How to Transform Germany into a Gigabit Society

The warning from the European Court of Auditors that Germany risks missing out on the rapid expansion of ultra-fast internet if it sticks to its current copper wire based expansion strategy is alarming. The last national government couldn’t even meet its broadband goal of providing every household with a minimum internet speed of 50 Mbit/s by 2018. Therefore, the latest promise of a nationwide update to gigabit networks capable of speeds of 1,000 Mbit/s by 2025 seems far off on the horizon. Germany currently comes in fifth from the bottom in Europe when it comes to the share of households with a fibre-optic internet connection. There are, however, a number of ways for Germany to transform into a gigabit society.

It is a truth that bears repeating that the majority of investment in broadband expansion – estimated at between 45 and 69 billion euros – will come from private providers without any public funding. Therefore, instead of forcing companies to repeatedly compete for the highest funding amounts, more energy should be invested in creating the regulatory conditions for this private expansion. In this case, flexible regulation of fibre-optic connections – meaning that companies can also earn money from these new connections – would certainly help, as would an antitrust ruling in favour of joint investment projects that allow the costs and risks, as well as the benefits, of the expansion to be shared. The joint plans of Deutsche Telekom and EWE to collaborate on a fibre-optic roll-out could be a sign of things to come.

We are also seeing other movements on the market. The planned merger of Vodafone and Unitymedia is not completely unproblematic from a competition perspective. It therefore remains to be seen whether this merger will be approved through merger control proceedings. From a telecommunications perspective, however, the merger would create a stronger main competitor for Deutsche Telekom, which should provide greater incentive for Telekom and other network operators to invest in fibre-optic technology. In May, Deutsche Telekom even announced that it has plans to connect two million households a year to the fibre-optic network starting in 2021. This, however, came with the proviso that the “right conditions” would need to be set first.

Time to put broadband expansion into action

Finally, alongside cable networks and fibre-optic cable, mobile communications represent the third channel through which gigabit-capable services can be provided. The frequencies for the coming fifth generation mobile communications standard (5G) are set to be auctioned off in early 2019. In all market dynamics there are, however, always going to be regions where broadband expansion does not make economic sense – also known as white spots. This problem can be solved in mobile communications through specific requirements in the frequency allocation process. In order to avoid the costly duplication of infrastructure, the auction should be designed in such a way that these requirements only apply to one network operator.

In addition, the roll-out of gigabit networks should be subsidised with public funds. The new government already earmarked a funding amount of ten to twelve billion euros for this purpose in the coalition agreement. To ensure that this funding is allocated where it is most needed, it would be sensible to channel it into demand-based instruments to accompany the supply-oriented funding currently available. This could, for example, involve distributing time-limited vouchers, known as gigabit vouchers, to small and medium-sized enterprises as well as socio-economically significant institutions. This way we can ensure that the network is being expanded where demand – boosted by the vouchers – is highest.

As in previous years, the ZEW Monitoring Report DIGITAL Economy 2018 has found that what German companies would most like to see from policymakers are measures to ensure the success of the country’s broadband expansion. This insight is by no means new. We have debated and planned long enough. It is time to finally put these plans into action.