German service provider says it may bid to become a fourth mobile network operator despite opposition from Deutsche Telekom.

Iain Morris, International Editor

August 13, 2018

3 Min Read
Germany's United Internet may bid in 5G auction – report

German broadband operator United Internet has said it may bid for a 5G license under the right conditions, according to a Reuters report, despite apparent opposition from incumbent Deutsche Telekom to the creation of a fourth mobile network operator.

United Internet AG CEO Ralph Dommermuth told Reuters he would consider bidding in the country's future 5G auction if regulatory authorities allow United Internet to "roam" on other mobile networks and agree to intervene in commercial disputes.

The operator already provides mobile services through wholesale agreements, including a deal that gives it 30% of the capacity on the Telefónica Deutschland GmbH network, which competes against Deutsche Telekom AG (NYSE: DT) and Vodafone Germany in Germany's mobile market. (See Germany to Get 'Strong Fourth Player' With UI's Drillisch Takeover.)

But Dommermuth is reported to have told Reuters that network ownership would confer advantages for United Internet, allowing it to tailor applications to better suit the network.

The remarks come as Germany's gears up for a 5G spectrum auction that has already stoked concern about potential licensing costs and conditions.

Mobile operators are worried the regulator will attach high "base prices" to spectrum, constraining their ability to invest in new 5G networks.

"We lobby for lower proceeds for the spectrum and more focus towards the quality of the infrastructure being rolled out later on," said Thomas Dannenfeldt, Deutsche Telekom's chief financial officer, during an earnings call with analysts last week. "It is about the right balance but there are no agreements so far on the 5G side." (See Deutsche Telekom Raises Outlook on US Growth.)

Quizzed on the issue of competition, Dannenfeldt also hinted strongly that Deutsche Telekom would oppose attempts to introduce a new network operator through the 5G licensing process.

He referred to a recent note from an undisclosed analyst indicating that Germany would not be able to afford another mobile operator with 5G and all-fiber investments on the horizon. "That perspective is very much in line with what I believe is the key question about how to foster investment for future infrastructure," said Dannenfeldt.

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Telcos throughout Europe have repeatedly complained that Europe's hyper-competitive network markets, and regulators' aversion to M&A activity, have squeezed profit margins and exacerbated 5G investment challenges. The US and China are far more aggressive on 5G, they say, because those markets feature a comparatively small number of operators.

Dommermuth appears to have taken issue with that argument during his interview with Reuters, insisting there are typically four operators in countries like Italy and the UK, where mobile networks are superior to Germany's.

Despite concern about spectrum costs, operators spent far less on 4G licenses several years ago than during a 3G auction in the early 2000s. Spending has also been relatively low during the 5G auctions that have already happened. (See The Great 5G Spectrum Devaluation.)

Dommermuth is reported to have said that national roaming, allowing United Internet to rent network capacity where it lacks coverage, would be a prerequisite for his company's participation in the 5G auction.

He also wants clarity on whether licensing fees would need paying up front, and on the coverage commitments surrounding higher-frequency spectrum.

Germany's regulator is due to publish rules for its 5G auction next month.

United Internet's 1&1 Drillisch mobile subsidiary today reported a 42.5% increase in first-half revenues, to €1.82 billion ($2.07 billion) compared with the year-earlier period. Earnings were up 61.9%, to €340.1 million ($387.7 million). (See Eurobites: Dave & Friends Return to Virgin TV.)

— Iain Morris, International Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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