IHS Global Insight Perspective | |
Significance | As the first of its kind in Europe, Germany will be the focus of much international attention as the spectrum auction gets underway. |
Implications | Although spectrum will be made available across four different bands, most interest will be expressed in the 800-MHz band, which facilitates 4G service provision. |
Outlook | Smaller operators E-Plus and O2 will be under particular pressure as neither currently holds spectrum in the 900-MHz spectrum, and with only six blocks of 900-MHz spectrum to be made available at least one operator is likely to be left disappointed. |
The auction of mobile spectrum begins in Germany today, with the country’s four leading players—Deutsche Telekom, Vodafone, KPN’s E-Plus, and Telefónica’s O2 Germany—going head-to-head. In total, 360 MHz of spectrum is to be auctioned, across the 800-MHz, 1.8-GHz, 2.0-GHz, and 2.6-GHz bands. The spectrum will be divided into 41 blocks of spectrum, including the much sought-after six blocks of 2x5 MHz in the 800-MHz band, the "digital dividend" made available by the transition from analogue to digital television, which will facilitate 4G long-term evolution (LTE) networks. Germany’s telecoms regulator, BNA, has declined to speculate on how long the auction process will last.
Outlook and Implications
- All Eyes on Germany: As the first auction in Europe to include spectrum for 4G networks, events in Germany will be eyed with interest internationally. Global momentum for LTE network deployments has been building, with the Global Mobile Suppliers’ Association (GSA) last month reporting that 59 operators across 28 countries have now committed to network roll-outs, with 22 such networks expected to go live in 2010, following the lead of TeliaSonera, which pioneered network launch in Sweden and Norway in late 2009 (see World: 4 March 2010: GSA Report Confirms 59 Operators in 28 Countries Committed to Deploying LTE). The last spectrum auction in Germany took place in 2000, when operators could barely contain their excitement at the prospect of 3G licence and around 50 billion euro (US$67 million) was generated. However, the fall-out of this auction left several operators scarred by heavy debts and an underwhelming product, so IHS Global Insight expects a vastly more cautious approach this time around, with nowhere near the same sums likely to be generated. Indeed, in 2000 the minimum bids for a 5-MHz block of spectrum were 25.57 million euro, whereas at the auction beginning today the minimum bid is 1.5 million euro.
- Disappointment Beckons for at Least One Operator: BNA president Matthias Kurth has been quoted by Agence France-Presse (AFP) as noting that: "Demand is well ahead of supply", but the battle for crucial 800-MHz spectrum, facilitating 4G technology, is likely to leave at least one bidder frustrated. In order to compete effectively each of the four bidders will need two of the available six blocks of 800-MHz spectrum (regulatory cap permits no more than two each), indicating that one operator will miss out, a situation that may in the longer-term lead to M&A activity in the upper reaches of the German market (see Germany: 8 March 2010: All Four Mobile Network Operators to Bid for New Frequencies in Germany).
- Pressure on Smaller Operators: Smaller operators E-Plus and O2 will be under particular pressure, as neither currently holds spectrum in the 900-MHz spectrum, which is soon to be made available for data-service provision. E-Plus last week indicated that it viewed utilisation of the 800-MHz spectrum as the most cost-effective means of increasing its broadband data network coverage, a clear outline of its priorities in the auction, but it added the caveat that it would exercise caution, adopting a disciplined and value-driven approach, and only acquiring spectrum at the right price (see Germany: 7 April 2010: E-Plus Interested in Acquiring 800-MHz Spectrum for German Data Network). Both E-Plus and O2 have previously complained that the auction conditions favoured the country’s larger operators.