White spots may fade to grey in Germany's bid for full 4G coverage

Many moons ago (in 2019 to be exact), Germany's three mobile network operators (MNO) got together and shook hands on a scheme that was designed to eliminate 6,000 so-called "white spots" – areas where there is no 4G mobile coverage at all – by 2024.

Such a scheme certainly seemed to reflect a spirit of collaboration among the three rival operators that is not always evident, as they scrap over network coverage targets and subscriber goals. And it didn't stop there: Deutsche Telekom (DT), Telefónica Deutschland (O2) and Vodafone Germany have also formed bilateral agreements to improve connectivity in "grey spots" – zones where at least one MNO provides 4G coverage.

A key difference between the grey and white strategies is that the former involves active network sharing, whereas the latter is based on a passive network-sharing deal involving the construction of new mobile antennas.

Antenna installation by a Telefonica Deutschland technician in Munich. (Source: Telefonica Deutschland)
Antenna installation by a Telefónica Deutschland technician in Munich.
(Source: Telefónica Deutschland)

While the MNOs have provided some updates on grey spot developments, little has been divulged to date about progress on turning white spots into fully functioning 4G sites. Fortunately, James Ratzer, who heads up the European communication services research team at New Street Research, has been paying attention, and managed to squeeze some details out of Telefónica Deutschland CEO Markus Haas during Thursday's Q3 earnings call.

According to Haas, the three MNOs are now mulling changes to the white spot approach that could see them adopt "grey spot technology" in those zones – in other words, moving to active from passive network sharing. Although Haas didn't provide details on the technology in question, he could be referring to a new multi-operator core network (MOCN) approach that is being used in the grey spots.

"We are in talks here to go ahead and also create joint synergies [as well as] efficiencies especially on energy going forward in these areas," Haas said.

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Importantly, Haas further indicated that the MNOs might not need to build all 6,000 towers (2,000 per operator) to eliminate the white spots because of progress made with individual network rollouts. Indeed, Telefónica revealed that its 5G network now covers 75% of Germany's population, which is well ahead of its original target of 50% by the end of 2022.

Haas said "more clarity on the concrete ramp up plan" will be provided in 2023. However, he did concede that of the 2,400 new sites expected to be provided for the operator by American Tower over the next few years, only a "few hundred" have been built to date. When the US TowerCo acquired the Telxius towers business from Telefónica Group, it appears to have retained the commitment by Telxius to build 2,400 additional build-to-suit (BTS) towers in Germany.

Outlook upgrade despite headwinds

Meanwhile, Haas and CFO Markus Rolle were of course questioned closely about other pressing matters such as energy costs and rising inflation and interest rates. On the whole, they presented a fairly confident stance, even upgrading the 2022 outlook for both revenue and OIBDA to low mid-single-digit percentage growth, which includes anticipated energy costs of around €210 million (US$205 million) and takes inflationary headwinds into account.

"Our business model is proving resilient despite the significant increase in inflation due to the war in Ukraine. So far, we have managed the impact of the inflationary environment well," Haas added.

Rolle also noted that the operator is "in the final quarter of our successful three-year 'investment for growth' program," and continues to report broadly stable operational cash flow.

In Q3 2022, Telefónica Deutschland was able to increase revenue by 6% year-on-year to over €2.1 billion ($2.1 billion), attributed to "sustained mobile service revenue momentum and a record Q3 for handset sales." Mobile service revenue alone rose 3.7% to €1.47 billion ($1.43 billion). OIBDA increased 4.7% to €642 million ($626 million).

The profit for the Q3 period was somewhat lower than a year previously, falling 82.8% to €39 million ($38 million). However, the Q3 2021 operating income was augmented by a capital gain of €262 million ($255 million) from the transfer of around 4,000 mobile sites to Telxius (and thereby American Tower).

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— Anne Morris, contributing editor, special to Light Reading

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