On 20 May of this year, the German mobile frequency auction ended with a total of EUR 4.385 billion. Vodafone Germany paid the most with EUR 1.423 billion for 94.9 MHz, followed by O2 Germany with EUR 1.379 billion for 99.9 MHz, T-Mobile Germany with EUR 1.299 billion for 95 MHz and E-Plus with EUR 283.65 million for 69.8 MHz. The participants made the highest bids for the 800 MHz spectrum. This so-called digital dividend can be used to deploy mobile broadband networks in rural areas and yielded EUR 3.576 billion. Only three of the fourth operators acquired 800 MHz: T-Mobile, Vodafone and O2. As expected by analysts, E-Plus was unable to acquire these frequencies as it had less money to spent and its parent KPN said before the auction that E-Plus would bid disciplined to prevent paying too much for the spectrum and thus increasing the costs of rolling out LTE networks.
E-Plus made successful bids for the other frequencies winning 20 MHz of 1.8 GHz (GSM/GPRS/UMTS/HSPA), 19.8 MHz of 2 GHz (UMTS/HSPA/LTE) and 30 MHz of 2.6 GHz (LTE/Wimax). Looking at the costs per acquired MHz, E-Plus paid the least: EUR 4.06 million while the other participants paid around EUR 14 million, but missing out on 800 MHz means that E-Plus faces difficulties with deploying mobile broadband in rural areas. At the same time, the lower frequencies enable operators to offer better coverage within buildings.
This leads to the question: what is E-Plus going to do? First, they will wait for the new market analysis from German telecommunications regulator BNA, which will be made taking into account the new frequency distribution. It could be that BNA decides to restructure 900 MHz spectrum to create a level playing field for all operators. If so, E-Plus could profit from such a decision to get their hands on frequencies in the lower ranges.
But nothing is certain, so E-Plus and KPN should be looking for alternative solutions. The most likely solution is a merger between E-Plus and Telefonica O2 Germany’s mobile activities inspired by the merger between T-Mobile UK and Orange UK with both operators having an equal stake in the joint venture. Telefonica acquiring E-Plus completely is less likely as Telefonica is focusing its investments on Brazil and its home market Spain and KPN will not be willing to sell off 24 percent of its revenues and EBITDA for peanuts. The third possibility is continuing with the current strategy: expanding its mobile broadband network with the acquired spectrum and offering mobile services against a good price/quality ratio, although not being able to offer mobile broadband in Germany’s rural regions could lead to a decreasing customer base.
