The Importance of Digital Infrastructures in Germany

Socio-economic Opportunities and Challenges for Data Centers in International Competition

By Ralph Hintemann and Jens Clausen, Borderstep Institute for Innovation and Sustainability
On behalf of eco – Association of the Internet Industry

Summary of Study

Together with a high-speed broadband infrastructure, data centers represent the foundation of digitalization and have a significant influence on current and future economic developments. Digitalization and the anticipated associated potential for value creation in Germany of approx. €500 bn. annually (McKinsey, 2017) demand high-capacity digital infrastructures and a developed eco-system of IT service providers, software vendors, systems integrators, digital platforms, and content providers, etc.

Status of digital infrastructures in Germany

The multiple levels of digital infrastructure in Germany are at various stages of development. Whereas Germany is well behind in European and worldwide comparison in terms of broadband connections to companies and households, the situation at the Internet exchanges and in data centers is to be assessed considerably more positively. With DE-CIX, Germany has at hand the largest Internet Exchange in the world, measured on data throughput. Large additional capacities have been built in the data centers, above all between 2014 and 2017. Through this, Germany’s position in the European competition for data center capacities has been successfully cemented. Currently in Germany, more than €8 bn. is being invested annually in the construction and modernization, and in the IT, of data centers. The data centers alone provide more than 200,000 jobs in Germany. Despite this, Germany‘s share of the worldwide data center capacities, especially in comparison to North America and Asia, is continuously reducing. With regard to the assessment of locational factors for data centers, Germany takes on a special role in international comparison. While data center operators evaluate some locational factors as very good, Germany fares rather poorly for other factors. Above all, the existing power supply infrastructure, the connections to Internet Exchanges, and the topics of data protection and data security are assessed as significant locational advantages. Conversely, Germany is currently considered to be far behind in international comparison on the topics of the availability of specialists, energy prices, and the speed of approval processes.

State initiatives for digital infrastructures

Other states are becoming increasingly aware of their locational advantages and these are being vigorously expanded (Ostler, 2018). Thus, Scandinavian countries like Sweden and Norway have reduced their energy taxes for data centers, and market themselves with low energy prices of less than 3 Cent/kWh and abundant, readily available renewable energy. The Chinese government is also, as part of the 13th five-year plan, pushing the expansion of the digital economy and digital infrastructures – a strategy through which other sectors have already been effectively and rapidly expanded. But neither in the German federal government’s Digital Agenda (The German federal government, 2014) nor in the Economic Ministry’s (BMWi ) Monitoring Report on the Digital Economy (Graumann et al., 2017) are data centers explicitly brought into the discussion. Even though a Minister for Digitalization was appointed in the new federal government, the topics of data centers and the Internet backbone were also not broached in the coalition agreement (CDU, CSU und SPD, 2018).

Currently, only some federal states, such as Hesse, have digital strategies that go beyond the topic of the Internet access network and also address the importance of data centers. However, the ambitious growth targets in the context of the digitalization of the economy can only be realized with first-class digital infrastructures – from high-capacity international Internet Exchanges, to data centers, and through to high-speed broadband connections. Especially for the successful and rapid digitalization of the small and medium-sized enterprises which form the foundation of the German economy, it is necessary for Germany to have a good basis of both regional and trans-regional high-capacity data centers at its disposal. The region Frankfurt Rhine-Main, as well as the medium-sized data center locations, such as Munich, Nuremberg, Hamburg, and Berlin, provide essential services, which are available through the regional data centers for the regional companies. The first-class interconnectivity of the large Internet Exchanges and data center locations through the Internet backbone represents a further cornerstone of the digital infrastructure. And the broadband expansion of the access network for companies and private households is also of high importance.

The digitalization of companies in industry results in more and more technical knowledge and data regarding customers, suppliers, etc. being stored in data centers. The security of this data can best be ensured in a domestic location. To secure the digital self-determination of Germany, it is necessary to have a strong data center infrastructure at hand. The federal government should therefore, similar to the Scandinavian states, the Netherlands, and Great Britain, develop an active strategy for the securing and the expansion of the data center infrastructure in Germany.

Download the full Borderstep Institute study (in German language) “Bedeutung digitaler Infrastrukturen in Deutschland

Further information about the Alliance for the Strengthening of Digital Infrastructures in Germany


The Importance of Digital Infrastructures in Germany