DTE Deutsche Telekom AG

By Sara Germano 

BERLIN -- Germany is looking for new ways to power its economy as the traditional growth engines of manufacturing and exports falter. But the country's outdated internet is acting as a bottleneck.

The sorry state of the online network has become a national joke and an economic liability. Germany ranks 33rd in the world in average monthly fixed broadband connection speeds, and 47th for mobile, according to Speedtest Global Index.

The slow speeds are hampering the digitization of swaths of industry and the delivery of products and services to consumers, causing pain for German companies such as media conglomerate Bertelsmann SE, whose portfolio includes online video producer RTL Group, music group BMG and a controlling stake in publisher Penguin Random House.

"Our business is about content and reach, and monetizing the reach," said Chief Executive Thomas Rabe. "And if the reach is reduced by the lack of technical infrastructure, that is, of course, a problem."

Germany largely missed the upgrade to fiber broadband that neighboring countries deployed a decade ago, which is making a swift rollout of next-generation 5G mobile internet especially urgent, according to business leaders, economists and politicians.

Chancellor Angela Merkel said last month that the government is committed to improving digital infrastructure over the next decade. "It will be a long time, but we have devoted ourselves to this question," she said.

In the meantime, the consequences are felt everywhere from the German countryside, where many companies in the highly decentralized economy have their headquarters, to Berlin's startup scene.

"Almost every one of us has had bad experiences with the internet connection...too unstable, too slow, not available everywhere," said Thilo Grösch, a spokesman for an insurance startup who has worked at various firms in the capital for seven years.

Mr. Grösch said he often had to work from home at a previous job because the office internet wouldn't function.

In the new Netflix series "How to Sell Drugs Online (Fast)," based on the true story of a German teen who set up an online pill-dealing empire, the protagonist curses his glitchy mobile connection in the pilot episode.

Germany's internet woes are rooted in a range of factors, according to network operators, regulators, business executives, and industry analysts.

Among them are the country's large geographic area; an evenly spread population; decades of subdued private-sector investment; and strict fiscal rules that discourage government investment in infrastructure.

But one technical factor stands out: the reliance on copper rather than glass fiber to link end users to the fixed-line network.

"The whole problem in Germany is the lack of fiber-to-the-home strategy by Deutsche Telekom and other carriers," said Guy Peddy, a telecommunications analyst for Macquarie Research.

Telecom giants in France and Portugal were already rolling out all-fiber networks early in the decade, in keeping with a 2010 European Union report that recommended that national carriers invest in fiber.

But Deutsche Telekom, Germany's dominant operator, took a less costly route in 2012, upgrading its existing copper network through a technology called vectoring. The idea was to improve speed on copper cables to up to 100 megabits per second by cutting down on interference, a relatively inexpensive way to get faster internet to consumers.

At the time, Deutsche Telekom acknowledged that it would eventually have to build a fiber-based network. But Henrik Schmitz, a spokesman for the company, said it needed to rely on vectoring in order to meet a government target of 80% of households having access to download speeds of at least 50 megabits per second by the end of 2018, a target that Telekom says it will hit a year late.

Fiber would have enabled faster speeds but would have been available to just 10-to-20% of households, Mr. Schmitz said.

Many commercial customers say the vectoring approach has left them frustrated. Holger Ehrhardt, a graphic designer and IT consultant for a print media company in the state of Lower Saxony, said the firm decided to invest in its own server because fiber isn't available and Deutsche Telekom has only been able to connect them with 25-megabit internet.

"It must have something to do with the 'antique' lines," he said.

In 2017, the German Federal Network Agency said vectoring wasn't enough, and that further glass fiber cable investments were needed to hit government targets. That same year, the German ministry for transportation called for gigabit internet -- download speeds ten to twenty times faster than those generated through vectoring -- to be broadly available by 2025.

Deutsche Telekom responded by pledging to add up to 60,000 kilometers (37,200 miles) of fiber cable per year and to connect 90% of Germany's surface area with 5G by 2025, offering high-speed data traffic to those places that fiber couldn't reach in time.

Critics say Germany still isn't moving fast enough.

"It's too slow," Hubert Barth, the chief executive of Ernst & Young Germany, said of the gigabit internet initiative. "If you're really world class in production, having a ranking of, say, [33rd] in working internet does not fit together with that image."

Write to Sara Germano at sara.germano@wsj.com

(END) Dow Jones Newswires

August 05, 2019 07:12 ET (11:12 GMT)

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