FRANKFURT, May 27 (Reuters) - Germany starts an auction of radio frequencies for mobile phone network operators on Wednesday, hoping to fill state coffers with billions of euros which it plans to use to help improve the country’s fast broadband network.
But analysts expect the auction to raise only a maximum of 4 billion euros ($4.4 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 and 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 a fiercely competitive auction between former state monopoly Deutsche Telekom, Telefonica Deutschland and Vodafone unlikely, 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 billion euros.
Nevertheless 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 transmission.
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 in the auction will have to promise there will be almost no “black holes” in network coverage.
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.
Ironically a small return from the auction will limit the German government’s scope to steer investment in the country’s broadband network, which 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 more infrastructure.
As a result cable companies such as Liberty Global’s Unitymedia and Vodafone’s Kabel Deutschland 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, trailing countries such as Hungary, Portugal and Spain.
France and Korea topped the list with 35.7 and 38 percent of households respectively.
The auction, expected to run for some weeks, takes place in former military barracks that have been turned into an office for the German telecoms supervisor.
Delegates of the three mobile operators will be escorted into secured rooms, where they will communicate via dedicated datalines and encrypted messages with their headquarters.
At headquarters, management will be 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 will be 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.
Neighbouring Austria, in contrast, used a method designed to maximise uncertainty about rivals’ bids in its 2013 spectrum auction, which raised more than 2 billion euros, far exceeding expectations and making it the priciest auction per head of population in a country of just 8.4 million. ($1 = 0.9184 euros) (Editing by Greg Mahlich)