Deregulation: Killing broadband in Germany

We’re always hearing about how much better broadband is in Europe than it is in the U.S. – and how far behind the U.S. has fallen. But is the the grass really greener in Deutschland?   

Not really, says David Krings, a former resident of Germany who moved to the U.S. in 2000. Krings says he has watched deregulation efforts in both countries and it’s not working in either place. His observations are from the perpective as a consumer.

It only appears that Europe is doing better than the U.S., Krings says, because Germany deregulated much later and deregulation has had less time to do its damage. The seeds for the advantages Europe now enjoys in high speed broadband were planted before deregulation,  he contends, and it’s been downhill since. Deregulation in both countries, he says, has largely benefitted shareholders at the expense of the consumer.

“Deregulation and privatization are the main reasons why infrastructure services are in a sad state. The main argument that it increases competition and lowers prices is in many cases not true unless strong oversight slaps on manager's hands quite frequently."

The fact that Germany ranks ahead of the U.S. in bandwidth and pricing is an artifact of work done before deregulation, he argues. "The reason why Europe and other regions of the world enjoy availability of massive amounts of bandwidth is that the national telcos were not split up and deregulated for a long time. For example, in Germany the market was opened for competition in 1998. Since then new service providers appeared, but the prices did not go down. What went down is service and support quality, but not much innovation or investment into the infrastructure."

“The speeds for DSL are generally higher in Germany and it is true that prices are now below what one would pay in the US. The reason for that is due to the introduction of ISDN in Germany in the ‘80s. Back then the Deutsche Bundespost invested massive amounts into digital copper networks as well as broadband coax cable networks. The government decided to put broadband coax and ISDN to every household and so it happened. And that is the reason why broadband penetration is higher there than in the US.”  But, he says, that infrastructure hasn’t seen major upgrades in the 10 years since deregulation occurred in Germany.

There is one key difference in regulation here and in Germany: Regulators have required that the former government monopoly, Deutsche Telekom, must give other Internet service providers access to the network for a set price.

As in the U.S., where the incumbents drove out competitors by providing lousy service, providers in Germany face similar struggles.

“There are other providers who have more favorable pricing, but usually offer even crappier service and are dependent on the support services of Telekom. So, someone who switched over to Arcor and now has a bad line needs to call Arcor, who has to call Telekom. Since Arcor and Telekom are competitors the motivation for Telekom to follow up on requests is quite slim, especially since the maintenance fees are also set by the deregulation board. Telekom will not get a cent more for outdoing itself in servicing Arcor customers, [and] it may even make business sense to do a really bad job or not do it at all and risk a fine if ultimately the customer switches back.”

His conclusion: "I know it sounds uncool and communistic, but fundamental public services such as power, water, electricity, mail, and telecommuniction have to be run by public [sector] corporations."