August 13, 2018 / 1:07 PM / a year ago

UPDATE 1-United Internet to consider German 5G licence bid if terms are right

* Eyes becoming 4th mobile network operator via 5G round

* National roaming, with arbitration, a precondition - CEO

* Q2 EBITDA rises 32.4 pct, in line with expectations

* After adjusting for 1&1 Drillisch deal, EBITDA +10.8 pct

* GRAPHIC: Mobile market share 2017: reut.rs/2MGQUFD (New throughout with CEO interview)

By Douglas Busvine

FRANKFURT, Aug 13 (Reuters) - United Internet would consider bidding in Germany’s 5G mobile spectrum auction next year, CEO Ralph Dommermuth told Reuters, if the regulator creates the right conditions for it to become the country’s fourth network operator.

Such a move could disrupt Europe’s largest telecoms market and would mark a big step-up for Dommermuth, who in a 30-year career has built United Internet from scratch into a business worth more than $10 billion.

This would only be feasible if the Federal Network Regulator (BNetzA) allows national roaming - which would allow a new entrant to rent network access where it lacks coverage - and can rule on any commercial disputes that may arise.

“If no agreement about fair prices can be reached in commercial talks on national roaming, then a neutral third party should decide,” Dommermuth said in an interview, proposing that the BNetzA should rule on such disputes.

Market leader Deutsche Telekom opposes admitting a fourth operator, with CFO Thomas Dannenfeldt saying last week that extra competition would make it harder to invest.

Dommermuth said he couldn’t follow that logic, adding that countries with better mobile networks than Germany’s - such as Italy or Britain - typically had four players.

Deutsche Telekom committed 5.4 billion euros ($6.14 billion)to capex in Germany last year - more than all of its competitors combined.

United Internet, which invested just 200 million euros, says however that it spent 1 billion euros more to rent capacity from other operators, helping them to cover some of their own costs.

FROM VIRTUAL TO REAL

United Internet, in which Dommermuth owns 40 percent, spans internet services and has a growing presence as a virtual mobile network operator thanks to a merger last year that created its 1&1 Drillisch unit.

1&1 already has guaranteed access to 30 percent of Telefonica Deutschland’s network capacity under European Union remedies applying to Telefonica’s 2014 merger with E-Plus that created Germany’s No.3 mobile player.

But, Dommermuth said, an operatorship would enable United Internet to tailor its offering of applications better to suit its network.

The BNetzA is due to publish proposed terms for the 5G auction next month. Another key consideration would be whether licence fees have to be paid up front, as has been the case in Germany until now, or in instalments.

“I can’t say today that if roaming is fair, we are in,” said Dommermuth.

“I can say that if roaming is fair, we will look at the other conditions and examine what’s there. If it’s affordable we would go to the auction because we would like to deepen our value chain.”

Also vital are coverage commitments, he said, given that the frequencies up for grabs - of 2 Gigahertz and 3.6 Gigahertz - have a relatively short range, making them suitable for urban but not rural networks.

Deutsche Telekom, Germany’s No. 2 player Vodafone and Telefonica are all expected to bid in the 5G auction round, but are lobbying for terms that would ease up-front costs so that they can plough more cash into building out their networks.

The government raised around 50 billion euros in an auction for 3G network licences back in 2000. A more recent auction round, for 4G frequencies, raised 5 billion euros in 2015.

Germany’s 5G strategy is mainly focused on supporting industrial applications such as the Internet of Things (IoT), seen as vital for defending its export competitiveness.

United Internet earlier posted a 32.4 percent rise in core profits in the second quarter, in line with analysts’ expectations. After adjusting for the 1&1 Drillisch deal, profits rose by 13 percent. ($1 = 0.8791 euros)

Editing by Maria Sheahan and Adrian Croft

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