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This case study looks at the potential impact of investment in broadband technology on jobs and the German economy. It analyses two investment scenarios: the Federal Government’s “National Broadband Strategy”, which is to be completed by 2014; and a subsequent phase of “ultra-broadband” evolution planned for 2015–2020. It concludes that an investment of close to EUR 36 billion over a ten-year period (2010–2020) could generate some 968 000 jobs.

The National Broadband Strategy announced by the Federal government in 2009 aims to provide 75 per cent of German households with access to a broadband connection of at least 50 Mbit/s by 2014. And a subsequent “ultra-broadband” plan aims to raise speeds to at least 100 Mbit/s for 50 per cent of households and to 50 Mbit/s for another 30 per cent by 2020.

Boosting broadband in households

Germany has a high-level of broadband penetration when compared to other major economies.

In addition to improving coverage, Germany plans to increase the access speed of residential broadband users.

Of the 39.7 million households in Germany, 39 million (or around 98 per cent) have access to some type of broadband technology. Of these households, 36.7 million have digital subscriber line (DSL) capability, 22.0 million are served by cable television networks (connecting via cable modems), and 730 000 can access the Internet via fixed wireless or satellite technology. It is also estimated that 10.9 million households are able to connect to the Internet via very high speed DSL (VDSL), while 240 000 household connections could be base on announcements made by telecommunication operators and municipalities deploying fibre-optic technology in their networks.

Around 2.8 million households are in “grey spots”, meaning that they have broadband access between 384 kbit/s and 1 Mbit/s. The remaining “white spots”, which comprise 2 per cent of unserved households (or 730 000), are either located in less densely populated areas or near the outer boundaries of already connected areas.

Faster speeds

The Federal Government defined two targets in its National Broadband Strategy:

• to provide broadband access (1 Mbit/s) nationwide no later than the end of 2010;

• to ensure that 75 per cent of German households have access to a broadband connection of at least 50 Mbit/s by 2014, with the goal that such access lines should be available as soon as possible throughout the country.

To meet these targets, the 730 000 unserved households (“white spots”) will be covered by a mix of wireless and wired technology with investment estimated at EUR 924 million (see Table 1). The 2.8 million so-called “grey spot” households will be upgraded to broadband access of at least 1 Mbit/s.

Given that VDSL technology deployed in densely populated cities is limited to 50 Mbit/s, it is assumed that 9.92 million households (representing 25 per cent of the total number of German households) will be upgraded to FTTH. Since the current number of households served by VDSL is 10.9 million and given that these households are located in the 50 major German cities, it is assumed that the majority of them will be migrating from VDSL to FTTH. It is further assumed that households with DSL will be upgraded to VDSL.

Ways for achieving these objectives include encouraging operators to seek synergies through joint infrastructure deployments; using the digital dividend; formulating regulation that fosters investment and growth; and financial support.

The study estimates that fulfilling the National Broadband Strategy will require an investment of EUR 20.2 billion up to 2014 (see Table 2). It adds that deployment of ultra-broadband infrastructure in subsequent years (2015–2020) would require an estimated EUR 15.7 billion of additional investment.

More employment

Fulfilling the 2014 objectives of the National Broadband Strategy will generate an estimated 304 000 jobs over five years (between 2010 and 2014). In terms of direct employment related to the construction of broadband networks, 158 000 jobs will be created in equipment manufacturing, construction and telecommunications. It is estimated that job creation will be apportioned among the sectors as follows: construction will benefit the most with 125 000 jobs, followed by telecommunications (28 400) and electronics equipment manufacturing (4700).

Total indirect jobs generated by sector interrelationships are estimated at 71 000. The key sectors that will benefit from the indirect effects of broadband network construction are distribution (10 700), other services (17 000), and metal products (3200). Household spending, generated directly and indirectly, is likely to result in 75 000 induced jobs.

In addition, implementation of the “ultra-broadband” goal would generate an estimated 237 000 jobs between 2015 and 2020. This figure comprises 123 000 direct jobs, 55 000 indirect jobs and 59 000 induced jobs.

What it all means

The study concludes that over the ten-year period between 2010 and 2020, the National Broadband Strategy and the evolution to an ultra-broadband infrastructure will have a significant impact on jobs and the German economy. It is estimated that investment of close to EUR 36 billion over the ten-year period would generate some 968 000 jobs, of which 541 000 would be derived from network construction and 427 000 would be generated after the network is deployed, as a result of enhanced innovation and new business creation.

Network construction would yield EUR 33.4 billion in terms of additional GDP, while network externalities would result in an additional EUR 137.5 billion over the ten-year period. In total, this would result in EUR 170.9 billion of additional GDP (0.60 per cent annual GDP growth) in Germany, as shown in Table 3. These economic returns on broadband investment amply justify moving ahead, in particular to ensure a policy and regulatory framework that is geared to growth and innovation.

* This article is adapted from “The impact of broadband on the economy: Research to date and policy issues,” Chapter 2 of Trends in Telecommunication Reform 2010–2011: Enabling Tomorrow’s Digital World. This chapter is authored by Dr Raul L. Katz, Adjunct Professor, Division of Finance and Economics, and Director, Business Strategy Research, Columbia Institute for Tele-information.