May 9, 2019 / 6:02 AM / a month ago

Deutsche Telekom slams cost of 5G auction as revenues lag at home

FRANKFURT (Reuters) - Deutsche Telekom slammed the cost of Germany’s auction of frequencies for next-generation mobile services, as first-quarter results showed its domestic business lagging in comparison with its U.S. and European operations.

FILE PHOTO: Brochures with the logo of Deutsche Telekom AG are pictured at the shop in the headquarters of German telecommunications giant in Bonn, Germany, February 19, 2019. REUTERS/Wolfgang Rattay/File Photo

Germany is now seven weeks into its 5G auction, which has drawn total bids of 5.7 billion euros ($6.4 billion) for spectrum that can help run ‘connected’ factories and provide fast mobile broadband to the home.

After more than 300 auction rounds, the pace has slowed to a crawl as Deutsche Telekom and its three rivals wrangle over one last 10 Megaherz (MHz) block of the 420 MHz up for grabs - a result, its CEO said, of the regulator’s decision to curb the amount of spectrum on offer.

“This could have been over 100 rounds ago,” Chief Executive Timotheus Hoettges told reporters on a call.

He nonetheless signaled Telekom’s resolve to come out on top: “We as market leader will get the spectrum we want, and will keep bidding enthusiastically.”

Hoettges’ complaints came as Deutsche Telekom reported a first-quarter revenue gain in Germany of just 0.6 percent, lagging a 2.8 percent rise in the rest of Europe and an increase of 7 percent, in dollar terms, at U.S. unit T-Mobile.

By comparison, competitor Telefonica Deutschland reported a revenue rise of 0.7 percent. After adjusting for the impact of regulation, revenues at Spanish-controlled Telefonica rose by 1.3 percent.

Telekom reported a 4 percent gain in adjusted core profits to 5.9 billion euros. It confirmed guidance that they would reach 23.9 billion euros for 2019 as a whole.

Operators in Germany have been irked by the regulator’s decision to award 100 MHz of 5G spectrum directly to industrial firms to run factories and campuses. They argue this leaves them facing an artificial scarcity.

By contrast in Austria, where Deutsche Telekom recently acquired Liberty Global’s UPC unit, it paid 57 million euros for spectrum and 5G services are already being rolled out to consumers, said Hoettges.

Telecoms industry association GSMA warns that auctions designed to maximize proceeds to the state will make it harder for operators to invest in 5G network upgrades, leaving Europe lagging other regions in connectivity.

“We’re seeing a worrying trend of badly run spectrum awards that could seriously impact the potential of 5G before we get started,” said Brett Tarnutzer, GSMA’s head of spectrum.

U.S. DEAL IN THE BALANCE

In the United States, where T-Mobile has 81 million mobile users compared with 49 million at Telekom’s German and European businesses, T-Mobile has ample spectrum assets and continues to gain market share.

Yet despite its growth under CEO John Legere, T-Mobile still lacks the scale to which it aspires. It is in the final stages of a years-long quest to merge, as regulators review its $26 billion takeover of smaller rival Sprint.

Hoettges said he expected clarity on the fate of the deal by early June, after some officials in the U.S. Department of Justice expressed concerns it would be bad for competition.

He declined to weigh the odds on approval but said: “We have no Plan B for America because we want the deal.” T-Mobile has flagged it would launch a $7 billion buyback if the deal is blocked.

Returning to Germany, Hoettges criticized a deal in which Vodafone would open up its cable network to Telefonica - a sop to win the approval from European Union regulators for its $22 billion takeover of Liberty assets in Germany and Central Europe.

He said this would sap momentum from the buildout of fiber-optic networks - a key priority of the Berlin government as it sets its sights on creating a hyperconnected ‘Gigabit’ society by the middle of the next decade.

“I don’t think this initiative will solve the fundamental problem,” said Hoettges. Deutsche Telekom shares traded narrowly lower on the day in Frankfurt.

Reporting by Douglas Busvine; Editing by Rashmi Aich and Mark Potter

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