Brisk bidding at 5G auction

Brisk bidding at 5G auction

By Tilman Blasshofer and Douglas Busvine

Germany’s auction of spectrum for 5G mobile networks drew brisk initial bidding with prospective new entrant 1&1 Drillisch submitting bold offers for the frequencies it covets. Drillisch, run by maverick tycoon Ralph Dommermuth, is vying to become a fourth operator in Europe’s largest economy — a move that could benefit consumers but pressure the margins of the three existing players.

It made the early running in the auction being held at a former army barracks in the southwestern city of Mainz that, according to results posted online, had raised a total of €314m by lunchtime. Drillisch, majority owned by United Internet, put down a marker in the first round by staking more than €20m apiece for 10 of the 41 blocks of spectrum on offer.

By contrast, the three existing operators - Deutsche Telekom, Vodafone, and Telefonica Deutschland — only submitted minimum opening bids for the blocks they are interested in. The auction only went ahead after a court last week threw out lawsuits from the operators, who had complained a requirement to provide high-speed coverage to 98% of households by 2022 was too onerous. The four firms are vying for spectrum in the 2 GHz and 3.6 GHz bands — the latter particularly suited to running connected factories, a priority as German exporters seek to remain competitive in the digital age.

Mr Dommermuth has lined up €2.8bn in financing to back his 5G ambition, suggesting there could be fireworks in the auction after Germany’s last one, in 2015, raised €5.1bn.

Despite his striking entrance, analysts don’t expect bidding to get out of hand — as it did in a ruinous 3G auction in 2000 that raised €50bn, forcing some players to exit the German market and others to merge.

“The only reason for high auction prices... will be a senseless strategy to block 1&1 Drillisch,” said Berenberg analyst Usman Ghazi.

He said that would be futile because Drillisch, which now runs a virtual mobile network, already has guaranteed access to Telefonica’s network under conditions attached to its merger with E-Plus five years ago.

Most of the national 5G auctions held in Europe to date have been low-key, low-cost affairs. The exception was Italy, where fierce bidding last year generated proceeds of €6.5bn and left operators financially stretched. In Mainz, further auction rounds saw duels developing, as Vodafone outbid Drillisch on two blocks and Deutsche Telekom on one.

Reuters

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