After months of speculation, an ambitious German internet provider has confirmed it intends to participate in the auction for the country’s 5G mobile phone frequencies.
United Internet, led by billionaire entrepreneur Ralph Dommermuth, signed up for the auction via its retail unit, 1&1. Dommermuth clearly wants to use the bidding process to challenge Germany’s big three mobile phone providers, Deutsche Telekom, Vodafone and Telefónica, forcing them to allow his businesses to use their networks.
But while United Internet will exert legal and political pressure to win access to the market, his plans to bid for frequencies appear genuine. Dommermuth’s company has secured credit of around €2.8 billion ($3.17 billion), and may also reduce dividends to raise further cash.
Even this may not be enough given the costs associated with mobile frequency bids. Torsten Gerpott, a prominent telecommunications economist, told Handelsblatt United Internet’s financing would cover network running costs for only about three years.
The costs of building a new phone network are huge, a genuine barrier to entry. Dommermuth has long argued that existing networks should allow his company to use their infrastructure to carry its signals, at least for an initial period. This practice is known as “national roaming.”
The latest announcement confirms that Dommermuth is determined to continue the strategy of forcing competitors to help him launch operations. Unsurprisingly, Deutsche Telekom, Vodafone und Telefónica are less enthusiastic: Telekom CEO Timotheus Höttges said recently that Dommermuth’s strategy is simply a form of unfair competition.
Dommermuth also claims that national roaming could help eliminate coverage gaps across Germany, as well as plug holes in his own embryonic network. Ideally, he wants the Federal Network Agency, which makes the rules for Germany's telecoms infrastructure, to mandate access for his company and set official prices. But the agency has stopped short of this, instead telling the companies to hash out the terms among themselves.
United Internet's go-getting boss still has some cards to play. German legislators could vote to change the framework conditions of the frequency auction, possibly compelling the Federal Network Agency to impose mandatory national roaming.
Conflict of interest
But the political situation is complicated by the fact that the federal government owns a 32 percent stake in Deutsche Telekom. If opening up networks had a serious impact on its profits, the government would receive lower dividend payments. Without some intervention, say, by Germany's transport and digital minister Andreas Scheuer to force the national roaming issue, United Internet may ultimately choose to sit out the 5G auction.
More generally, it is unclear if the German market can even sustain four major mobile phone providers. Last year, Telefónica lay fourth in the rankings, and took over its rival E-Plus after a vicious price war between the two companies.
In a competitive market, large frequency bids can prove a heavy burden on some companies. Of the six firms who bid in the 3G license distribution in 2000, two are no longer operating. And since 5G is a standardized format, providers will face a tough battle to differentiate products. For all the talk of filling in rural coverage gaps, companies will inevitably focus on profitable urban markets.
And with more bidders possibly on the scene, the auction could get very expensive indeed. The federal Finance Ministry had projected receipts to the government of around €5 billion. But if a bidding war breaks out, even more money could land in federal coffers.
Daniel Delhaes reports on politics from Berlin, especially infrastructure and digital issues. Christof Kerkmann is an editor for Handelsblatt and writes about the technology sector. Stephan Scheuer is co-head of Handelsblatt's feature and people's desk. To contact the authors: [email protected], [email protected], [email protected]