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German IT sector does well, sees problems ahead

The German government has invited the country's technology firms to a summit aimed at boosting homegrown IT businesses amid fierce global competition. The sector is growing fast but faces future problems.

Germany's information technology and telecommunications companies are set to grow 2.8 percent this year to reach total revenues of 152 billion euros ($193 billion), according to figures released by the Bitkom industry lobby group.

The figures came just ahead of the government's annual IT summit on Tuesday (13.11.2012), and, according to industry analyst Stefan Heng of Deutsche Bank Research, they show that the sector has remained a jobs and growth motor for Germany.

Heng told DW that growth in the German IT business would outpace the expansion of all other sectors in the German economy.

However, revenues this year will still be substantially less that those of their United States counterparts, where iPhone maker Apple alone is expected to reach $165 billion this year.

Small but strong

Nevertheless, Germany's estimated 81,000 IT and telecommunications firms have a broad market outreach and are expected to add another 10,000 jobs to a current total of 876,000, according to industry data.

Start-up Berlin – City of Ideas

Meanwhile, the sector employs the second largest number of industrial workers after machine tool engineering and ahead of the traditionally strong automobile and electrical industries.

Demand for IT specialists is growing rapidly, with 43,000 unfilled IT job vacancies and more and more technology firms lamenting a rising skills shortage. The shortage will be a major topic at the government's IT summit, where Federal Education Minister Annette Schavan will chair a special workshop on the issue.

Telecoms disconnected

Telecommunications is another major technology sector in for a major revenue boost in 2012. As seven out of ten mobile phones sold in Germany are so-called smartphones these days, the web-enabled devices are prime money-spinners for the country's Telecoms.

However, the boom has come at the expense of conventional telecommunications business, said Heng, noting that classical telephone services had virtually stopped creating revenue growth.

A child plays with a smart phone
Photo: Jens Kalaene

Smartphones are putting mobile data networks under stress

The smartphone boom in Germany has drastically increased the amount of data sent via the Internet, resulting in a rise in the revenues of mobile services providers of 13 percent, to reach 8.5 billion euros in 2011. However, any further business expansion was facing the mounting problem of network congestion, Heng told DW.

Costly connections

Heng said he considered the government's goal of connecting all households to fast Internet services by 2018 as very ambitious. "This means that 80 to 100 billion euros need to be spent on digital data transmission networks over the next five or six years."

But the task of improving the digital network faces a severe funding problem, as fierce competition between traditional telecoms firms and cable TV operators has reduced margins and profits.

At the moment, two-thirds of growth in the digital broadband market is supplied by cable TV operators, as they are able to provide ultra-fast Internet services at reasonable prices. However, their networks will also hit their limits soon, according to industry experts.

As German private-sector funding for network extension dries up, political influence is also proving an impediment to investments.

Remote islands

Under German fast Internet plans, network operators must not only focus their investment on the country's major cities and conurbations. They must also connect remote islands to broadband services.

Providing Internet access to people living there was necessary, said Heng, but it doesn't necessarily have to be a ultra-fast service.

The government now appears to be taking the worries of Germany's information technology and telecommunications sector seriously. At the IT summit, held in Essen, Economics Minister Phillip Rösler will be discussing the future of digital business, while Interior Minister Hans-Peter Friedrich is expected to chair a meeting focusing on data protection in the Internet era.

In addition, Justice Minister Sabine Leutheusser-Schnarrenberger will talk about the legal aspects of the network society. And even Chancellor Angela Merkel is scheduled to participate in the final meeting of the summit.

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