Opportunity knocks for new MNO in Germany

Higher spectrum means frequencies from the 1,800 MHz and 2,600 MHz bands. Together, Telefonica and E-Plus would hold 69.3 MHz in the 1,800 MHz band, or 64 percent of the total spectrum issued in the band, and 75 MHz of the 2,600 MHz band (46 percent of the total), according to calculations by Telecompaper. This means that Telefonica is willing to sell 24 percent of its spectrum holdings in the higher frequencies and 13 percent of its total spectrum holdings.

Telefonica is also willing to offer a roaming agreement for the rest of Germany, capped at 10 percent of its network capacity. It claims that the 40 MHz offers coverage of up to 50 percent in urban areas. Other proposed concessions for securing regulatory approval of the merger include selling mobile antenna sites and mobile shops and offering access to its network for up to three MVNOs, with maximum peak capacity of 2 Gbps.

Telefonica and E-Plus already serve 82 virtual operators of the total 121 on the German market, including 12 of their own second brands (nine by E-Plus and three by Telefonica). The promise of opening its network for three more MVNOs appears to offer little to change the competitive situation.

The concessions offered by Telefonica are similar to those imposed on 3 Austria for approval of its acquisition of Orange Austria: selling mobile antennas, giving wholesale access to up 16 MVNOs within 10 years and for up to 30 percent of its network capacity, and divesting spectrum to an interested new entrant on the Austria mobile market. On paper this may have seemed enough, but when Austria held its spectrum auction in September 2013, no new entrant emerged, and 3 Austria was not able to acquire 800 MHz spectrum. This led to Telekom Austria claiming that the auction results ensured that no MVNO would be able to become a real threat on the market, due to the limited capacity on 3’s network. 

In Germany a similar situation could emerge. The German regulator BNA is proposing an auction of 900 MHz, 1800 MHz and possibly 700 MHz spectrum shortly after the Telefonica/E-Plus deal is decided. The auction could be set up to encourage a newcomer to acquire spectrum on accessible terms. However, is there anyone interested in becoming a fourth MNO in Europe's largest mobile market where LTE is already becoming mainstream? 

Possible candidates could include:

• Liberty Global via its Unitymedia subsidiary. Despite Liberty’s full MVNO strategy in Europe, the company could see an opportunity to set up a mobile network at a reasonable price;
• America Movil. Its attempt to enter the German market via a takeover of KPN failed, but the latest developments could offer it a new opportunity;
• AT&T has been rumoured to be interested in European MNOs. However, launching as a new MNO in Europe's largest market could be a challenge;
• German mobile service provider Freenet, alone or with its smaller competitor Drillisch. This could ensure their access to mobile networks at reasonable prices.

Any of the above offer a good opportunity to keep the German mobile market at four players. However, much will depend on the actual conditions secured from Telefonica for the takeover of E-Plus and the set-up of the spectrum auction. As the Austrian market shows, even the best intentions of regulators cannot ensure a market remains competitive.