The long-running rumour has resurfaced: KPN is going to sell E-Plus. The company has denied this and noted that it recently doubled the size of its spectrum holdings for a very modest price. E-Plus paid EUR 284 million for 70MHz, whereas the other operators shelled out EUR 1.1-1.2 billion for around 90MHz each. The big difference was of course the low frequencies in the 800MHz band acquired by the other operators, which E-Plus missed out on. These are essential for covering rural areas at a reasonable cost, as the band offers a wider reach.
Let's first assume that KPN does indeed want to sell E-Plus for this very reason. In that case, only the existing operators would be potential bidders, as every other buyer would miss the 800MHz band as much as KPN. The German regulator BNA recently poured cold water on the idea of market consolidation, so only the smallest operator, Telefonica subsidiary O2, could be a candidate. This could result in a very long sale process, as we saw earlier with the sale of Tiscali UK. As time passes though, Telefonica could repeatedly lower its offer as E-Plus' future prospects diminish. While for Tiscali it was the write-off of its DSL assets, for E-Plus the lack of good spectrum would continue to reduce its value.
If such as story is true, then KPN will deny it in every way possible – until there's a deal to announce. However, there are still various ways to make up for the missing spectrum.
To start with E-Plus' spectrum does not have any requirements for rural roll-out, allowing the operator to rely on its 2G and 3G networks (which can still be upgraded considerably with HSPA technology). In addition, E-Plus can turn to Wi-Fi and femtocells to route traffic over broadband connections. With a subsidized femtocell at home, a subscriber with optimal coverage can profit fully from 3G and later 4G speeds. And then there's still the 900MHz band, which will come up for auction again in 2016. If the BNA is looking after the market, then E-Plus shouldn't walk away empty-handed again.
Furthermore, E-Plus could turn to unpaired spectrum, which outside China has yet to attract attention. Unpaired spectrum can use TD-LTE, the evolution of the Chinese TD-SCDMA standard. This spectrum is mainly suitable for asymmetric traffic (so mobile data) and as a result is a good complement to the existing 2G and 3G networks. At the moment, E-Plus only has unpaired spectrum in the high bands (2.0 and 2.6 GHz), but the low acquisition price (EUR 16.5 million) would compensate for the costly roll-out of a physical network. The auction results have left E-Plus with headroom of around EUR 1 billion, and for that kind of money you can roll out a lot of base stations and femtocells.
