They reached a binding preliminary agreement with Vodafone for a long term national roaming partnership.
The contract starts at least by 1. Oct. 2024 and will last 5 years. 1&1 has the right to renew it 2 times for an additional five years and there will be a three year transition period after the contract ends. This means the contract can last until 2040 if 1&1 draws its renewal options.
1&1 will have full access to Vodafone’s network including 5G and newer technologies.
1&1 pays a fixed amount per percentage point usage of Vodafone’s network. Price changes going forward will orientate themselves on Vodafone’s network cost.
1&1 needs regulatory clearance to operate two networks in parallel.
My Assessment:
If everything works fine the new agreement secures 1&1 from the catastrophic scenario of a network rollout failure. There are uncertainties about the exact price conditions of the agreement and if 1&1 secures regulatory approval. (probably likely)
Therefore it is too early to celebrate especially since 1&1 profitability might suffer in case their pricing conditions are unfavorable.
This is likely to some degree in my opinion given 1&1 bad negotiation position. (They needed that deal).
1&1 antitrust case against Vodafone and Vodadone’s new CEO might have helped them to reach an agreement.
It is mentionable that Vodafone had an agreement with 1&1 before to help with the construction of 1&1 network but failed to deliver.
What will happen with the old national roaming agreement with Telefonica remains an open question.
We will get more information tomorrow during the 1&1 Q2 2023 report.
Nevertheless, i think the contract is an important step and I increased the position by 50%. (subject to further reflection)
Update: While 1&1 is rising on the news, Telefonica Deutschland stock is dropping.
In light of the development, Telefonica confirmed its 2023 outlook and said,
" Independent from today’s 1&1 announcement to co-operate with Vodafone on national roaming, 1&1 has contractual obligations with Telefónica Deutschland under the existing MBA MVNO/4G National Roaming Agreement until 30 Jun-25."
" This ensures revenue streams for Telefónica Deutschland. Telefónica Deutschland can use valuable network capacity becoming available for own or other partner’s customers."
But it looks like they are disappointed since they were open for such national agreement as its CEO said in the Q2 2023 earnings call,
“Telefónica Deutschland is offering 5G national roaming on a voluntary basis to interested parties, so our commitment stands.”
-Telefonica CEO was responding to an analyst who asked,
" And secondly, you’ve previously said that if there is a 5G national agreement on the table for one and one, you would analyze it. Have there been any increased discussions on this topic and how keen would you be on an agreement? Presumably there are benefits if it locks in longer-term cash flows."
In view of the new national roaming partnership between 1&1 and Vodafone, analyst Usman Ghazi of Berenberg maintained 1&1 buy rating and price target of 38 euros.
"1&1 can now make 5G offers, is strategically on the safer side and does not have to expand its own network beyond the legally required extent, " he wrote.
It’s said that Fritz Joussen, a former executive of Vodafone who they hired as a consultant at the end of 2022 helped broker the new national roaming deal.
Ralph Dommermuth has also been described as a schrewd negotiator.
Interesting insights. As far as I remember Dommermuth said the conditions of the contract are similar to the conditions they have with Telefonica. There were no specific questions asked though about the conditions of 5G which has not been included in the Telefonica contract? @Aron
The new contract with Dommermuth’s mobile operators explicitly includes 5G roaming. “This is reflected in the conditions,” according to people close to the negotiations, and probably means that 1&1 is willing to pay significantly more for access to 5G.
And what’s more: unlike Telefónica, the agreement provides for “exclusivity.” This means that Dommermuth will be tied to the partner from Düsseldorf for at least the first five years of the agreement, which can be extended in stages to up to 18 years. A new short-term exchange of partners is therefore ruled out for the time being, at least until 2029.
Accordingly, 1&1 announced on Wednesday - in parallel with the conclusion of the contract with Vodafone - that it intends to apply to the Federal Network Agency for an extension of parallel operation. Whether the regulator, which has already initiated fine proceedings against 1&1 following Dommermuth’s violations of the 5G expansion requirements, will agree to this, however, is considered at least questionable in the scene.
Yes, they gave pricing for the deal in general and no specifics on 5G. I think what this article is referring to is the cost for developing Vodafone’s 5G, which shall be contributed by 1&1.
Deutsche Telekom CEO Timotheus Höttges said Vodafones deal with 1&1 was not the right move and that 1&1 is the only winner.
“I’m surprised Vodafone is doing this”, He said during Deutsche Telecom’s earnings call. “I don’t know how desperate [Vodafone] are, but I think there was no reason. I don’t understand how this pricing works, but the winner is clearly 1&1. ”
A few months after the signing of Vodafone-1&1 agreement, O2 Germany approached Freenet for a similar partnership. Freenet said discussions were positive, so probably O2 Germany is desperate. This further proves how important 1&1 was to Telefonica and gives them some power in their discussions with Vodafone. Additionally, I think it makes Telefonica aware of their mistakes, offering a welcoming hand in case 1&1 was to asked them for another deal [1].
It also seems that O2 Germany is now under the control of its parent. They are undertaking a number of strategic changes that involve delisting from the German market. For instance they want to reduce operation cost and having unused network capacity wouldn’t help. That gives 1&1 some leverage in their current discussions with Vodafone [2].
During Q3 2024 (quarter ended December 2023) earnings call, Vodafone said it expects 1&1 to bring incremental revenue to their business from the second half of 2025:
" In the second half year, though, this will start to be moderated by the pickup of the national roaming agreement with 1&1 which will start to bring us some incremental service revenues and that will then come to full fruition."
Vodafone added that the contract they already entered with 1&1 is binding.
“Contract, just to be very clear, we have agreed on binding heads of terms already a long time ago. What we’re currently working is for the detailed schedules of the long-form agreement and that shouldn’t take too long to finalize. But it is, as you will appreciate from more tech requirements perspective quite detailed and precise and that’s why we are close to finalizing it, but not yet fully final, but the heads of terms are binding.”
Their contract press release said the deal will contribute to their cash flow from 2026.
Assessment
The fact that Vodafone’s 2024 earnings are pegged on benefits from 1&1 roaming presents another reason why Vodafone may not try to play games with the agreement if 1&1 doesn’t get the low-band frequency.
According to Handelsblatt [1], problems at Vodafone Germany persists. Customers remain dissatisfied due to network failures at its “cable fiber optic” while employees morale continues to diminish following layoffs.
Senior managers are also dissatisfied with the company’s lack of control. It’s argued that decisions are made in Group’s headquarters in London. For instance, a public statement from its German boss Rogge has to be approved in London.
According to insiders, the deal with 1&1 is also causing confusion. They say that the deal was negotiated directly with Volkswagen Group boss Margherita Della Valle in England and Rogge was only there in a “supporting role”.
Insiders term 1&1 as a “free rider” that would leave them with more costs than benefits in the end.
According to Teltarif [1], there have been speculation in the industry circles for some time now that Ralph Dommermuth could ultimately buy Vodafone Germany.
There were fake rumours in February that Vodafone could be taken over by an American telecom firm [2].
Apparently, Rogge left Vodafone at the end of March this year [3].
I only now realize the drastic changes that Vodafone is undergoing.
They exited some of their most central businesses in Italy and Spain and have a merger in the U.K. They also want to establish a platform model that offers others access to “shared services” including roaming. In a video I found Vodafone CEO Della Valle said she is all about partnering.
Could you have a deeper look into this?
If it is indeed their strategy to share services like roaming that makes 1&1 an even more important customer to this strategy.
We could also briefly examine the prospects of Dommermuth buying Vodafone, but without much knowledge of the topic, I would say it’s probably unrealistic because 1&1 or United Internet lack the resources to do so.
They already had the “shared services” business which offers services like roaming to its global customers.
But under Della Valle they are partnering with Accenture to make the business more agile and efficient.
Accenture is investing €150m for a minority stake in the Vodafone Intelligent Solutions (VOIS) joint venture.
At the MWC24, Della Valle said Europe Telecom industry needs more consolidation in the supply of 5G and a shift from spectrum fees to investment in the networks (minute 11:24).
In my opinion, that’s a very remarkable video for the whole telecommunications industry for the reasons outlined here.
Regarding 1&1 and the Vodafone Deal, the section in min 22:12 is most interesting. In it Della Valle outlines that there should not be competition on infrastructure by too many competitors because it is not economic to build the same infrastructure many times in parallel.
Instead, there can be consumer-facing competition by many brands that share the same infrastructure.
This is totally in line with the national roaming contract that Vodafone has with 1&1.
In addition I think the additional freedom for consolidation that was demanded by CEOs is overall good for 1&1 because it increases the likelihood for an acquisition. (Although I still believe that it is not that likely that 1&1 could either be sold or acquire another company for reasons discussed here and here)
In their Q4 2024 earnings call, Vodafone signaled that they may not extend their partnership with 1&1 beyond the national roaming agreement.
We’re happy with the deal we have today with 1&1 which as you know is a very long-term deal and partnership with 1&1. It’s established for up to 18 years. And as part of that we will effectively carry the traffic for the – I think €13 million now 1&1 customers wherever 1&1 will not build its network. So from that perspective, we will need our spectrum to answer your question, and so that’s what you should expect," CEO Della Valle said in response to an analyst who asked if they are willing to share the spectrum with 1&1 following BnetzA’s draft consultation report.
“Let’s not forget, that through the NRA, we have given, 1&1 a very long-term planning security and I think that’s a significant contribution,” CFO Luka Mucic added.
Nothing on the low band spectrum. On the contract with Vodafone, CEO Marcel de Groot recently said they want to increase their mobile coverage in Germany to 95% by March 2025 from the current 92% in anticipation of customer migration from 1&1. In some way that may indicate the negotiations are going on well. Otherwise, no formal communication or insights on the conclusion of the contract.
“Because we are preparing our network for Germany’s largest mobile migration. We are bringing around 12 million cell phone users into our network. This is an important growth driver for us,” he said.
1&1-Vodafone deal yet to be finalized but technical testing has began
Vodafone CEO Margherita Della Valle told analysts in Q1 2025 earnings call that the national roaming agreement with 1&1 is yet to be finalized with only two months remaining before the launch.
“The final fully fledged hundreds of pages contract not yet. Obviously, we are working on the back of a committed end of terms but lots of details and still fine-tuning,” she said.
She, however, said that they expect the national roaming agreement to contribute to Vodafone’s revenue in Q3.
“Nothing specific except from the fact that you should expect the revenue to start to become material in the second quarter – sorry, in Q3,” Della Valle responded to an analyst who asked when they expect to finalize the contract.
Della Valle also pointed out that technical testing of the migration has begun.
“In terms of timelines, we are going through technical testing now. So the network is ready or is being ready, let’s say, with this – it’s a small number of customers for now in a friendly user environment, but the testing has started,” she said.
She remarked that she has no concerns over the technical aspects of the deal, adding that they have been improving their network in readiness of the migration.
“I was mentioning earlier about the improvements that we actually see in our network performance across fixed and mobile and you can rest assured that it’s a key priority for us to be what would the rating say, externally on mobile so a very good level, and keep improving year after year. So this is not a concern,” she said.
Group Chief Financial Officer Luka Mucic pointed out that the migration will probably take a year to complete.
" I think you can assume that it will take us about a year to move to the full capacity and the full run rate…it will be a gradual move, because as you said it’s a large number of customers who cannot do that all in one go," he said.
Thank you for those insights.
I had hoped for more progress esp. on the contract.
The fact that it is not ready yet might either indicate simply the technical complexity to finalize it or ongoing negotiations on last details which could lead to a situation in which the final details of the contract are (a bit) worse compared to what 1&1 originally hoped for?
What is your assessment of the overall situation. Can you remind me how long 1&1 has to fully migrate away from the Telefonica MVNO & NRA?
Does everything appear to be fully in line with timelines and requirements?
