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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