After nearly three months of bidding, the multi-band auction of 5G spectrum in Germany across the 2GHz and 3.6GHz bands has come to an end. The length of the auction resulted in a high price (€6.5bn), especially considering the award did not include sub-1GHz frequencies. Assembly’s 5G tracker shows that spectrum in the 3.6GHz band was particularly expensive by international comparisons. German operators are making an investment above the average prices for these bands, and understandably voiced their discontent, since the hefty price will now impact their ability to invest in the network rollout and BNetzA attached coverage obligations to the licences. The silver lining perhaps is that they paid comparatively less than their peers for the 700MHz band back in 2015.
The auction raised a whopping €6.5bn and gives Germany a fourth MNO
The German 5G auction for spectrum in the 2GHz and 3.6GHz bands made headlines for the time it took to complete (497 rounds over nearly three months) and for the revenue it generated for the state (€6.5bn is remarkably high for an auction that did not include sub-1GHz spectrum). However, on closer inspection, German operators appeared to have paid a price in line with the average of operators in other countries (particularly in comparison with the other EU5 countries) for spectrum in the 3.6GHz range.
The auction saw four participants competing for 420MHz of spectrum (2x60MHz in the 2GHz band, and 300MHz in the 3.6GHz band). Deutsche Telekom was the biggest spender, with a total €2.17bn for 130MHz of spectrum; Vodafone obtained the same amount of frequencies for €1.88bn. All bidders obtain spectrum across both bands, with the new entrant 1&1 spending more than €1bn for 70MHz. This signals the MNO’s intentions to become a credible fourth competitor in the German market.
The prices paid for 3.6GHz spectrum are among the highest by international comparisons
The exceptional length of the auction inevitably led to soaring prices for spectrum. This is particularly true for the 3.6GHz band, which ended up being more of a battleground than the 2GHz band throughout the process. As a result, the price for 3.6GHz spectrum licences is among the highest in the 3.4–3.8GHz range among those we have observed elsewhere. The price/MHz/pop sits around $0.19, above the average of $0.17 of the countries considered, albeit far less than the $0.41 paid by operators in Italy. This could have been even higher had BNetzA not decided, on 5 June 2019, to raise the minimum amount for a bid in order to facilitate the end of the auction.
Given the size of the German market (with a population around 90 million), and the licence duration (20 years, until2040), German operators are still likely to have opportunities to realise a return on their investment. Nonetheless, as detailed in Assembly’s 5G Tracker, they will have to meet coverage obligations in this band – something that their counterparts in Australia, Spain and the UK will not face. German operators and the GSMA were vocally against this provision ahead of the auction. Licence holders will have to cover 98% of households across the country (and at least 97% in each province) with 300Mbps speeds by 2025 i.e. within three years of taking possession of the spectrum lots. It is therefore unsurprising that MNOs took the opportunity to criticise the length and final price of the award. Deutsche Telekom said the auction leaves “a bitter taste behind”, arguing that some of that cash could have been used to address the issue of underserved areas. Telefonica made a similar remark, noting that "the design [of the auction] as well as the insufficient amount of available frequencies drove up the costs. From the consumer's point of view and for Germany as a business location, these investment funds would be much better spent on network expansion". Vodafone highlighted the need “to have a balance between the price paid for spectrum and our strong desire to create an inclusive society through investment in mobile network coverage”.
German operators start using the 700MHz band this year, which they acquired comparatively cheaply
The award of the 2GHz and the 3.6GHz bands has to be seen in the wider context of recent spectrum allocations for 5G. Germany was the first among the EU5 countries to award the 700MHz band back in June 2015. German operators paid a relatively low price for 700MHz spectrum (0.23$/MHz/pop). This is almost two-thirds less than what operators in Italy paid for spectrum they will be able to access in 2022, and far less than the sum paid by operators in Sweden (0.74$/MHz/pop) and France (0.78$/MHz/pop). Although licences in Sweden and France are 20-years long, as opposed to 15 years in Germany and Italy.
More 5G spectrum is on the way for regional operators
Soon after the completion of the multiband auction, BNetzA intends to award 5G spectrum in a band adjacent to the 3.6GHz band for regional use. The framework for the 3.7–3.8GHz award was finalised it in March 2019. For this band, BNetzA clearly adopts an approach centered around regional operators; as our 5G tracker outlines, regulators in other countries (e.g. Italy and Spain) have awarded lots in this band to national operators, with a view to establish a sharing model between them and local operators. Rights will be awarded for ten years, and could be renewable up to the year 2040. This will ensure that, after 2040, BNetzA will be able to make a joint decision on this band alongside the 3.4–3.7GHz band.
Spectrum will be allocated in lots of 10MHz or multiples, for TDD uses; applicants will have to submit a ‘frequency usage concept’ to explain their frequency requirement, including the intended usage on a ‘plausible representation’ of their planned business model; this will have to include detail of how the spectrum is used efficiently. A ‘use-it-or-lose-it’ clause will be attached to these lots, which means licensees will have to begin using it within a year of the allocation. BNetzA aims to facilitate agreements between operators for uses across adjacent areas, by disclosing information about licences and their holders in a given area where a “legitimate interest” exists. The award date has not yet been finalised, although BNetzA has stated it is likely to take place in the second half of 2019.
