(Adds comment from regulator, analyst; shares; adds MAINZ
By Harro Ten Wolde and Peter Maushagen
FRANKFURT/MAINZ, Germany May 27 Germany started
an auction of radio frequencies for mobile phone network
operators, hoping to raise billions of euros to help improve a
national broadband network that has fallen behind those of
poorer countries such as Hungary, Portugal and Spain.
"The auction will point the way for the development of
mobile services in Germany," said regulator Jochen Homann at the
start of the auction on Wednesday in the city of Mainz, near
Frankfurt. "I expect a lively auction."
But analysts expect the auction to raise only a maximum of 4
to 5 billion euros ($4.4 to $5.4 billion), a far cry from the
50.8 billion euros the government raised in the auction in 2000
for new 3G network licences, when there were six groups bidding.
Fifteen years later, the number of network operators
competing for the mix of 4G frequencies has been reduced from
four to three after Telefonica Deutschland bought
E-Plus from KPN for 8.6 billion euros last year.
The new market dynamics make fierce competition unlikely
between former state monopoly Deutsche Telekom,
Telefonica Deutschland and Vodafone, said Antonios
Drossos, co-founder of Finnish telecoms advisory firm Rewheel.
"In this case, there are three players with equal market
share of about a third. In such a case nobody is willing to pay
extra for additional spectrum ... They are comfortable with the
current status quo," he said.
Consultancy firm Arthur D. Little expects that the proceeds
of the auction will be only 20-30 percent above the floor of 1.5
But analysts at private bank Bankhaus Lampe said on
Wednesday they expected total proceeds of three times the
"We expect the bidding process to draw out over several
weeks and rake in total proceeds of 4.7 billion euros,
representing a considerable burden for the industry," they wrote
in a note.
Deutsche Telekom shares rose 0.5 percent, Telefonica
Deutschland shares slid 0.4 percent and Vodafone shares rose 1
percent by 1131 GMT.
The auction gives the network operators the chance to be the
first in Europe to operate spectrum in the low-frequency 700
megahertz (MHz) band that was used to carry the analogue signals
of regional television stations before the switchover to digital
These longer wavebands have further reach in terms of
distance and deeper penetration of buildings than the higher
frequencies currently used by mobile network operators so that
winners of the auction will have to promise there will be almost
no "black holes" in network coverage.
FAST FIXED LINE BROADBAND
Meanwhile the German government has earmarked the proceeds
of the auction for fostering the development of a fast
fixed-line broadband network, which Transport and Digital
Infrastructure Minister Alexander Dobrindt has said will be one
of his top priorities in the coming years.
Germany's broadband network was one of Europe's fastest
before the costly 3G auction in 2000 left the mobile operators
saddled with debt and disinclined to invest in infrastructure.
Deutsche Telekom, the only one with a national fixed-line
network, had little competition at the time.
But in the meantime, cable companies such as Liberty
Global's Unitymedia and Vodafone's Kabel Deutschland
- who have been consolidating their own networks - have been
snapping up subscribers wanting faster internet speeds.
Less than a fifth of German households had a broadband
connection faster than 10 megabits per second (Mbit/s) as
recently as last year, a study published by the United Nations'
International Telecommunication Union (ITU) on Tuesday showed.
France and Korea topped the list with 35.7 and 38 percent of
The auction takes place in former military barracks that
have been turned into an office for the German telecoms
Delegates of the three mobile operators have been escorted
into secured rooms, where they communicate via dedicated
datalines and encrypted messages with their headquarters.
At headquarters, management is locked up in safe rooms, with
no laptops and mobile phones allowed to minimise the risk of
collusion, and the bidding process will follow the principle of
the so-called simultaneous multiple round auction (SMRA).
Bidders are able to see bids from the competition to make
the process as transparent as possible, said Ruediger Hahn, the
regulator's project leader for the auction.
($1 = 0.9189 euros)
(Additional reporting by Georgina Prodhan; Editing by Greg
Mahlich and Susan Thomas)