche Telekom, which has €50 billion in debt. Ms. Daiber said she hopes a solution can be found “after the parliamentary elections.”

 

This article, written by Jürgen Berke, first appeared in Wirtschaftwoche. Charles Wallace of Handelsblatt Global provided additional reporting and adapted the article in English. To contact the authors: juergen.berke@wiwo.de and c.wallace@extern.vhb.de

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