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Vodafone Big Spender in $5.8B German Auction

Germany's second-biggest mobile operator has eaten into spectrum territory previously occupied by Telefónica.

Iain Morris

June 19, 2015

6 Min Read
Vodafone Big Spender in $5.8B German Auction

Germany's latest multi-band spectrum auction has drawn to a close, raising a total of €5.08 billion (US$5.75 billion) from the country's operators and leaving big spender Vodafone Germany in a vastly improved spectrum position.

The amount is way in excess of the German regulator's reserve price of €1.5 billion ($1.7 billion) and more than the €4.4 billion ($5 billion at today's exchange rates) that German authorities raised from the original 4G auction in 2010. (See German Spectrum Auction Bidding Hits $2.2B.)

It also trumped the expectations of certain analysts at the outset of the process. "The auction is likely to end next week with auction receipts in the €2 to €2.5 billion [$2.3 to $2.8 billion] range," said Stefan Zehle, the chief executive of Coleago Consulting, in a blog published on May 29.

Even so, the overall proceeds work out at just €0.23 ($0.26) per MHz per head of population, according to Light Reading's calculations, which is low by comparison with the figure of about $2.20 resulting from the recent $45 billion auction of AWS-3 spectrum in the US. (See FCC's Monster Auction Ends at $45B in Bids.)

Germany's three existing mobile network operators were the only companies that took part in the sale, with Vodafone Germany spending more than €2.09 billion ($2.36 billion) on frequency licenses.

Deutsche Telekom AG (NYSE: DT) forked out €1.79 billion ($2.03 billion) for new concessions, while Telefónica Deutschland GmbH spent about €1.2 billion ($1.4 billion) overall.

Spectrum band

Operator

Amount

Bid (,000)

700MHz

Deutsche Telekom

2x10MHz

euro 338,216

Vodafone

2x10MHz

euro 328,985

Telefonica

2x10MHz

euro 333,244

900MHz

Deutsche Telekom

2x15MHz

euro 545,104

Vodafone

2x10MHz

euro 415,105

Telefonica

2x10MHz

euro 385,478

1800MHz

Deutsche Telekom

2x15MHz

euro 744,939

Vodafone

2x25MHz

euro 1,180,994

Telefonica

2x10MHz

euro 479,516

1.5GHz

Deutsche Telekom

20MHz

euro 163,897

Vodafone

20MHz

euro 165,758

Total

-

-

euro 5,081,236

Source: Bundesnetzagentur

Germany becomes the first country in Europe to have sold licenses for 700MHz spectrum, currently used by the broadcasting sector but earmarked for mobile broadband services across the entire region.

The German auction also included new licenses for spectrum in the 1.5GHz band as well as a number of 900MHz and 1800MHz concessions.

Originally awarded to support plain old 2G services, these airwaves are already in use, but many of the existing licenses are due to expire at the end of next year.

Indeed, all 2x35MHz of spectrum in the 900MHz band had been under the hammer, as well as two thirds of the 2x75MHz in the 1800MHz range: The 1800MHz airwaves appear to have generated the most interest. (See 700MHz: Coming soon to Germany.)

Operators collectively bid more than €2.4 billion ($2.7 billion) for the available 1800MHz concessions, and Vodafone stumped up more than half that amount.

Spectrum in the 1800MHz band is prized for its versatility when it comes to 4G rollout -- it can be used to cover wide areas and provide decent in-building coverage as well as to support higher-bandwidth services. Moreover, many of the most popular smartphones and other 4G devices have been engineered to work on 1800MHz spectrum.

Vodafone evidently regards 1800MHz as integral to its plans, having increased its 1800MHz holdings from just 2x5.4MHz at the auction outset to as much as 2x25MHz -- half the full amount on the block -- at its finish.

All of that leaves Telefónica as the clear loser. After merging with E-Plus Service GmbH & Co. KG , Telefónica owned rights to 2x44.8MHz of spectrum in the 1800MHz range, according to data from the European Communications Office, or about 60% of the entire frequency band.

Picking up 2x10MHz during the auction, Telefónica will have to settle for just 2x20MHz of 1800MHz spectrum in future.

Like Vodafone, Deutsche Telekom has also increased its share of the 1800MHz pie from 2x20MHz before the auction began to 2x30MHz now.

Each operator secured 2x10MHz of spectrum in the 700MHz band, while Vodafone effectively ceded a small block of 900MHz spectrum to Deutsche Telekom.

The 1.5GHz band, meanwhile, ended up being divided equally between Deutsche Telekom and Vodafone.

Figure 1: German Operators' Spectrum Holdings Source: Bundesnetzagentur, European Communications Office, Light Reading Source: Bundesnetzagentur, European Communications Office, Light Reading

The final outcome is probably to the liking of regulatory authorities, which had been looking to "maintain network-based competition" through the auction process, according to Coleago's Zehle.

Yet it should particularly satisfy Vodafone Group plc (NYSE: VOD), whose recent performance in the German market has come as a big disappointment to senior executives and analysts.

Earlier today, the operator named Hannes Ametsreiter, the departing chief executive of Telekom Austria Group , as the new boss of its German operation. Vittorio Colao, Vodafone Group's chief executive, probably feels that Ametsreiter's years of experience in one of Europe's most competitive mobile markets will be invaluable given the rise of German MVNOs and the resurgence of Deutsche Telekom. (See Eurobites: Ametsreiter Heads to Vodafone.)

Want to know more about 4G LTE? Check out our dedicated 4G LTE content channel here on Light Reading.

Could a much-improved 1800MHz position also help spur a revival? In the US, spectrum "re-farming" and acquisition has been critical to the transformation of T-Mobile US Inc. , which is now beating all of its chief rivals on customer growth.

Vodafone may be hoping that spectrum gains during the latest auction have a similar effect.

In a statement issued shortly after the auction had finished, the operator said: "The spectrum acquired will enhance Vodafone Germany's 4G network, increasing data traffic capacity and speed on 4G while improving voice quality on GSM services."

The risk is that heavy spending on new licenses constrains other investment activities in the months ahead.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News 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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