German telecommunication policy has contributed to the emergence of innovative services and new networks, while supporting the availability of fast internet access. However, at the same time, demand for high-speed connections has developed in anything but an imposing manner. In a recent Ifo study researchers demonstrate the importance of the demand side for the telecommunication market, and call for a stronger policy emphasis on it. To achieve this, however, the constraints relation to application areas that have been little used to date such as, for example, cloud computing, e-health or e-learning would have to be removed.
Telecommunications markets in Germany were liberalized 15 years ago. Consumers benefit not only from falling prices, but also from the availability of ever faster networks. While there were, for example, practically no internet connections at the beginning of 2005 with a transmission speed in excess of over 3 Mbit/s, today one in two individuals can access a high-speed connection of at least 50 Mbit/s, connections of 16 Mbit/s are available to around 75% of the population and around 85% have access to at least a 6 Mbit/s connection.
Demand, however, is lagging behind. 70% of all internet connections in Germany have an access speed of only 6 Mbit/s or less, and only 10% of households with an internet connection have a 16 Mbit/s line. "Although the availability of fast broadband connections still leaves much to be desired in rural areas, this shows that a large majority of the population has relatively little demand for high connection speed", explains Prof. Dr. Oliver Falck, Deputy Director of the Ifo Center for the Economics of Education and Innovation. Moreover, the data volume per user did not increase to the degree expected. For fixed internet connections this figure was 12% in recent years, meaning that there is still no sign of the forecast explosion in data traffic per user.
A similar picture emerged in mobile telephony. Demand for fast, long-term evolution (LTE) prices is also relatively subdued in this segment. As a result, although 50 percent of households are covered by local LTE networks, the number of LTE customers amounts to just 1.12 million, out of a total of 40 million current users of mobile data services.
Applications with Growth Potential May Stimulate Demand
One explanation for low demand is the lack of powerful applications for users. A look at the contents of data traffic reveals that around 40% of such traffic on both fixed and mobile networks in Europe is generated by streaming services, and the figure is as high as 70% in the USA. "If one presumes that demand for fast connections is mainly due to entertainment services, this could explain consumers' caution as internet users with cable or satellite connections may see little use in watching television via internet-based services," comments Falck.
But entertainment offers are not everything. In many areas like, for example, cloud computing, e-health or e-learning, the internet has great potential. Cloud computing, for instance, enables data processing via the internet and offers companies in particular significant energy gains, since less physical IT infrastructure is required. Considerable untapped potential also lies in the field of e-health. Improved information exchange between players in the healthcare segment would enable more efficient medical care, and in rural areas in particular, the number of visits to the doctor, for example, could be reduced and patients' quality of life could be increased as a result. Via interactive elements like online tests e-learning also offers universities in particular new opportunities to promote education. All of these factors could ultimately boost demand.
At the moment, however, the spread of services in Germany remains sluggish. In cloud computing, for instance, there is still uncertainty over data protection, in healthcare incentive problems are preventing the spread of e-health and e-learning is suffering from a lack of infrastructure and training for teaching staff. "However, a growth-oriented telecommunications policy should take constraints on the user side seriously. For productivity and growth opportunities no longer lie so much in services like email or search machines. For that reason a more comprehensive policy approach should be adopted that includes different sectors like education, energy and health and is implemented at the different political levels such as, for example, the EU, the federal government and the German state," explains Falck.
