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Drillisch ambitions good for German mobile competition

Tuesday 12 May 2015 | 13:44 CET | Background

Telefonica became the largest mobile operator in terms of customers on the German mobile market after its acquisition of E-Plus was completed in the fourth quarter of 2014. In terms of services revenues, the operator is still in third place, behind Telekom Deutschland and Vodafone, according to the latest data from Telecompaper for the fourth quarter of 2014. Despite the loss of a fourth MNO, the German market is expected to remain highly competitive, as medium-sized MVNO Drillisch has shown ambitions to grow. This is supported by its agreement with Telefonica to become a bitstream MVNO, with access to up to 30 percent of Telefonica's network and 300 stores to create a physical retail presence. Drillisch also acquired more stores, a mobile brand and a small MVNE in the first months of 2015, leaving no doubt about its expansion plans.

Telefonica became the largest mobile operator in terms of customers on the German mobile market after its acquisition of E-Plus was completed in the fourth quarter of 2014. In terms of services revenues, the operator is still in third place, behind Telekom Deutschland and Vodafone, according to the latest data from Telecompaper for the fourth quarter of 2014. Despite the loss of a fourth MNO, the German market is expected to remain highly competitive, as medium-sized MVNO Drillisch has shown ambitions to grow. This is supported by its agreement with Telefonica to become a bitstream MVNO, with access to up to 30 percent of Telefonica's network and 300 stores to create a physical retail presence. Drillisch also acquired more stores, a mobile brand and a small MVNE in the first months of 2015, leaving no doubt about its expansion plans.

 

Telefonica first in customers

German mobile service revenues amounted to EUR 4.61 billion in the fourth quarter of 2014, 2.2 percent less than in the same quarter a year earlier. Telekom Deutschland was still the largest operator in terms of service revenues, followed by Vodafone Germany in second place. Telefonica Deutschland was still third, despite closing the acquisition of E-Plus during the fourth quarter, according to data from Telecompaper's German mobile operators overview.


The operator did become the largest operator in terms of customers, with a total of 42.2 million customers at the end of 2014. Telekom Deutschland was the number two and Vodafone number three. Telefonica's total ARPU improved to EUR 15 in the quarter, passing Telekom Deutschland with EUR 14.2. Vodafone Germany still had the best ARPU of EUR 16.3, despite a 1.1 percent decrease during the fourth quarter.

No newcomer after auction

The German network regulator BNA has cleared the three existing MNOs as participants in the multi-spectrum auction planned to start 26 May. This means that no new MNO will enter the German market following the disappearance of E-Plus. The auction includes 700 MHz spectrum currently used for DVB-T TV and radio services that will be freed up by deploying DVB-T2 technology instead. It is not yet clear when the MNOs will be able to use the spectrum as the DVB-T operators have only just begun DVB-T2 trials. This new spectrum is not expected to generate a bidding war, as it is divided into three blocks for the auction and there are only three participants.

A possible auction yield boost could come from bidding for 900 MHz and 1800 MHz spectrum, which is currently used by the MNOs for GSM services. Telekom Deutschland and Telefonica also use 1800 MHz for LTE services. The regulator has set a cap of 2x15 MHz (3 blocks) per operator for 900 MHz spectrum to protect the current infrastructure and there are seven blocks available. In the 1800 MHz spectrum 10 blocks of 2x5 MHz are available. This could lead to more intense bidding as all operators will want to keep their current blocks to ensure as little as possible change to their current network architecture and infrastructure.

Drillisch ambitions foresee continued competition

With the takeover of E-Plus, the German mobile market lost a very competitive player on price and data innovations, leading to higher data use among its customers. As the auction will not lead to a new MNO, competition should come from MVNOs. At the end of 2014, there were around 91 MVNOs active on the German market. Freenet was the largest, active with several brands serving more than 13.1 million customers. Another large MVNO is United Internet, which offers mobile as well as fixed network services using its 1&1, GMX, Versatel and Web.de brands with 2.6 million mobile customers.

The most ambitious MVNO is Drillisch, with more than 10 brands serving slightly more than 2 million customers at the end of 2014. The company signed an agreement with Telefonica Deutschland to become a so-called bitstream MVNO on Telefonica's mobile network, with access to up to 30 percent of the network capacity reserved for Drillisch customers. This agreement was a condition for the European Commission to approve the acquisition of E-Plus. It also included the sale of around 300 shops to Drillisch to create a physical retail presence complementing its current online-only sales. These plans are further enforced by the company's agreed acquisition of Phone House Germany in May of this year, including 30 own shops and 50 Telekom shops managed by the Phone House.

The companies also agreed on the sale of former E-Plus brand Yourfone, which will be used by Drillisch as the main brand in its physical shops. According to Drillisch's annual report for 2014, the acquisition of Yourfone cost EUR 51.4 million for 235,000 customers and the brand name. In February 2015, Drillisch also acquired small MVNE GTCom for EUR 1.6 million, estimated by Telecompaper to have between 25,000 and 40,000 customers. In addition Drillisch announced that it has to pay EUR 150 million in 2015 to Telefonica to support its continued roll-out of LTE, which was also part of the enhanced MVNO agreement. At the same time, Drillisch has the privilege of offering LTE services to its customers before other MVNOs on the Telefonica network, giving the company a head start.




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