German operators face new spectrum auctions in 2014

Germany's telecoms regulator is pressing ahead with plans to start the auction process for frequencies in the 900, 1800 and 700 MHz bands as early as 2014, confirming earlier reports that Germany's four operators could be facing even more expense starting next year.

According to documents on the Federal Network Agency's (Bundesnetzagentur's) website, the regulator is stepping up the pace of frequency allocations to ensure that LTE networks meet the growing demand for mobile data services. Its goal is to support the government target to provide all areas of Germany with broadband at speeds of at least 50 Mbps by 2018.

In order to achieve this goal, the agency plans to reserve 2x5 MHz blocks (paired) in the 900 MHz band for 15 years for each of the four operators--KPN's E-Plus, Telefónica Germany, Deutsche Telekom and Vodafone Germany. The operators already use both 900 MHz and 1800 MHz spectrum for their existing 2G services, and these licences are not due to expire until the end of 2016.

"This reservation might be seen as a positive for all MNOs from a cost perspective, but potentially less positive for the smaller MNOs from a competitive perspective," said analysts at Jefferies in a research note. They note that the current 900 MHz allocations are 2x12.4 MHz each for the two larger operators, Telekom and Vodafone, and 2x5 MHz each for the smaller operators, E-Plus and Telefónica.

Jefferies analysts said the "regulator proposes to (a) start a competitive allocation process in 2014 covering the spectrum at 0.9GHz (2x35MHz) and 1.8GHz (2x45MHz) expiring in 2016, but also further spectrum in the 0.7GHz band (up to 2x40MHz) and the 1.5GHz band (up to 1x40MHz), and (b) reserve 2x5MHz at 900MHz for each of the existing mobile operators."

The regulator said it intends to start the process as early as 2014 because of the various frequency bands involved, including the contentious 700 MHz band used by TV and radio broadcasters, in order to ensure that the frequencies are available to consumers by 2017-18.

Operators now have until Oct. 4 to file their comments, and it is highly likely that they will all make strong objections due to the expense involved. The four operators are all struggling with falling revenue and declining mobile prices, and are not best placed to fund another round of auctions. They only recently spent almost €4.44 billion on spectrum, including "digital dividend" 800 MHz spectrum, in 2010.

According to Reuters, all four operators had asked the regulator for an extension of their 900 MHz and 1800 MHz licences until 2018 or later, and argue that an auction should be delayed while they invest in the rollout of their LTE networks based on their existing spectrum assets.

"An early auction would mean a cash drain for the operators, who are in the middle of some heavy investments in the rollout of an LTE network," an unnamed fund manage who holds shares in all four operators told Reuters.

Analysts at Jefferies wrote that the regulator scrapped the option to simply extend existing spectrum allocations followed by "larger" auctions later. "We also note that the competitive allocation process starting in 2014 will lead towards an auction, but BNetzA already explicitly highlights here that the actual auction might happen at a later date," the analysts observed.

The inclusion of the 700 MHz band, which has been dubbed as "digital dividend II," could also lead to more complications because of opposition from broadcasters.

"The contentious inclusion of 700MHz spectrum could mean the following process is delayed, which is an aspect of the draft that works in [Telefónica's O2] and KPN's favour in our view," Jefferies analysts added. "However, we also believe the rejection of the option to extend allocations and the lack of more specific 'protection' of the smaller MNOs in the proposal works in [Deutsche Telekom's] and Vodafone's favour."

For more:
- see this Reuters article
- see the Bundesnetzagentur documents (translated via Google Translate)

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