Analysis on European Digital Dividend Auctions

It has been a long time coming, but the digital dividend spectrum released from converting terrestrial television to digital signals has released 800-MHz spectrum for mobile services. Mobile operators have been eyeing up the spectrum for the same reasons it was initially used for broadcast television: the spectrum covers a wide area while penetrating within buildings. As of August 2011, three European countries have licensed their 800-MHz spectrum: Germany, Spain, and Sweden (see Germany: 21 May 2010: German 4G Auction Ends with USD5.6 Bil. in Proceeds, E-Plus Left Without 800-MHz Frequencies; Spain: 1 August 2011: LTE Spectrum Auction Raises USD2.38 Bil. As Telefónica, Orange and Vodafone Take the Spoils, and Sweden: 7 March 2011: Sweden Gains USD323 Mil. from Digital Dividend Auction). The results of the auctions are tabulated below:

Outlook and Implications

• Partnering Reduces Costs: A major factor contributing to spectrum in Sweden being cheap compared to Germany is the result of the partnership of Tele2 and Telenor to create Net4Mobility (see Sweden: 1 February 2010: Tele2 to Bid for Swedish Digital-Dividend Spectrum Through Net4Mobility Telenor Joint Venture). This reduced the number of players, decreasing competition for the spectrum. In Germany all four mobile operators were keen to get 800-MHz spectrum, only three licences were put up for auction. IHS Global Insight expects to see more of these partnerships in upcoming auctions for two reasons: by partnering up operators improve their chances by reducing the number of bidders; secondly, there are deployment and operational cost-reductions to be had by sharing networks from the off. In Spain, the fourth and smallest mobile operator, Yoigo, was absent from the bidding in digital dividend spectrum. This didn't dilute competition by much with final prices growing 35% beyond the reserve set by the government.
• TeliaSonera Paying Top-Dollar: Looking at the bids individually, TeliaSonera's bid stands out as much higher than its competitors. TeliaSonera has been aggressive in launching Long-Term Evolution (LTE) networks across of its subsidiaries in Sweden TeliaSonera required the 800-MHz spectrum for this. While TeliaSonera is not reliant on Sweden, it remains TeliaSonera's biggest individual market and of crucial importance to launch LTE there. In Germany, O2 made the highest bid for 800-MHz. For O2, at the time of the auction it was the smallest operator in the German market and was concerned that without the 800-MHz market it would fail to make ground on the two larger operators Vodafone and T-Mobile. The fourth operator, E-Plus, was eventually out bid as it decided that the regulatory obligations to cover rural areas would drag on profitability.
• Use for Spectrum: The licences were all issued in a technology neutral manner to comply with European Union (EU) legislation. Operators in Sweden had already launched LTE networks prior to 800-MHz licensing but will use the new spectrum to cover more ground along with balancing loads across different radio access networks. In Germany operators used the auctioning of digital dividend spectrum for the roll-out of LTE networks. All three operators have launched parts of their networks, predominately for modem access in rural areas. In Spain it is anticipated that operators will also use digital dividend frequencies for LTE access.
• Initial Subscriber Group Targets: In the longer-term operators will migrate all existing mobile data users onto their LTE networks. In the initially operators are looking to heavy users of mobile data modems to make up their target markets. In addition in Germany the areas operators are initially covering are rural areas unserved by fixed-broadband connections providing another market for operators to aim for. In the medium-term operators will require a greater range of LTE handsets to utilise the improved mobile data speeds available.
• Impact on Other Telco Areas: The speeds offered by LTE outpace that offered by many copper-based broadband connections. There is the possibility of low-end broadband subscribers converting through to LTE only subscriptions for their home broadband requirements. This cannibalisation will be limited by the implementation of data caps and throttling when networks become more congested.
• Upcoming Auctions: Other European countries remain in the planning and consultation stage for their auctions. The auction of digital dividend spectrum in Portugal is due for the third quarter of 2011 with the government aiming to raise EUR450 million from ten interested companies (see Portugal: 3 June 2011: Portuguese Regulator May Delay Digital Dividend Auction—Report). In the United Kingdom the regulator Ofcom is aiming to auction its digital dividend spectrum in early 2012, however sub-1-GHz spectrum caps are proving contentious and may delay the auction (see United Kingdom: 13 June 2011: UK Government Warns Any Legal Challenge Could Delay Digital Dividend Auction). In Switzerland ComCom is aiming for a first quarter 2012 sale; potential bidders for the spectrum must register by September (see Switzerland: 1 June 2011: Swiss Regulator Plans Digital Dividend Auction for Q1 2012).